Public-sector banks' bancassurance growth slows amid core banking push

FM, ex-Irdai chairman had raised concerns over misselling

Amid growing concerns about misselling through the bancassurance (banca) channel, public-sector banks (PSBs) have scaled back their insurance sales efforts, leading to a slowdown in growth through banca for life insurance companies in 2024-25 (FY25). 

 

In contrast, life insurance companies affiliated with private-sector banks have nearly doubled their growth through the banca channel in the same period.

 

According to industry estimates, growth in the banca channel of life insurers backed by PSBs slowed from 7 per cent in FY24 to 6 per cent in FY25, with growth in March slowing to just 2 per cent.

 

Banca channel growth for life insurers with private banks was healthy at 15 per cent in FY25. But in March, growth was only 7 per cent. In the previous financial year, growth through this channel was 8 per cent.

 

“There is a marginal drop in growth of PSB-led insurance companies due to (a) slowdown in PSB banca business, owing to changes in incentive schemes and scorecards for bank employees for selling insurance,” said a chief executive officer of a private life insurer.

 

“State-owned banks do not really have a concept of incentives for their employees directly for selling insurance products. However, earlier there were some banks that were giving considerable commissions or some rewards along with other incentives. Now, they have totally stopped it. Also, RBI (Reserve Bank of India) has asked banks to focus more on their core business and insurance is more of our customer service business. This is likely to have resulted in some slowdown,” said a senior PSB official.

 

Banca channel growth for some PSBs, including Punjab National Bank, Canara Bank, and Union Bank of India in FY25 was in low single digits. For State Bank of India (SBI), Bank of Baroda, and Bank of India, it was in double digits.

 

This comes after Finance Minister Nirmala Sitharaman and Insurance Regulatory and Development Authority of India (Irdai) Chairman Debashish Panda flagged concerns about misselling of insurance products by banks at the SBI Conclave in November 2024. Irdai had also formed a task force to review the banca framework amid complaints of misselling and forced-selling.

 

At the conclave, the finance minister had asked bankers to focus on their core business and avoid misselling insurance policies, pointing out that many a time, this also indirectly increases the cost of borrowing for bank customers.

 

According to a bank official, some PSBs have realigned their strategies and are now focusing on core business. They have also reduced certain incentives offered to their employees. Although generally, commission for added services like insurance and mutual funds are offered to banks, some lenders used to give incentives to employees which has been changed.

 

According to another insurance official, there has been a slowdown in the banca business of PSBs in the past one-and-half years because footfall in banks has come down as customers prefer to buy insurance online.

 

“We have to find a digital solution to counter it. The banks have put checks and balances, including video PIVC (pre-insurance verification call) to prevent misselling. Banks have undergone changes to counter misselling concerns,” the official said.

 

According to analysts, if distribution by bank partners slows, smaller insurance companies will have to diversify to other channels while the bigger bank-led insurance companies already have a diversified channel mix. 

Tumultuous phase

 

> In FY25, growth in banca channel life insurance sales was in low single digits for some PSBs

> However, this growth was healthier at 15% for private banks 

> Slowdown partly attributed to changes in incentive structures for public sector bankers  > Moreover, many customers are switching to online purchase of policies 

 

(With inputs from Subrata Panda)