)
The department, under the finance ministry, has questioned the rationale of insurance companies tying up with banks on a geographical basis and wants wider consultation with stakeholders.
The draft regulation had proposed a zonal system of bancassurance. Under this, the country was to be divided into three zones, and a bank could tie up with only one insurance company for a minimum of 10 regions and a maximum of 20. The three zones are divided into 40 regions.
This meant banks had to tie up with a minimum of two insurance companies. In a communication to Irda recently, DFS said the exact purpose and rationale for taking up bancassurance on the geographical basis needed further discussions and clarity. It also suggested insurance penetration be increased through bancassurance in other ways rather than “disrupting the corporate agent arrangement on zonal basis”.
Insurance companies have been pushing for the bancassurance guidelines to be revised to allow one bank to tie up with up to five insurers as a corporate agent. Irda is expected to address the issue in its final bancassurance guidelines.
Independent insurance companies, which do not own a bank, say the draft regulation is an improvement over the current rule, where an insurance company can tie up with only one bank across the country each for life, non-life and health insurance. But they argue it still does not provide choice to customers. “So, say, if you are in Mumbai which is one region a consumer does not get any choice except one. So, it does not materially change the position for customers. ” says a top executive of an insurance company.
They also complain that with banks asking for huge premium from insurance companies (as high as Rs 1,000 crore) to be their exclusive corporate agents, this was leading to mis-selling.
The move to permit banks to act as insurance brokers to increase insurance penetration was one of the key announcements by Finance Minister P Chidambaram in his last Budget speech. So, if a bank is allowed to act as a broker, it means, it can sell products of multiple insurance companies, while currently it can function as a corporate agent of one bank.
According to the premium collection data of Indian insurers, 70-75 per cent premium was generated from life insurers with bank partners in FY13.
The proposal to allow multiple tie-ups has already been presented to the Life Insurance Council. The proposal states a separate section in the Corporate Agency Regulations for Bancassurance needs to be included, which will allow a bank to tie up with at least five insurers, with not more than 25 per cent share per insurer.
There are other regulatory hurdles, too. The Reserve Bank of India had said banks assuming the role of insurance brokers could lead to a conflict of interests where the bank was also the promoter of an insurance company.
“It’s desirable that banks may act as ‘brokers’ where the fiduciary responsibility of the bank will be to the policy-holder. As insurance broker, the bank may sell the products of more than one insurance company. This will provide the intended policyholder a bouquet of products from which he/she may chose the appropriate product based on his/her needs and will also prevent mis-selling,” Chidambaram had said in February this year.
