Banks may get to court 2/3 insurers

The committee set up by the Insurance Regulatory and Development Authority (Irda) to frame new rules for bancassurance is expected to recommend allowing banks to sell the products of two or three insurance companies, as against only one now, in line with international best practices.

Sources said the panel would incorporate learnings from China, which follows an open architecture model for insurance distribution.

Boston Consulting Group and Swiss Re have already submitted their recommendations on the Chinese bancassurance model, the sources said, though this could not be confirmed from Irda.

“We are examining what is best for the industry and will come up with suitable guidelines,” a top Irda official said.

Meanwhile, DNA spoke to industry mandarins on what they feel would be best for bancassurance, which currently accounts for a quarter of all insurance sales.

Rajagopalan Krishnamurthy, managing director, insurance and financial services, Watson Wyatt Worldwide refrained from commenting on the issue as he is a member of the committee.

He, however, said sales of insurance products at bank counters need to take place with a far higher sense of responsibility and ownership on the part of the bank personnel than at present. “The current situation, where banks are seen as selling insurance products to customers without bothering to undertake a proper analysis of their insurance needs, or maintaining proper records to this effect, and often ‘gently’ pushing unit-linked products on borrower customers for amounts beyond their premium-paying capacity does not augur well for the orderly growth of bancassurance.”

According to Krishnamurthy, there are recent instances in markets such as Singapore and Hong Kong where banking and insurance regulators have substantially tightened bank sales of insurance products following faulty sales practices.

Mayank Bathwal, chief financial officer, Birla Sun Life Insurance feels the industry would benefit from changes in the bancassurance guidelines in the medium to long term.

“Considering the complexity of life insurance products, in our view, the relaxation of open architecture model for a bank should be limited to two insurance companies. We welcome the proposed changes, as it’s our belief that right products and competitive pricing can help one stay ahead of the curve,” said Bathwal.

Max New York Life, which has a strong agency channel, believes it is important that banks be allowed to distribute products of more than one life insurance company. “This will offer wider choice to customers. Moreover, bancassurance provides a jumpstart, as the distribution set up is almost ready for launch as compared to agency distribution, which has a slow build-up,” V Viswanand, director and head - bancassurance and DST, Max New York Life said.

SBI Life is open to multiple partnerships. “For the present, we have a single insurance company. Our customers link themselves to SBI and SBI Life.” M N Rao, CEO, SBI Life said. “As the market matures, there can be other partners and in that case we will market ourselves with other banks.”

ICICI Prudential Life has a network of six bank partners, over 100 corporate agents and brokers. “In fact, we have the largest bancassurance, corporate agency and broker tie-ups in the life insurance industry. Today the bancassurance model contributes a very substantial portion to our overall business and going forward it will continue to be our focus,” said Anup Rau, senior vice president and head - sales, ICICI Prudential Life.

According to Samir Bali, partner, financial services, Ernst & Young, the take-off of the bancassurance channel has been rapid as insurers have been quick to tie up with multiple banks. “However, the sales processes and their effectiveness are still in nascence and differ significantly for different categories of banks,” said Bali.

While there are strong reasons to allow banks to sell insurance policies of more than one company, as is allowed in mutual funds, the case for a bidding war, wherein a bank calling for insurance companies that offered the best rates could emerge. There could also be cases where a bank promotes a bunch of insurance companies that offer the highest commissions to sales agents.