Banks reluctant to become insurance brokers

May not enter broking unless forced since risks are high, say experts

Bancassurance in the insurance sector could still be a dream, with banks unlikely to be willing to become brokers, as higher liability and lower revenue might dissuade them.

The Reserve Bank of India (RBI) has issued the final guidelines for banks to become insurance brokers. But the model entails higher liability and lower revenue. In addition, most public sector banks (PSBs) are saddled with non-performing assets (NPAs).

According to the RBI guidelines, the net NPA of a bank should be less than three per cent of overall assets to be eligible for insurance broking. Many PSBs will be rendered not eligible because of his clause.

According to bankers, their priority is now to tackle the rise in NPAs and improve bottomline, rather than venture into a new sector.

Private sector lender Axis Bank on Friday said it would not enter the insurance broking business. “Currently, we have an ongoing relationship with Max New York Life and at this time, we have no intent of becoming an insurance broker,” said the Axis management in a post-earnings conference call.

Bancassurance, which refers to banks selling insurance products, now follows a corporate agent structure. This means that banks sell insurance as a corporate agent and these regulations allow each bank to sell insurance products of only one life, one general and one health insurance company each.

  According to the final RBI norms, a bank can enter insurance broking only if their capital to risk (weighted) assets ratio is 10 per cent and above, and the net worth of the bank should not be less than Rs 1,000 crore, compared to Rs 500 crore mentioned in the draft guidelines.

Amitabh Chaudhry, managing director and chief executive officer of HDFC Life, said unless mandated to do so, banks might not be interested in becoming brokers. He added it is easier to be a corporate agent than a broker, especially as the bank would be liable for the policies sold in the latter model.

There was a call to have an open architecture of bancassurance in the insurance sector, since there were several late entrants in the market which did not have a bank to tie-up with. Almost all the private and public sector banks either have joint venture agreements or are corporate agents of insurance companies. ICICI Bank, HDFC Bank, Axis Bank and YES Bank, apart from State Bank of India, Punjab National Bank, Oriental Bank of Commerce and Canara Bank are corporate agents of companies. This restricts them from tying up with more than three insurance companies – one life, one non-life  and one standalone health insurer.

An existing JV agreement would restrain players from taking the broking route, said the chief executive of a mid-size private life insurer. “Once these banks become brokers, they would not be in a position to push products of their group companies. Private insurers, which get almost 60-70 per cent of their new business from these banks, might see a sudden slump if their parent bank becomes a broker. This is not something the shareholders would approve,” he said.

Due to these, banks have already tied up with existing players. Reliance Life Insurance and Edelweiss Tokio Life Insurance do not have a bancassurance partner. On the other hand, Canara HSBC OBC Life Insurance that has three bank partners depends fully on the bancassurance channel to procure business.

Rajeev Kumar, chief and appointed actuary at Bharti AXA Life Insurance, said the regulator could have a model wherein banks are able to earn higher revenues as brokers. “This will be an incentive for them to become brokers. While not all banks would want to become insurance brokers, even if one or two marquee players take this step, others may follow later,” he said.