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The Reserve Bank of India (RBI) is likely to issue guidelines soon to allow banks to act as insurance broker with a view to boost business and arrest decline in insurance penetration.
“RBI is likely to finalise the norms by next week. The notification will be issued thereafter,” a senior central bank official said. Under the existing bancassurance guidelines, a bank can act as a corporate agent and sell policies of one life insurer and one non-life insurance company.
The new guidelines seek to allow banks to act as a broker permitting them to sell insurance policies of different insurance companies.
Finance Minister P Chidambaram in his Budget speech (2013-14) had said, "Banks will be permitted to act as insurance brokers so that the entire network of banks' branches will be utilised to increase penetration of insurance."
During the first decade of insurance sector liberalisation, the sector has reported consistent increase in insurance penetration from 2.71 per cent in 2001 to 5.20 per cent in 2009. However, since then, the level of penetration has been declining and reached 3.96 per cent in 2012.
In order to enable banks to leverage their branch network for increasing insurance penetration, it has been decided to permit banks to undertake insurance broking business departmentally, RBI said in draft guidelines issued in November, 2013. Every insurance broker will, before the commencement of the business, deposit and keep deposits with any scheduled bank a sum of Rs 50 lakh, guidelines had said.
“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,” it had said.
The finance ministry has already asked all public sector banks to switch to the broker model from the existing corporate agency structure for distribution of products. “The present model of corporate agency selling of insurance by banks may be dispensed with and each banks may train and orient its staff to implement the finance minister's Budget announcement in earnest,” finance ministry said in a circular. "Public sector banks may join insurance broking business in order to increase insurance penetration and avoid mis-selling of insurance products," it said.
As per the circular, banks have been asked to report compliance and progress on the issue by January 31.
