To curb mis-selling, IRDA favours banks marketing insurance policies

The Insurance Regulatory and Development Authority may favour allowing insurance companies to use the network of bank branches to sell policies, if banks opt to take on the role of insurance brokers.

According to current IRDA guidelines, a broker has to set up a separate subsidiary with a separate share capital for distribution of insurance products. However, the insurance regulator is considering amending this regulation to allow banks to distribute insurance through their existing branches without setting up a separate subsidiary, said a senior IRDA official.

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

According to T.S. Vijayan, Chairman, IRDA, banks which have a fiduciary responsibility under broking guidelines will represent the customer rather than the insurance company under the present corporate agent set-up. So, it is expected to bring down any chances of mis-selling.

Under the current bancassurance (distribution of insurance products through banks) model, a bank is allowed to become corporate agent of only one insurer — it can sell insurance products of one life, one general insurer and a standalone health insurer. But after becoming a broker, banks can sell products of multiple insurance companies.

The life insurance industry has made a representation to the insurance regulator, stating that a bank should be allowed to sell policies of five companies, with not more than 25 per cent share per insurer.

For major banks, insurance distribution is an important component of its fee-based income. According to a recent report by SBICAP Securities, bancassurance contributes to around 40 per cent of the new business premium collection by private life insurance companies.

“Banks have a huge customer base but that much utilisation has not happened for distribution of insurance products. There have been deliberations on how best to utilise bank branches to improve insurance penetration. Few ideas have come up and we are in constant dialogue with all the various stakeholders,” said Vijayan

deepa.nair@thehindu.co.in

Source: thehindubusinessline