Allowing Indian banks to sell life insurance policies under "open architecture" or freeing banks to sell products of more than one life insurer, would increase insurance penetration as in the case of several countries, said a senior official of Nippon Life Insurance.
"Many countries in the Asia Pacific region allows open architecture for bancassurance (banks selling insurance) channel. Nippon Life has around 300 bancassurance partners and gets 17 percent of the new business premium," Kazuhide Toda, Asia Pacific head of Nippon Life Insurance International Business told IANS over phone from Mumbai.
Nippon Life holds 26 percent stake in India's Reliance Life Insurance Company Ltd.
"The Indian market offers good potential for life insurers as the penetration level is not high. Countries like Japan, China, Korea have allowed bancassurance channel under open architecture," he said.
According to him, it will be easier to reach life insurance cover to different people under an open architecture bancassurance model.
Toda said for the model to succeed, insurers should have a different set of products for this channel which are simple to understand by the prospects.
He said in Japan single premium, whole life policies are sold through banks and hence the average premium per policy (APPP) would be different from other distribution channels.
"In India the average ticket size of life insurance policies sold by banks differ based on their clientele profile. The APPP sold by private banks will be higher as compared to non-private banks. The ticket size depends on the kind of focus that the bank has," Anup Rau, CEO, Reliance Life told IANS.
The Rs.9,500 crore bancassurance channel, accounts for 15.6 percent of the industry individual new business premium and 43.6 percent of the private sector's new premium, he said.
Of this, government-run banks account for around Rs.1,000 crore and the balance is from private banks.
The life insurance industry in India registered an individual new business premium of Rs.60,000 crore in fiscal 2013-14, he said.
"Open bancasurance architecture has the potential to double life insurance market in India in next five years. Open bancassurance architecture can add Rs 60,000 crore in individual new business premium and over 50 million in customers in life insurance space in next five years," Rau said.
According to industry estimates, public sector banks with over 400 million bank accounts, have achieved just over one percent insurance penetration in these accounts, that is, only four million account holders have insurance, he said.
"If the insurance penetration in customer accounts with public sector banks alone was to jump to 15 percent with an average premium of Rs.10,000 per year, the additional premium will be around Rs.60,000 crore," he said.
With the government allowing 49 percent foreign direct investment (FDI) in the insurance sector, open bancassurance architecture will have a huge positive impact on existing players and new entrants, noted Rau.
He said while the central government's intention is clear in favour of bancassurance open architecture, the individual banks have to follow through.
India is losing out on a phenomenal growth opportunity by following a one-bank-one-insurer policy with only 25 percent of the around 175,000 bank branches (commercial and co-operative) engaged in selling insurance.
Industry experts told IANS that the legal framework should be created so that banks can represent several insurers.
The recently-passed insurance ordinance allows one agent to represent only one insurer.
In India, banks act as corporate agent of insurers.
