Likely to be allowed to have two partners for every insurance segment.
Banks are likely to be allowed to have tie-ups with two sets of insurance companies — in life, non-life and health insurance segments — to increase insurance penetration in the country.
According to the recommendations of the committee set up by the Insurance Regulatory and Development Authority (Irda) on bancassurance, banks can rope in two partners each in life insurance, non-life insurance (excluding health), health insurance, Export Credit Guarantee Corporation and Agriculture Insurance Company of India. The proposal, if implemented, would boost insurance companies, which were demanding such a system to broad base their distribution network.
Currently, a bank can tie up with only one life insurer and a general insurer to sell insurance products to its customers.
The Irda committee, which was set up in May 2009, also suggested the tenure of the agreement between bankers and insurers should not be less than five years. Currently, this tenure varies between one and three years. The committee said bank staff should be trained in handling insurance products to ensure that the sale is transparent and the features of the product are disclosed to the policyholder. “There is a need to strengthen the certification criteria for bank sales personnel for selling health insurance, unit-linked insurance plans, pension and other complex products,” the report said. Only bank branches with trained ‘specified persons’ would be allowed to sell products of multiple insurers.
“Currently, many bank branches selling insurance products do not have specified persons, according to the regulatory requirement. The specified persons have more than one branch in their jurisdiction and are available on a part-time basis at each of the branches. This lowers the regulatory comfort of sales. It may not be possible to have a specified person for every branch immediately. The bancassurers shall market insurance products only in branches in which a specified person is posted,” the committee said.
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“The move would result in more choices to customers. However, there are certain issues like agents pushing products which offer higher commission. How these pan out in the future, remains to be seen,” said P Nandagopal, managing director and chief executive, IndiaFirst Life.
Since the committee favours specific bank staff sell insurance products, it also recommended the referral system for the bancassurance channel to be abolished. “It is observed that the referral model is costlier than the corporate agency model. Obviously, an inequitable relationship between the banker and the insurer has resulted in this sort of an innocuous arrangement, which ultimately reflects in higher premium on the policyholder,” it said.
Under the referral model, the insurer establishes the infrastructure in the bank premises, along with the personnel, and approaches potential customers during a visit to the branch. In a bid to prevent mis-selling, insurance products would be sold on a 'need analysis' basis, according to Irda's prescribed format. “The features of insurance products, when sold as part of a package of banking and insurance products, must be clearly and transparently explained by the bank staff,” the report said.