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Tuesday, June 4, 2013

IRDA may tighten norms for banks selling insurance

Banks may find the going tough in distributing insurance polices. The insurance regulator may require them to renew at least half the life insurance policies they sell, failing which they risk losing the licence to distribute insurance products.

The renewal requirement is one of the recommendations of a committee set up by the Insurance Regulatory and Development Authority (IRDA) in order to curb mis-selling.

In 2011, IRDA had ushered in a minimum policy renewal criteria for individual insurance agents. The regulator directed insurance companies to terminate the contracts of agents who fail to get at least half the policies sold by them renewed in the subsequent year.

“We have noticed some instances of forced selling of insurance products by banks while advancing loans to customers. Hence, we are looking at calculating loss ratio (the ratios of premiums paid to the claims settled) in respect of business procured by banks so as to assess the quality of the business,” said a senior regulatory official.

“One of the factors that affect persistency is the after-sale service provided to the policyholder. Currently, large number of policies are left without being serviced after the policy is sold, resulting in the policies getting lapsed,” the official added.

According to IRDA data, in fiscal 2012, life insurers had to pay Rs 71,208 crore on account of surrender (withdrawal) of policies, of which, LIC paid Rs 41,531 crore and private sector insurers, the balance.

IRDA set up a committee to review the entire insurance brokers’ regulations in March, after a Union Budget announcement allowing banks to become insurance brokers.

“In the committee’s report to the regulator, we have suggested that in line with the requirement for individual agents, the persistency ratio in the case of life insurance policies sold through the bancassurance route should also be 50 per cent to ensure that servicing of policies by agents/ banks is sustained,” said a senior official from a life insurance company.

IRDA is in the process of finalising bancassurance guidelines and is expected to come out with the final report by August this year.

Source: thehindubusinessline


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