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The Insurance Regulatory and Development Authority (Irda) said on Thursday banks should obtain prior approval of the Reserve Bank of India (RBI) before applying for a licence to act as an insurance broker.
In its notification on licensing banks as insurance brokers, Irda said banks should apply under the direct broker category. The licence, once granted, will be valid for three years. There is no requirement of capital for entities licensed under this particular regulation.
To qualify for the licence, each bank will have to have the principal officer - an officer of general manager or equivalent category, who is appointed exclusively to carry out functions of an insurance broker.
Irda said such banks cannot have more than 50 per cent of the premium from one client. The notification adds: "Not more than 25 per cent of insurance handled by the insurance broker in any financial year is placed with the insurance company within the promoter group, separately for life and general insurance business."
Irda said that as an eligibility criterion, the applicant should have two persons who have 100 hours of theoretical and practical training from an institute recognised by it and have passed the examination at the end of the training period from recognised bodies. Such licensed brokers will have to mandatorily take professional indemnity insurance.
According to the regulation, such insurance brokers (banks) have to maintain separate accounts for insurance broking business and Irda can appoint appropriate officials to investigate into the books of accounts of such brokers.
"Any dispute arising out of insurance transactions, the jurisdiction of the Authority (Irda) shall prevail and the laws applicable to insurance contracts shall be enforced and information in this regard shall be furnished to the Reserve Bank of India," it said.
In his Budget speech this year, Finance Minister P Chidambaram had said banks will be permitted to act as insurance brokers. However, this statement came at a time when Reserve Bank of India (RBI) had expressed concerns against these draft rules.
RBI in its half-yearly Financial Stability Report had said that the existing regulations did not permit banks to become insurance brokers. RBI had also said that banks assuming the role of insurance brokers may also lead to conflict of interests.
In June this year, Irda had said that it was exploring the possibility of allowing banks to become insurance brokers. Its earlier drafts had proposed zonal structures of banks tying up different insurers in different zones.
Under the current rules, banks cannot tie up with more than one life, non-life and health insurer each to sell their policies. Insurers have demanded an open architecture for bancassurance, so that companies that do not have a bank partner can tie up with them to distribute their products. According to the premium collection data of Indian insurers with a bank partner in FY13, nearly 70-75 per cent premium was generated from partners.
