Irdai may limit insurance companies' overdependence on parent banks

The Insurance Regulatory and Development Authority of India (Irdai) is likely to bring in regulations to limit the overdependence of life insurance companies on their parent banks for business sources through bank channels, sources said.

 

Irdai also plans to encourage diversification across multiple distribution channels to ensure balanced growth across the industry. Although the companies can continue to focus on certain channels where they have strength, diversification would be an ideal, sources added.

 

If insurance companies have the strength of a parent bank, they should use it. However, the companies should not continue using it for a long time. The regulator has been sending out messages and will give an exposure draft, seeking comments from stakeholders before coming up with regulations, the sources further added.

 

Bancassurance is a partnership between banks and insurance companies to sell insurance products through bank branches. In October 2023, Irdai formed a task force to review the existing bancassurance framework and improve the efficiency of the same amid complaints of mis-selling, or forced selling of policies.

 

Recently, both Finance Minister Nirmala Sitharaman and Irdai Chairman Debasish Panda expressed concerns about mis-selling, or forced selling of insurance products via banks and stressed the need to restore customer confidence in the system while urging lenders to focus on their core banking services. 

 

Sitharaman had said: “I wish to say this for the due consideration of the bank boards. Sale of insurance by banks has raised concerns of instances of mis-selling and I would say this has contributed indirectly to cost of borrowing for customers. So, banks will have to look at this, look at their core banking activities, and not burden customers with insurances they don’t require.”

 

Recently, reports suggested that Irdai is concerned about the share of insurers’ business coming through the bancassurance channel, and that it could impose a cap on the share of business insurers can source through banking channels at 50 per cent. However, major listed private life insurance companies denied being aware of any such discussions through their stock exchange filings.

 

SBI Life Insurance, in an exchange notification, said: “As part of our regular interactions and consultations with Irdai, we have not been made aware of any such regulatory discussions regarding the level of insurance business being channelled through bancassurance arrangements.”

 

In a similar statement, HDFC Life said, “As an organisation, we believe that regulatory changes of such significance are typically preceded by detailed industry consultations.”

 

In the first half of the current financial year (H1FY25), SBI Life, which is backed by State Bank of India (SBI), derived 60 per cent of its business from the bancassurance channel; ICICI Prudential Life Insurance, backed by ICICI Bank, received 29 per cent; and HDFC Life, backed by HDFC Bank, derived 65 per cent of its business from this channel.

 

Other listed life insurers, including Life Insurance Corporation (LIC) of India, sourced 4 per cent of their total businesses through bancassurance channels while Max Life Insurance received 52 per cent of its business through the same channel. Max Life is a subsidiary of publicly-listed Max Financial Services.