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Saturday, July 27, 2013

IRDA bancassurance norms may be delayed

The Insurance Regulatory and Development Authority (IRDA) guidelines for tie-ups of insurance companies with banks for distribution of products may be delayed as the feedback to the regulator reflects divergent views from various stakeholders, said industry experts.

Some insurance companies that do not have tie-ups with banks have recommended to the Life Insurance Council that a bank should be allowed to strike deals with five insurance companies, at a limit of 25 per cent an insurer. However, bank promoted insurance companies are opposing this proposition. “Many banks that have promoted insurance companies are opposed to becoming brokers. We have opposed the recommendation of a bank necessarily tying up with five insurance companies under the current broking regulations,” said the CEO of a bank-promoted life insurer.

IRDA was expected to come out with the guidelines by end of July. Under the current bancassurance model, a bank acts a corporate agent where it can tie up with a life, a non-life and a standalone health insurance company.

In the Budget, the Finance Minister had allowed banks to become insurance brokers, selling the policies of several insurance companies.

IRDA Chairman T.S. Vijayan recently said he favours banks acting as brokers as they will represent the customer rather than an insurance company. Also, as brokers, banks will have a fiduciary responsibility that is likely to reduce miss-selling through the channel.

However, the Reserve Bank of India, in its Financial Stability Report (FSR), said that banks assuming the role of insurance brokers may lead to a conflict of interest. Where the bank promotes an insurance company, it may also expose the bank to reputational risks.

The IRDA is in the process of dialogue with various stakeholders including banks, insurance companies and the government to release the final guidelines.

Source: thehindubusinessline


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