Andhra Bank seeks nod for LIC trail commission

Andhra Bank, whose insurance venture with Bank of Baroda and Legal & General was launched today, has approached the regulator to protect the trail commission it stands to earn from its distribution tie-up with Life Insurance Corporation of India (LIC).

The bank, which has had a tie-up with LIC for the last four-and-a-half years, may lose out as under the norms, the trail commission can be paid only after a distribution alliance has completed five years. Mutual funds pay trail commissions to intermediaries for keeping clients invested in their funds.

The other option for Andhra Bank is to not hawk products of the new venture, IndiaFirst, which has received the final go-ahead from the Insurance Regulatory and Development Authority (Irda) and is slated to launch products by December-end. An Irda official said, “It is the regulator’s discretion. Since the bank is opening its own insurance venture, there can be a different treatment.”

Though the Insurance Act mandates a distribution alliance of at least three years for payment of trail commissions, Irda has increased the period to five years. This was to ensure a long-term relationship between the agency and the insurance company. The Irda official said it was mandatory for agents to get a no-objection certificate from the insurer before parting ways.

As an agent, the bank is eligible for commission throughout the tenure of policies. For certain policies, agents get around 40 per cent of the premium amount in the first year.

Bank of Baroda, the other bank partner in the venture, had terminated its bancassurance partnership with HDFC Standard Life Insurance Company from November 1, MD Mallya, chairman and managing director of Bank of Baroda, said.

BoB has 44 per cent stake in the venture, Andhra Bank has 30 per cent while Legal & General holds the remaining 26 per cent, the limit for foreign direct investment in the sector.

IndiaFirst Life Insurance, which has a paid-up capital of Rs 330 crore, including Rs 130 crore share premium, will initially sell products through the 4,500 branches of BoB and Andhra Bank. The promoters plan to increase the capital base to Rs 2,500 crore by 2015.

IndiaFirst Life, which is awaiting Irda’s approval for launching four products, plans to break even by 2014.