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The Insurance Regulatory and Development Authority of India (Irdai) has asked insurers to pursue an open architecture model in bancassurance.
In a meeting between the insurance regulator and industry players in Hyderabad on Thursday, T S Vijayan, chairman of Irdai, said guidelines to facilitate this would be issued soon.
“The insurance regulator had allowed banks to become brokers a long time back. However, the response wasn’t there,” said an insurance player at the meeting. Irdai had issued guidelines for banks as brokers in August 2013.
Said another: “The Irdai chairman has strongly recommended that banks work as brokers to increase the penetration.”
Penetration in life insurance has been steadily declining in recent years. According to data from Swiss Re, between 2009 and 2013, life insurance penetration declined from 4.6 per cent to 3.1 per cent. For general insurance, the rise has been marginal, from 0.78 per cent in 2012 to 0.80 per cent in 2013.
“There are various ways in which this can be implemented. In some countries, an insurance company is allowed to sell five-six insurers’ products. In others, commissions from our own subsidiary are capped to encourage sales of other insurers’ products. Realising the importance of the banking distribution system, we had thought of dividing it geographically, in which one insurer can sell one company’s product in only a certain region,” said J Hari Narayan, former Irdai chairman.
He, however, believes the open architecture model might be good for banks but not necessarily for customers.
This is on the heels of the Reserve Bank of India’s guidelines of January 16, that banks may become insurance brokers and sell multiple products. According to the norms, 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. RBI had also doubled the net worth requirement to Rs 1,000 crore, double the Rs 500 crore proposed earlier.
At present, bancassurance follows a corporate agent structure. This allows banks to sell insurance products of only one life, one general and one health insurance company each. Open architecture is when a single bank is allowed to sell products of multiple insurers from the same sector.
In the recently-promulgated insurance ordinance, the government has brought corporate agents within the definition of ‘insurance intermediary’, in line with brokers. “Insurance intermediary includes insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors, and such other entities as may be notified from time to time by the Authority,” said the ordinance. Corporate agents were not defined as intermediary in the earlier definition.
The call for open architecture has gathered momentum in the past couple of years, as several late entrants did not have a bank to tie-up with. Former finance minister. On December 20, 2013, a letter from the finance ministry, addressing public sector bank chief executives, said all these lenders should become insurance brokers.
In a meeting between the insurance regulator and industry players in Hyderabad on Thursday, T S Vijayan, chairman of Irdai, said guidelines to facilitate this would be issued soon.
“The insurance regulator had allowed banks to become brokers a long time back. However, the response wasn’t there,” said an insurance player at the meeting. Irdai had issued guidelines for banks as brokers in August 2013.
Said another: “The Irdai chairman has strongly recommended that banks work as brokers to increase the penetration.”
Penetration in life insurance has been steadily declining in recent years. According to data from Swiss Re, between 2009 and 2013, life insurance penetration declined from 4.6 per cent to 3.1 per cent. For general insurance, the rise has been marginal, from 0.78 per cent in 2012 to 0.80 per cent in 2013.
“There are various ways in which this can be implemented. In some countries, an insurance company is allowed to sell five-six insurers’ products. In others, commissions from our own subsidiary are capped to encourage sales of other insurers’ products. Realising the importance of the banking distribution system, we had thought of dividing it geographically, in which one insurer can sell one company’s product in only a certain region,” said J Hari Narayan, former Irdai chairman.
He, however, believes the open architecture model might be good for banks but not necessarily for customers.
This is on the heels of the Reserve Bank of India’s guidelines of January 16, that banks may become insurance brokers and sell multiple products. According to the norms, 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. RBI had also doubled the net worth requirement to Rs 1,000 crore, double the Rs 500 crore proposed earlier.
At present, bancassurance follows a corporate agent structure. This allows banks to sell insurance products of only one life, one general and one health insurance company each. Open architecture is when a single bank is allowed to sell products of multiple insurers from the same sector.
In the recently-promulgated insurance ordinance, the government has brought corporate agents within the definition of ‘insurance intermediary’, in line with brokers. “Insurance intermediary includes insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors, and such other entities as may be notified from time to time by the Authority,” said the ordinance. Corporate agents were not defined as intermediary in the earlier definition.
The call for open architecture has gathered momentum in the past couple of years, as several late entrants did not have a bank to tie-up with. Former finance minister. On December 20, 2013, a letter from the finance ministry, addressing public sector bank chief executives, said all these lenders should become insurance brokers.
