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The Insurance Regulatory and Development Authority of India (Irdai), in its exposure draft on licensing of corporate agents, has said they cannot get more than 90 per cent of business from one insurer in one category (of life, general or health) in the first year. The cap would limit the maximum business to 75 per cent in the second year, 60 per cent in the third, and 50 per cent in the fourth year.
Clarity on the provision is being sought by insurance companies, as they would have to rewrite shareholder agreements with exclusivity clauses, if it comes into effect. The companies could also seek to increase the cap of the fourth year to 75-80 per cent.
Exclusive tie-ups of a bank and insurance company as a corporate agent would be a thing of the past. The insurance regulator proposes to allow banks to tie up with a maximum of three insurers each from life, general and health segments.
“Both the banking and insurance regulator have brought out guidelines for distribution of insurance products by banks. However, while the Reserve Bank of India (RBI) says banks may either become insurance brokers or continue as agents, Irdai norms would mean a bank will have to offer products of at least one other insurer,” said a senior sector official.
According to current laws, corporate agents (like banks and non-banking financial companies) are allowed to tie-up with only one life insurer, one non-life insurer and one standalone health insurer.
In January, RBI had also brought out guidelines enabling banks to become insurance brokers. The central bank said a bank can enter insurance broking only if the capital to risk (weighted) assets ratio is 10 per cent or above and the level of net non-performing assets is three per cent or below.
The chief executive of a life insurer with a large bank partner explained that while an open architecture in insurance will be beneficial, banks cannot be forced to tie up with more than one insurer in each category.
“Each bank has its own business proposition. Making it mandatory to do business of more than one insurer may not be sustainable. Moreover, several shareholder agreements have explicitly stated the bank will only sell their subsidiary insurer’s products. This will have a direct impact on new business premium collection of those insurers,” he said.
The regulator has proposed the registration of a corporate agent failing to comply with these norms be suspended or even face cancellation of licence, apart from financial penalties. All existing corporate agents would have to register afresh and apply for a licence to Irdai if the new norms are finalised.
This year the size of the bank-led insurance business market is set to cross Rs 10,000 crore led by a strong growth in sales of unit-linked insurance plans. Here, the private banks reported a stronger business than public sector banks.
Industry officials said that some joint ventures have been set up and foreign partners have come on board only on the basis of the fact that they will have a bank promoter or group bank who will solely sell their products. "It is a risky business model and JVs would have to reconsider their shareholder agreements," said the chief distribution officer of a bank-led private life insurer.
The companies will approach the regulator and also put forward their request through the Life Insurance Council on either having a maximum cap of 80% from one insurer or giving them atleast 8-10 years to implement the 50% cap rule.
Insurance companies, who entered the sector at a later stage, did not have any bank to tie-up with, since most banks were either promoters of insurance companies and were selling only the subsidiary's products or had already tied up with one insurer in each category. These newer insurers then approached cooperative banks and regional rural banks for tie-ups.
Irdai has said that there would be three categories of corporate agents who can be licensed, Corporate Agent (Life), Corporate Agent (General), Corporate Agent (Health) and Corporate Agent (Composite). In each category, the corporate agent is allowed to sell maximum of three insurance companies' products.
