Financial Daily from THE HINDU group of publications
Monday, Feb 17, 2003

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Fresh IRDA norms on referral pacts

C.R. Sukumar


THE Insurance Regulatory and Development Authority (IRDA) has announced new guidelines for life insurers, superseding the earlier ones on referral business agreements of insurance players with banks for selling products through their branches.

In a communiqué to all the Chief Executive Officers of insurance companies, the IRDA Chairman, Mr N. Rangachary, asked the life insurers to comply with the revised guidelines. For the general insurers, the Authority would come out with revised circular soon after considering their comments on the issue, he said.

As a result of this, the referral guidelines issued by IRDA on January 30 pertaining to life insurers would now stand cancelled and the new guidelines issued on February 14 would come into effect.

According to the new guidelines, the insurer would not be allowed to enter into a referral arrangement with any bank, which has been licensed by the IRDA to act as an agent or an insurance intermediary.

The insurers would be allowed to enter into referral arrangement with a bank for access to its database, provision of physical infrastructure and for display of publicity material of the insurer.

As mentioned in the earlier guidelines, IRDA has made it clear that the participation by the bank's customers should be purely on a voluntary basis and it should appear prominently in all publicity materials distributed by the bank and also the insurer.

The insurers were asked to mention clearly in their contracts that the deal was between the insurer and the insured and not between the bank and the insured. The referral arrangement between the bank and the insurer should not be construed to have resulted into an agent-principal relationship between the bank and the insurer, the regulator said.

Apart from stating that there should not be any linkage either direct or indirect between the provision of banking services by the bank to its customers and use of insurance products, the regulator said the bank should not be permitted to enter into any similar arrangements with more than one life insurance company or more than one general insurance company.

"This is important to ensure that a bank does not act de facto as an insurance agent or as an insurance broker without any licenc," the IRDA Chairman said.

Asking the insurers not to pay commission or other remuneration along with referral fee, the regulator said the insurers should not pay referral fee for any promotional campaign.

The referral fee paid by the insurer to the bank should be treated as acquisition costs and should be decided between the parties under a written agreement.

According to IRDA, the total payout under referral fee, by whatever name called, should also include the element of management expenses. It should be on the basis of business generated under such an arrangement and should not exceed the percentage of total premium as specified by the insurance regulator. The total payout as referral fee should not cross 55 per cent of the total premium amount.

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