No forceful selling of insurance: Irdai tells banks

Corporate agents guidelines says they can tie-up with three life, non-life and health insurers each; not mandatory

Those opening accounts in banks or availing of other banking services have often been forced to buy insurance products. That will no longer be the case, as the Insurance Regulatory and Development Authority of India (Irdai), in its regulations on corporate agent registration, has said no customer can be asked to buy insurance mandatorily by corporate agents.

“Where the insurance is sold as an ancillary product along with a principal business product, the corporate agent or its shareholder or its associates shall not compel the buyer of the principal business product to necessarily buy the insurance product through it,” Irdai said. It added the chief executive officer and the chief financial officer of the entity have to give a declaration saying they haven’t forced customers to buy insurance through them alone.

The regulator has allowed corporate agents, including banks, to tie up with up to three life, three non-life and three standalone health insurers.

They can also apply as corporate agents only for life, non-life or health segments and sell products of up to three insurers in that category. In the general insurance category, they cannot procure and service products with a sum assured of more than Rs 5 crore per risk for all insurance. Insurance companies not promoted by banks are hoping banks offer more choice to customers. Anup Rau, chief executive of Reliance Life Insurance, said, “While we hope opening of the bank channel to more insurers will be mandatory, this is a good start. We are optimistic that people would be provided more choice by banks.”

Timeline: How the bancassurance saga unfolded

December 2013:

• Finance ministry sends circular to chief executives of public sector banks asking them to become insurance brokers
• Compliance to this circular and progress to be reported back to financial services secretary on January 31, 2014
• Industry divided over mandatory nature of circular. Non-bank promoted insurers laud the FinMin efforts, others concerned.

February 2014:

• Expert committee set up to decide on banks becoming insurance brokers

January 2015:

• RBI finalises guidelines for banks to become insurance brokers

March 2015:

• In draft norms on corporate agents, IRDAI says corporate agent (including banks) should reduce business from one insurer to 50%
• Faces stiff opposition from banks promoting insurers

June 2015:

• In revised draft, IRDAI removes caps and says banks can tie-up with up to 3 insurers in life, non-life and health

September 2015:

• IRDAI says no forceful selling by banks; can tie-up with three insurers in each segment-life, non-life, health
• No mandatory tying up
• Have to open up channel to other insurers in future

Currently, banks follow the corporate agency model, in which each they can sell products of a life, a general and a standalone health insurer.

In its norms, Irdai said those with tie-ups with more than one insurer in a business segment had to disclose to prospective customers the list of insurers with whom they had arrangements to distribute products. Other details such as the scope of coverage, the policy term, the premium payable and premium terms will also have to be provided to a customer.

Manoj Jain, managing director and chief executive of Shriram Life Insurance, said this would be an advantage for companies such as his, which had strong presence in tier-III and tier-IV areas.

“This is the first stage of opening up. We will first begin talks with non-insurance promoter banks. Once they enter into tie-ups, banks promoting insurers will also come forward to offer more companies’ products to customers,” he said.

Every corporate agent (like banks ) also has to be disclose its plan of adopting open architecture and its approach for the same. This, said insurers, would mean that all banks would have to tie-up with multiple insurers in the near future. Also, corporate agents will not be allowed to solicit unit-linked insurance plans (ULIPs) of non-single premium type for annualised premiums exceeding Rs 50,000 over telephonic mode (voice as well as SMS).