Insurance Regulatory Development Authority (Irda) set to tweak bancassurance guidelines.
Insurance Regulatory Development Authority (Irda) is mulling tweaking bancassurance guidelines by asking banks to form separate subsidiaries to act as insurance brokers.
At present, banks can act as insurance agents and are allowed to sell products of only one insurer.
A broker status would allow them to sell products of multiple insurance companies.
The move comes after the announcement in the Union Budget that banks would be allowed to act as insurance brokers.
Bancassurance refers to tie-ups by banks to sell insurance products.
“The insurance industry has asked for clarity on permitting banks to act as insurance brokers. The regulator will allow banks to act as insurance brokers, but they will have to form separate subsidiaries for it,” said a senior Irda official.
Also, banks will cease to be agents and not be able to sell insurance products directly if they choose to be brokers.
The proposal of forming subsidiary for broking operations has been mooted by an Irda sub-committee which includes officials from Indian Banks Association and representatives from life and general insurance industries.
The committee is also looking into other operational difficulties in the model.
The requirements of subsidiary companies to be formed by banks will be notified later by Irda, the official said.
Bancassurance guidelines had earlier hit a roadblock following the Reserve Bank of India’s concerns on reputation risk associated with such a model of distribution.
Many banks are also unhappy with the idea of banks as insurance peddlers.
“If the subsidiary mis-sells insurance products, the onus and other errors will still come be on the bank,” said a senior official from a sector bank official.
There are profitability issues, too.
“Banks may not be interested to become brokers as per the suggested way as they will face operational difficulties. Also, the fee income from distribution will flow to the subsidiary. It may not be a profitable proposition for banks,” said G V Nageswara Rao, CEO, IDBI Federal Life.
Opening up the banking channel will help non-bank promoted insurers to strengthen their distribution base.
“It is a welcome move. But many questions need to be answered on the way of implementation and address the operational difficulties involved in the proposed model,” said Sandeep Ghosh, MD & CEO, Bharti Axa Life.
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