IRDA evaluating fresh norms for banks as insurance agents

Insurance sector regulator IRDA is evaluating fresh norms for banks to act as intermediaries for insurers, following recent changes in law brought through an ordinance by the government.

This follows RBI's decision last week to allow banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies.

The banks have also been allowed to set up subsidiaries and joint venture companies for undertaking insurance business with risk participation.

RBI said that they can act as corporate agents without seeking prior approval from the RBI, but they will have to comply with the applicable IRDA guidelines.

IRDA norms currently put a cap of business an insurer can source from single broker within the same promoter group. As of date, if the broker and insurer belong to the same promoter family, the broker can only source upto 25 per cent of its total business for the insurer within the same promoter group.

Since the new ordinance puts banks and brokers in the same category, some amount of cap may also be extended to banks as well, sources said.

Under existing bancassurance guidelines, a bank can act as a corporate agent and sell policy of only one life insurer and one non-life insurance company.

But, the new guidelines will allow banks to act as brokers permitting them to sell insurance policies of different insurance companies.

As per the changes made through the Insurance Ordinance, the categorization of Banks (Corporate Agents), brokers and agents has been altered and all of them have been now termed as Insurance Intermediaries.

Interestingly, with the change in the ordinance - wherein both Corporate Agents and Brokers are now termed as Insurance Intermediaries - all intermediaries can seek partnership with multiple insurers.

"The new regulation seems to have ended the one-bank one-insurer relationship, something the regulators have been wanting to change in the interest of the consumers.

"Enabling guidelines from IRDA will help banks partner with multiple insurers and offer better range of products that are best suited for the customer," a top executive at a leading private sector insurer said.

The regulator has always felt that the distribution system should be tilted towards the interest of the consumer and not towards the insurer.

The present system of Bancassurance forces the banks to sell products of one insurer to multiple consumers which also encouraged mis-selling.

IRDA is now expected to come out with supporting guidelines restricting the amount of business one bank can source for a single insure. This would be a significant change considering that over 50 per cent of business is sourced by insurers through their Bancassurance partners.

This change is expected to significantly benefit insurers that do not have a major bank alliance partner. These include Reliance Life Insurance, Exide Insurance, Future Generali, Birla, Bajaj, Aegon Religare, Bharti Axa, Shriram Life and Sahara Life.

On the other hand, insurance player like HDFC, ICICI, SBI and Max have a major part of their business coming from Bancassurance partners.