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Notably, insurance companies with no bank tie-ups are looking forward to it. “Choice will open up for customers and this is the biggest advantage,” says Yateesh Srivastava, chief operating officer, Aegon Religare Life Insurance.
Under the existing regime, banks act as corporate agents, under which they can sell only limited products - such as products of one life and one non-life insurer. If banks choose the broking model, customers will get more options. More important, the onus will be on them if there is mis-selling, again a big advantage for customers.
The RBI guidelines are also tight. “A robust internal grievance redressal mechanism should be put in place along with a Board-approved customer compensation policy for resolving issues related to services offered. It must also ensure the insurance companies whose products are being sold have robust customer grievance redressal arrangements in place. Further, the bank must facilitate the redressal of grievances,” says the RBI note.
Explaining the advantages of the new move, Vineet Patni, chief distribution officer with Bharti AXA Life Insurance, says: “Today, a bank is attached to the insurance provider rather than the customer. But as a broker, the bank can offer a product that is closest to the customer’s needs.”
Shashwat Sharma, partner (management consulting) at KPMG India, says, not many banks are doing detailed financial need analysis of their customers and are trying to push products that are not suitable for them. As brokers, banks have to be careful before selling anything and should have a clear policy at the board level.
However, the number of banks opting for the broker route is likely to be small. The chairman and managing director of a southern India-based public sector bank says he is not in favour of the broking model, though it is beneficial for customers, because of his bank’s existing joint venture (JV) with another life insurer. “My life insurance JV is a small one and does not offer as many products as say, LIC (Life Insurance Corporation of India). So, if a customer of mine wants a product of LIC, I am not able to sell it,” he adds.
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According to him, while this model will bring in a lot more transparency, the challenge for banks will be to get the business model and governance right.
Another reason that most banks might not voluntarily become brokers, according to KPMG’s Sharma, is because it means opening themselves for scrutiny of both RBI and Insurance Regulatory and Development Authority of India.
With the insurance penetration on the decline, many feel that given the branch strength of many banks, especially public sector lenders, things could improve if the overall pie expands. Life insurance penetration in 2013 stood at 3.10 per cent of gross domestic product, down 150 basis points from the high of 4.6 per cent in 2009. Even non-life penetration is marginally up at 0.80 per cent in 2013, compared to 0.78 per cent in 2012.
