The much-awaited bancassurance guidelines might take some more time to come out. The regulator is considering the reaction to certain issues, such as protests from bank-backed insurance companies and the Life Insurance Corporation of India (LIC).
The bancassurance report, which came out in June, recommended that banks be allowed to tie-up with two types of insurance companies (life and non-life) for distributing insurance products.
Bank-backed insurance companies are protesting against the opening up of the channel, allowing banks to sell products of more than one insurance company. Some feel the channel, if at all, should be opened for only two companies. New entrants opine that banks should be allowed to sell products of multiple insurance companies.
LIC, the largest life insurer, is particularly against opening the channel. While it has a tie-up with at least 20 banks across the country for selling life insurance products, it says if more than one insurer is allowed to tie-up with a bank, it might lead to a “highly questionable business practice”.
“There is no easy solution to the debate on whether the bancassurance channel should be opened up. We in LIC still feel it is advisable to have a tied-agency system with one insurance company, rather than two. If banks are allowed to tie-up with more than one insurance company, then the most likely situation would be evolution of a highly questionable business practice and competition, as had happened in the case of the mutual fund industry,” said Sushobhan Sarkar, executive director (international operations) of LIC.
“It requires a huge amount of commitment from both the insurers and the banks to set up a successful bancassurance partnership. To that extent the Indian financial system has not matured and, in our opinion, banks should be allowed to tie-up with one or, at the most, two insurance companies,” said M N Rao, CEO of SBI Life, promoted by the country's largest lender, State Bank of India.
“Most bank-promoted insurance companies are against opening the sector, as it might start a commission war,” said K Sahay, CEO of Star Union Dai-ichi Life Insurance Co, jointly promoted by Bank of India and Union Bank of India.
There is also the issue of upfront payments and on equity, which, after protests from banks led by Punjab National Bank (PNB), the insurance regulator might allow. This means banks might be allowed to treat payments and discounts on equity separately, rather than treating it as an advanced commission.
The draft report recommended that any upfront payments or equity discount offered by insurers to banks be treated as advance commission and amortised within three years of the deal. “This could have an effect on future deals, so the regulator is seriously examining it,” said sources. The issue is important, in the wake of the proposed deal between PNB and Metlife, which saw the bank getting nearly Rs 750 crore as discount.