Banks will have to go the subsidiary route if they wish to sell more than one insurance company's products, said Insurance Regulatory and Development Authority (Irda) chairman N Rangachary. Banks have been lobbying with the regulators to be permitted to act as brokers and sell products of various insurance companies.
"This calls for minimum capital, training and guarantees, as well as a separate account, which will be open for scrutiny by the regulator (Irda)," said Rangachary. In the present scenario, where the cap on foreign ownership in brokerage arms has been placed at 26 per cent, this will mean foreign banks will not be allowed to act as brokers. The RBI has also lately not been too keen on Indian banks setting up additional subsidiaries, and has even asked financial institutions like the erstwhile ICICI to curtail the number of subsidiaries. In this light, analysts feel that few if any bank, will qualify to be brokers.
The IRDA chief was speaking at a two-day national conference on bancassurance, organised by FiK International in Mumbai, where he expressed concern over various issues in banks venturing into the distribution of insurance products. As an insurance broker, banks will be penalised for mis-selling products as they would have to look into the interests of the customer, even as they are paid by the insurance company.
In such a situation, Rangachary questioned whether banks would be willing to take the chance as they would be held responsible for mis-selling products, and be penalised as is the scene in the case of insurance companies reported for mis-selling.
In light of various concerns, the regulator stated: "Possibly we will have to create a situation where the concept of bancassurance is confined to selling straight, vanilla products".
Earlier during the day, Watson Wyatt managing director Richard Holloway spoke of how can initially start with simple products, and work upwards to sell more complicated products. While the Irda does not have anything against this, Rangachary outlined the legal provisions that limit the facility of bancassurance in the country. The Banking Act has a secrecy clause that prevents them from sharing information of clients' database. "Banks might face a situation where after taking consent of the customer, the client might take the bank to court," he explained.
Further, in light of many public sector banks having gone for voluntary retirement schemes last year, Rangachary questioned whether they have the capacity to set up a brokerage/agency business.
"The fundamental question is that at the time of claim settlement, whether banks will be at the forefront. If so, they will need to have sufficient strength and technical knowledge as well as the time since settlement of claims can take as long as two to three years. This requires a lot of commitment and preparedness to fight for the client," he added.
