Banks have now been permitted to act as insurance brokers. The Insurance Regulatory and Development Authority has come up with regulations for licensing of banks as insurance brokers.
But the disappointing news for some industry players is that the regulations do not mandate banks to become insurance brokers. It will still be optional for banks to take up such a role.
Requiring banks to become brokers would have served the larger objective of increasing insurance penetration in the country, some industry players claimed.
There is still no clarity on which way the Reserve Bank of India (RBI) will move and whether it would allow banks to act as insurance brokers.
The incumbent RBI Governor, D. Subbarao, had expressed some concern over allowing banks to act as brokers.
In the larger interest of improving insurance penetration, the RBI Governor-designate Raghuram Rajan may, however, take a different and a lenient approach to the issue.
The IRDA move to allow banks to act as insurance brokers is expected to provide a leg-up for non-bank promoted insurance companies in the private sector. This will be especially so for those who don’t have existing bancassurance relationship with any bank. Such companies can now look to leverage on the banks’ network for distribution of their products.
CHIDAMBARAM’S TAKE
The IRDA move comes nearly five months after Finance Minister P. Chidambaram’s Budget speech where he announced that banks would be permitted to act as insurance brokers. This was being done so that the entire network of bank branches can be utilised to increase penetration, Chidambaram had said.
But, IRDA regulations notwithstanding, all banks may not readily opt to take up the role of a broker. This is because many banks have gone ahead and set up insurance joint ventures and may not be inclined to sell other insurance companies’ products through their networks.
Till date, banks were able to distribute insurance products only as corporate agents (under a bancassurance model).
The existing regulations stipulated that each bank can distribute only one life insurance, one general insurance and health insurance company’s products. With the latest move to allow banks to become insurance brokers, the scope for banks to sell multiple company products has become a near reality.
Crucial call
Banks have to take a crucial call on whether they want to become a broker or not. While being a broker will allow them to sell multiple products of various insurers, the risk is higher in this model. As a broker, banks would have to entirely own the customer, a situation that is not present in case of a corporate agency. Most banks don’t have trained personnel to take up such risks, it was pointed out.