Insurers rush to finalise tie-ups with niche banks

Bancassurance deals are expected to be finalised in the next few weeks

Insurance companies are rushing up to finalise tie ups with payments banks and small finance banks to sell their insurance products via these new channel. While it is not clear whether they would be incorporated into the corporate agency channels, these niche banks' branch network will be used to sell products.

This comes at a time when there were apprehensions expressed by the insurance regulator saying that these tie-ups with these niche banks may not be very successful. The chief executive of a mid-size life insurance company said that there were doubts earlier whether the regulator would give a nod to tying with these specialist banks since their processes and operations would differ from those of a large bank. "We now have begun talks and tie-ups would be finalised in the next few weeks. However, in the beginning only pure term and endowment products would be sold and based on the response we would launch unit-linked insurance products and mediclaim policies at a later stage," he said.

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• Insurance regulator had expressed reservations on these tie-ups
• In the beginning, only pure term and endowment products would be sold
• Unit-linked insurance products and mediclaim policies will be launched at a later stage
• Bank employees selling insurance will now be responsible for the policies they sell

However, now the talks between the insurance companies and payments banks have begun and the deals are likely to be finanlised in the next few weeks. Nilesh Sathe, member-life, Insurance Regulatory and Development Authority of India (IRDAI) said that more than 40 banks including those who are promoters of insurance companies have expressed interest to follow open architecture. However, they are yet to make a formal request to do so.

Earlier, banks were allowed to sell products of one life, one non-life and one standalone health insurer. It is expected that the same norms will also be applicable to payments banks and small finance banks as well.

Arijit Basu, MD & CEO of SBI Life said that these banks offer a new opportunity to grow and that they are in talks with them for possible tie-ups. Insurance companies and their bank partners will be part of a new regime from April 1 when the new corporate agency norms come into existence.

The regulatory body has seen existing banks including private sector and public sector banks to open their branches to more than one insurance company in life, non-life and standalone health. From April 1, new norms for corporate agency channels will come into place which include banks, wherein they will be liable for all the products that they sell.

Rishi Gupta, Chief Executive Officer of Fino Paytech also confirmed that they have begun talks with insurance companies. "Selling of third-party products like insurance is one of the key revenue channels and that is why we have begun talks already. Since we already have ICICI Bank as partner we have started talking to ICICI Lombard and ICICI Prudential for a tie-up."

However, considering that the target customer base for these niche banks will be different, they will be mainly selling small ticket or vanilla insurance product.

"Our focus will be on selling products like two-wheeler insurance cover, mico-insurance, small ticket health insurance product," added Gupta.

Payments banks can accept deposits of up to Rs 1 lakh and offer current and savings account deposits. They can also issue debit cards and offer internet banking. But they are not allowed to lend or issue credit cards and therefore selling third party products will be an important revenue generator for them. On the other hand, Small Finance Banks will be similar to existing commercial lenders and will undertake basic banking activities such as accepting deposits and lending to the un-served and under-served sections.

Another niche bank players said that they are in talks with insurance companies and are looking at finalising the deal in the next month. "Considering that we will have a much deeper reach in the hinterland and far-flung areas where the existing players do not necessarily have a presence therefore it makes sense for the insurance companies also to tie up," said the top executive at another niche banks.

After the insurance industry opened up in 2000, the first ones in the private insurance space rushed in and established tie-ups with banks. Further, some were even promoted by banks including ICICI Prudential Life Insurance, SBI Life, IDBI Federal Life among others.

IRDAI has said that from FY17 onwards, bank boards will be required to give a clear plan as to how and by when would they open up their branch network to more than one insurer in each category-life, non-life and standalone health. This is because even after Insurance Regulatory and Development Authority of India (IRDAI) opened up the bancassurance network to more insurers, no bank has approached the regulator for additional tie-ups.

However, the regulator has clarified that each bank employee who sells insurance will be responsible for the policy that they sell. They can be called into question if there is any complaint of misselling on the policy that they have sold. Bank boards have also been asked to disclose the approach in having single or multiple tie-ups, the partners in the tie-ups, the business mix, the type of products sold, grievance redressal mechanism and reporting requirements.

Similarly, small finance banks and payments banks would also require their staff selling insurance to undergo some training on the products being sold. Such training programmes would be sponsored by the insurers they are tying up with.