The year 2015 saw a big push on distribution reforms from the Insurance Regulatory and Development Authority of India (IRDAI) with new norms on bancassurance, insurance marketing firms and common service centres. With insurance penetration still below 5 per cent of the Gross Domestic Product (GDP), these channels are expected to give the much needed push to the sector.
In September 2015, the regulator finalised the norms for corporate agents (like banks), which allowed them to tie-up with three life, three non-life and three standalone health insurers. Earlier, they were allowed to tie-up with one life, one non-life and standalone health insurer. Since several banks had already tied-up with insurance companies, those without tie-ups could not partner with banks to sell their products.
Soon, bank boards will be required to give a clear plan about how and by when would they open up their branch network to more than one insurer in each category - life, non-life and standalone health. This is because even while corporate agents like banks have been given an option to tie-up with up to nine insurers, it has not been mandatory. IRDAI's aim is to open up the network.
Sector officials say that while mandating it would have given access to more insurers, the channel will be gradually opened up.
The regulator did away with an earlier proposal on capping insurance business from one insurer by a bank. In the first draft on licensing of corporate agents, banks were asked to cap business from one insurer to 90 per cent in the first year, and to 50 per cent after four years or more. This move would have made all banks, including several public sector banks which had stiffly opposed this proposal, to mandatory tie-up with more than one insurer.
Here, banks will also be liable for the products that they sell.
The board also has to disclose the approach in having single or multiple tie-ups, the partners in the tie-ups, the business mix, the type of products sold, grievance redressal mechanism and reporting requirements.
Similarly, a new channel for selling insurance has been launched, called as Insurance Marketing Firms. Here, the regulator has said that Insurance Service Providers (ISP) can solicit and procure insurance Products of two Life, two General and two health Insurance companies at any point of time. The regulator has to be informed about the same.
With respect of general insurance, the Insurance Marketing Firm will be allowed to solicit or procure only retail lines of insurance products as given in the file & use guidelines namely motor, health, personal accident, householders, shopkeepers and such other insurance products approved by the Authority from time to time.
Insurance Marketing Firm is an entity to solicit or procure insurance products, to undertake insurance service activities and to distribute other financial products by employing individuals licensed to market, distribute and service such other financial products. An insurance marketing firm will have Financial Service Executive (FSE) and Insurance Sales Person (ISP). ISP is an individual employed by Insurance Marketing Firm to solicit or procure insurance products and who holds a valid certificate issued by the Authority for the purposes of the same.
The rural areas have also been taken care of. In its norms on Common Service Centres (CSCs), the regulator has said that insurers should develop insurance products to be marketed exclusively through the CSC Model and file such products with the Authority for approval. Here, the products developed for CSC Model shall not have the Sum Assured (per life or risk) exceeding Rs 2 lakh, except for motor insurance. Such products approved by the Authority for the CSC Model shall be marketed only through the CSC Model.