While the Insurance Regulatory and Development Authority (IRDA) has released the guidelines for banks to sell products of multiple insurance companies, most of them are unlikely to rush to seek broking licence.
According to a senior IRDA official, the Reserve Bank of India is not keen on banks becoming brokers as many of them have promoted insurance companies and this could lead to a conflict of interest.
Also, as brokers, banks will have a fiduciary responsibility to customers and can be made accountable for mis-selling.
Many big lenders such as ICICI Bank, HDFC Bank, SBI, IDBI Bank, Bank of Baroda, Canara Bank, Bank of India, and Punjab National Bank have promoted insurance companies.
The IRDA clause that not more than 25 per cent of insurance business (separately for life and general insurance) handled by a bank (as a broker) can be placed with the insurance company floated by it may act as a deterrent to becoming brokers.
Training needed
Rajesh Sud, Managing Director and Chief Executive Officer of Max Life Insurance, said if banks become brokers then they will have to invest time and money in training their personnel in selling policies of multiple insurance companies.
In the broker regulations released recently by the IRDA, banks can opt to become insurance brokers with prior approval of Reserve Bank of India. Each bank will have to employ an official at the general manager or equivalent level as a principal officer to carry out the functions of an insurance broker.
“While the broker guidelines are good as they do not disrupt the existing arrangement, it may take at least a year for banks to really start selling policies of multiple insurance companies,” said Sandeep Bakshi, Managing Director and Chief Executive Officer, ICICI Prudential.