Is insurance selling by BCs the next step in financial inclusion?

The business correspondents' representative body has asked IRDAI to allow them to sell insurance products, particularly weather-indexed schemes to provide a safety net for rural buyers

The Business Correspondent Resource Council (BCRC) has asked the Insurance Regulatory and Development Authority of India (Irdai) that business correspondents (BC) for banks also be allowed to sell insurance products. Currently, the BCs' channel -- introduced in 2007 -- only offers last-mile banking services to urban and rural poor segments. 

The BCRC’s argument is that shocks from climate-related issues are affecting those at the bottom of the pyramid in a significant way. This presents an opportunity to sell weather-indexed insurance: policies designed to trigger payouts (livelihood support) based on specific weather conditions, such as low rainfall, extreme heat conditions, and similar climate events. The BCRC says such an approach will enable vulnerable sections of society better withstand climate shocks, providing a critical safety net in times of environmental uncertainty. 

The move comes on the heels of Irdai pushing its Bima Trinity -- Bima Vistaar, Bima Vaahaks, and Bima Sugam. The BC network, which is more than 5 lakh strong and has a nationwide footprint, can play a role even as offering insurance bolsters the earning capacity of field agents. 

The Council has also pointed out that the BC channel will be complemented by the 75 digital banking units (DBUs) set up by the Reserve Bank of India in April 2022, allowing for cross-selling between the two. DBUs are brick-and-mortar outlets equipped with infrastructure to execute banking functions such as opening of accounts, accessing government schemes, and making digital transactions. The number of DBUs has since risen to 96 as of mid-December 2023. 

As for climate change, according to a recent report from the Copernicus Climate Change Service, the year 2024 will be the warmest since 1940. October 2024 was also estimated to be the second-warmest globally, with average temperatures 1.65 degrees Celsius above pre-industrial levels. It was also the fifteenth month in a 16-month period where average temperatures were above the 1.5 degrees threshold set by the Paris Agreement. 

The latest move by BCRC must be read together with its request to the ministry of finance for an upward revision of the commission paid to agents, besides the setting up of an annual pricing review committee, and a re-look at penalties imposed by banks on BCs. BCRC is batting for a 30 basis point hike in the commission paid by banks for cash withdrawals, cash deposits, money transfers, Aadhaar-enabled Payment System (AePS) transactions, and other banking and financial business.

What’s in it for BCs  BCs can sell weather-indexed insurance along with plain vanilla products  It is argued such an approach will enable the vulnerable section of society to better withstand climate shocks  Irdai is pushing the Bima Trinity - Bima Vistaar, Bima Vaahaks, and Bima Sugam. And the 5L-strong BC network can play a role  By selling insurance, BCs can improve their earning capacity