In a radical move, the Insurance Regulatory and Development Authority (Irda) proposed to open up a bancassurance distribution channel, where banks would be allowed to tie-up with one set of insurance companies (life, non-life and standalone health insurance company), in one state.
This indicates, in a particular state, a bank would be allowed to sell insurance products of only one life insurance company, one general insurance company and one standalone health insurance company. However, in another state, the same bank can sell the product of any other life, non-life and standalone helath insurance company.
In the draft guidelines, to provide a level playing field for all insurance companies, Irda has divided all states and Union territories into three zones (A, B and C), based on the insurance penetration. Zone A consists of 13 states and Union territories, and an insurance company cannot have a tie-up with a particular bank in more than nine states in the zone. Similarly, in Zone B, an insurer is restricted to tie-up with one particular bank in six states.
This means, for instance, a life insurance company like SBI Life, whose bancassurance partner is State Bank of India (SBI), can have bancassurance tie-up with SBI Life in nine states of Zone A but would have to opt for different partners for the remaining four states in the zone.
However, an insurance company could have a same bancassurance partner for all the states under Zone C.
“We welcome the draft guidelines on Open Architecture and support this move. Allowing such a structure for distribution of insurance products through banks under a corporate agency would help customers and the insurance industry as a whole. With multiple tie-ups, banks would be able to offer optimum products to its customers. For example a bank can offer the best term product offered by one life insurer and the best pension product or child product offered by another life insurer,” said T R Ramachandran, CEO & MD, Aviva India.
The draft recommended that any upfront payments or equity discount offered by insurers to banks should be treated as advanced commission and be amortised within three years of the deal. The discount is defined as the difference between the market consistent embedded value and purchase value of the equity of the insurer.
Besides, Irda has capped the commissions to banks at 85 per cent of the commissions received by the individual agents.