 "Non-bank insurers face the IRDAI challenge")
Non-bank insurance companies have wanted this for a long time. And now, they have got it. With the Insurance Development and Regulatory Authority of India (Irdai) asking banks to tie-up with a maximum of three players in life, general and health segments, more variety will soon be available for customers.
For banks, it may not be the easiest of times. While the cap of 90 per cent and 75 per cent of revenues from their own insurance arms may not be very difficult to beat, things will start getting difficult from the third and fourth years. With stringent limits of 60 per cent and 50 per cent, banks will be forced to sell products of other insurance companies more aggressively.
Banks and their insurance partners will not be very happy with this decision because Irdai is forcing them to sell products of competitors. It also impacts their valuations significantly because the joint venture partner may not be so interested in increasing their stake because of two sore points: It will not be the sole beneficiary of the partner’s branches. And after the insurance bill, they will anyway not have management control.
But a similar situation exists in mutual fund industry as well albeit without any cap on revenues from own joint venture’s business. Due to this, many banks barely sell mutual fund schemes of any other player. Worse still, some of them aren't able to sell their own schemes. Of course, Irdai’s move may encourage Sebi to go for similar guidelines for mutual funds as well, but they are food for thought for banks as and when or if it happens in the future.
Meanwhile, non-bank insurance companies have a tough road ahead. In the life insurance segment, the top five players control 75 per cent of the market while another 18 per cent is controlled by bank-controlled life insurance companies and non-bank insurers have only 7 per cent of the market. Life insurance penetration is only 3.1 per cent GDP. In general, GICs would be at 50 per cent whereas private sector players have 41 per cent. The rest is contributed by others. Clearly, non-bank insurers have a long way to go.
Now, that the regulator has given them the opportunity to expand their market share, they will need to make themselves visible through their performance, better claims ratio and other parameters. Otherwise, public sector units in the similar space such as LIC and GICs will gain further. Already there are talks that many bankers may find it easy to tie-up with LIC, at least in the initial years. It is a tough challenge for non-bank insurers.