Bank-promoted life insurance companies have opposed the Insurance Regulatory and Development Authority’s (Irda) bancassurance committee recommendations. If accepted by the regulator, these will allow each bank to tie-up with two life insurance companies for selling life covers.
Early this month, the committee set up by Irda on bancassurance recommended that banks can rope in partners each in life insurance, non-life insurance (excluding health), health insurance, among other areas.
Currently, a bank can tie up with only one life insurer and a general insurer for selling insurance products to its customers. Bancassurance refers to banks selling insurance policies.
According to Irda data, of 80,000 bank branches in India, only 10,000 branches are used to sell insurance policies.
On the one hand, bank-backed life insurers such as SBI Life, ICICI Prudential Life, Star Union Dai-ichi Life are wary about what would happen if Life Insurance Corporation of India (LIC) tied up with their parent banks. On the other hand, LIC, the largest life insurer in the country, which has tie-ups with 12 banks for selling insurance, is apprehensive that such a move might impact its near-monopoly in the bancassurance channel.
“For instance, the State Bank of India (SBI) group has 18,000 branches (including associate banks). If LIC ties up with SBI, then the insurance behemoth will be able to leverage its vast network and increase its market share further,” said an SBI Life official.
Insurers are planning to take up the issue with Irda through the Life Insurance Council soon.
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“We are collecting the views of all insurers and will make a representation to Irda,” said a Life Insurance Council official.
“It is very difficult to discount foul play in the race to acquire customers. For instance, private players, specially new entrants, might lure away our customers from the banks by providing higher commissions and incentives. If a commission war starts, it will add to the cost of all companies,” said a senior LIC official, on condition of anonymity.
However, having two partners is optional and not binding for banks, some insurers said. “If the banks and the insurance company are happy with the existing relationship, then they might not rope in a second partner. It is optional for both parties, but as a whole, the recommendations are good for the industry,” said an official from ICICI Prudential Life, a joint venture between ICICI Bank and Prudential Plc of UK.
Some insurers feel the move might promote mis-selling, as bank staff might find it difficult to understand the complex products of two different companies and, in addition, inherent bias cannot be ruled out.
“Our internal discussions are still on and we will provide our inputs on the report to the council very soon,” said M N Rao, MD & CEO of SBI Life.
“Unethical practices to grab market share might creep in under such a scenario and with it will lead to mis-selling,” said K Sahay, CEO of Star Union Dai-ichi Life, a joint venture between Union Bank, Bank of India and Japanese insurer Dai-ichi Mutual Life Insurance Company.
According to Amitabh Chaudhry, MD & CEO of HDFC Life, banks could have a primary partner and rope in a secondary partner, where the later would complement the former in terms of product suit and reach.