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Once banks start submitting their business proposals with bancassurance plans, Insurance Regulatory and Development Authority of India (Irdai) may insist on them tying up with more than one insurer.
The regulator has done away with an earlier proposal on capping insurance business from one insurer by a bank. But now, industry sources said it may nudge banks to open up to at least one more insurer, in each category.
ALSO READ: IRDAI removes cap on business from one insurer for banks
In an earlier draft of the rules released by Irdai a few months ago, banks were asked to cap business from one insurer to 90 per cent in the first year, and consequently to 50 per cent later after four years or more.
While the new draft has made the wait longer for those insurers without a bank partner who were hoping that they could tie-up with banks, sector experts say there is still opportunity.
“At a time when banks submit a business proposal about their insurance activities, we understand that the regulator may ask them to tie-up with at least more than one insurer,” said the chief executive of a bank-promoted insurer. He added that this would be a more appropriate mechanism than asking banks to put caps.
At present, banks are allowed to tie-up as a corporate agent with one life, one non-life and one standalone health insurer. In its new draft, Irdai has said banks can tie-up with up to three insurers in each of the above category.
Large banks which promoted insurance companies had approached the finance ministry with concerns that mandatory caps restricting business from one insurer would have a significant impact on their valuations. They had requested the regulator to reconsider the cap, since otherwise they believed that this would impact the flow of foreign direct investment that would come into their insurers on the virtue of them having a bank partner.
In the previous draft, Irdai had said no corporate agent (including banks) can get more than 75 per cent of the premium from any one insurer in the second year and 60 per cent in the third year. From the fourth year onwards, it said that this limit should not be more than 50 per cent.
Banks have also expressed interest to tie-up with public sector insurers including Life Insurance Corporation of India (LIC) and the four public general insurers apart from the existing tie-ups that they have.
"If we are asked to tie-up with other insurer, we would like to choose public sector insurers," said the executive director of a public sector bank. "The regulator has given an option to choose whether they want to remain as a corporate agent to one insurer or tie-up with more than one insurer.
Insurers had asked insurers to give in their views on this draft by June 4. Sources said that the final regulations would be brought out in the next few days and could be implemented from the next quarter onwards.
