Public sector banks may not find it easy to meet the tight deadline of January 31 the Finance Ministry has set for them to sell insurance policies (life and non-life) exclusively through the broking route, say industry officials.
In a circular issued last week, the Ministry said: “Public sector banks may join the insurance broking business in order to increase insurance penetration and avoid mis-elling of insurance products.
“The present model of corporate agency for selling insurance by banks may be dispensed with and each bank may train and orient its staff to implement the Finance Minister’s announcement.”
Under the present system of distribution of insurance products through bank branches (bancassurance), banks act as corporate agents and sell the policies of only one life insurer, one non-life insurer and a standalone health insurer.
While the Insurance Regulatory and Development Authority and the Reserve Bank of India have cleared the decks by issuing guidelines on insurance broking norms, banks have not shown any interest so far in taking up broking.
Indian Overseas Bank CMD M. Narendra said: “While insurance broking will lead to more choice for customers, for banks it will not be easy to implement.
“Currently, we act as referrals for insurers but as brokers we will have to take on the entire responsibility of selling insurance.”
K.R. Kamath, CMD of Punjab National Bank and Chairman of Indian Banks’ Association, said banks will have to apply their minds and look into the obligations of becoming insurance brokers.
Said John Holden, CEO Canara HSBC OBC Life Insurance: “There will be several implementation challenges as banks will have to invest in training their staff in selling the policies of multiple insurers and setting up IT systems. The transition to brokers should not be rushed and banks should be given time till the corporate agency relationship with insurers expires.”
Insurance companies are divided on the issue of banks turning brokers. While some older life insurance companies have tied up with big banks, newer, non-bank-promoted insurers have been facing difficulty in finding distribution partners with wide networks.
“The assumption that offering multiple insurers’ products will lead to increase in sales for insurers needs to be questioned,” said Holden, “Banks selling policies of multiple insurance companies will result in a division in the distribution pie rather than actually increasing penetration.”