'Regulator should derecognise banks as corporate agents'

Banks should be allowed only as insurance brokers and not as agents of insurers in order to protect customer's interest, said a top official of Reliance Life Insurance Company.

"The IRDA (Insurance Regulatory and Development Authority) should derecognise banks as corporate agents. Banks are to be allowed only as insurance brokers and not as agents," Anup Rau, chief executive officer told reporters here Thursday.

The IRDA and the Reserve Bank of India have come out with guidelines for banks to act as brokers of insurance companies.

Currently banks are corporate agents for insurers. A bank can act as an agent for only one insurer. Further many banks have floated their own insurance companies and distribute the products.

This has resulted in a situation where new insurers are not finding banks as one of their distribution channels.

Bancassurance (banks selling insurance policies) channel contribute nearly 50 percent of the business for major private life insurers.

Rau said India is the only market where a bank can sell the products of only one insurer.

"In the present circumstances no bank will voluntarily move to insurance broking unless it is mandated or IRDA derecognises banks as corporate agents," he added.

According to him, large organisations like banks should represent the interests of customers by being brokers than being the agent of insurance companies.

He said six insurers control around 80 percent of the bank branches and around 55,000 bank branches have not sold even a single insurance policy.

According to him, if banks turn into brokers selling products of more than one insurer then there will be more number of branches selling insurance policies which in turn would increase the insurance penetration.

According to Rau, last month RBI has brought out guidelines for banks to become insurance brokers.

"The stringent norms like Rs.500 crore networth and the three percent limit on NPA (non-performance assets), being profitable for last three years and others will make more government owned banks ineligible to turn into insurance brokers," he said.

Finance Minister P.Chidambaram in his 2013-14 budget proposals announced that banks will be permitted to act as insurance brokers.

IRDA through its regulations brought out in August 2013 permitted banks to form verticals within banks and apply for insurance broking license subject to RBI permission.

"Banks are perhaps in a comfortable position now as corporate agents and referral partners of insurance companies earning sizeable income without having to do much or take any risks. It is therefore not clear whether they will bite the bullet and become brokers where they will have to assume risks of professional liability as brokers," K.K.Srinivasan, former member of IRDA told IANS.

He said violations of regulations also entail the double whammy of losing their broking license from IRDA and getting punished by RBI.

"The draft also proposes stringent punishment by RBI of banks for violation of its guidelines or IRDA's rules regarding insurance broking like raising of reserve requirements, withdrawal of refinance facility by RBI and denial of access to money markets," Srinivasan added.