The insurance regulator is working on a roadmap with the RBI to facilitate the transition of banks into insurance brokers, whereby they will be selling policies of multiple insurance companies.

“We are waiting for final guidelines from RBI so that the transition into brokers can happen smoothly. We are in consultation with them and the insurance companies to evolve a roadmap,” said T. S. Vijayan, Chairman, Insurance Regulatory and Development Authority.

“For us, ultimately banks have to move to a broker channel and there is no distinction between public sector banks and private sector banks. The RBI’s final guidelines will decide which banks will be eligible to become brokers,” Vijayan said.

In December, the Finance Ministry sent a circular asking public sector banks to take up insurance broking by January-end to keep up with the spirit of the Budget announcement of increasing penetration, particularly in the rural areas.

The measure is expected to improve customer choice and reduce mis-selling.

Present dispensation 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.

According to the guidelines finalised by the IRDA, as brokers, banks will have to cap business from their own group companies at 25 per cent for life insurance with a similar cap for non-life insurance business too.

“To ensure that there would be no disruption in business, it was discussed that since most major banks have promoted or tied up with one insurer, the 25 per cent cap on business will be implemented in a phased manner,” said the CEO of a private life insurance company.

At present, most major public and private sector banks, such as State Bank of India, Union Bank of India, Bank of Baroda, Canara Bank, Bank of India, Punjab National Bank, Andhra Bank, ICICI Bank and IDBI Bank, have promoted insurance companies. Banks are not keen to adopt the broking model, as it involves escalation of costs in terms of enabling their systems to tie up with multiple insurers and recruiting staff for insurance sales.

Also, as brokers, banks will have a fiduciary responsibility to the customer unlike a corporate agent who represents a customer.

Insurance companies are divided on the issue.

The insurance regulator met top officials from life insurance companies on Thursday and discussed, among other things, new alternative distribution channels for increasing insurance penetration in the country.

>deepa.nair@thehindu.co.in

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