Zonal bancassurance tie-ups clause may stay

The controversial clause requiring banks to compulsorily tie up with insurance companies other than those promoted by them in several areas is expected to be retained in the final bancassurance guidelines.

Bancassurance refers to the arrangement through which a bank sells the products of a particular insurance company through its branches.

The draft guidelines, issued in November,  divide the country into 13 geographical zones.

Under the proposed rules, a bank can at the most tie up with a particular life, non-life and health insurance company in only nine zones. For the remaining zones, it will have to seek different partners.

This means even banks with  their own insurance entities will need to tie up with other  insurance  companies.

The Insurance Regulatory and Development Authority (Irda) is of the view that open architecture without geographical divisions will have no meaning and that smaller players will continue to be neglected.

“The insurance law says one agent (bank) for one insurance company. As per the provisions of current law, one insurer cannot have tie-ups with more than one agent. So, under the current circumstances, open architecture model without zonal bifurcations will be a violation of the law. So we need to wait how the amendment has been done in this front,” Irda chairman J Harinarayan said earlier this week.

“There will be a fundamental conflict when many agents are servicing the same insurance company,” the Irda chief stated. The prevailing insurance law, allows an 1:1 agency system wherein an insurer can tie up with only one bank. With the geographical division in place, those looking to up with more than one bank can do so, he said.

The final guidelines on bancassurance have been delayed as the some of the stakeholders --- specifically, insurance companies promoted by banks --- have been unhappy.

In fact, soon after the draft was released, Indian Bankers Association had also expressed its reservations on it.

Insurance companies, too, have submitted their views on the same through the Life Insurance Council. Big players who have pan-India banking partners are the ones mainly opposed to the move.

“The one major reason for delaying a final word on it is lobbying by the major players,” said a senior industry official.

As per industry sources, these insurance companies are hard at work to delay the draft guidelines till March next year when the current Irda chief’s tenure ends.