Banks may be allowed to act as corporate agents for multiple insurers

In a bid to ensure that banks offer more choice in insurance products through their branches, a proposal is likely to be made to allow banks to tie up with multiple insurers, as corporate agents.

A committee set up by the Finance Ministry to break the deadlock in insurance broking is likely to suggest this model as an alternative to the broking model, which most banks have been hesitant to take up, said a senior industry official close to the development.

The committee, headed by RBI General Manager Reena Banerji, also includes other RBI officials, bankers and a senior representative from the insurance regulator. The panel is expected to submit its report to the Finance Ministry shortly.

The insurance broking issue has become a major irritant for banks. Though the Finance Ministry wants banks to sell policies of multiple insurance companies as brokers, banks are opposed to the idea on the ground that they have exclusivity contracts with the foreign insurance companies through joint ventures. Also, banks feel that as brokers they will have to play a much bigger role in the insurance sales process as they will have a fiduciary responsibility to the customer.

This would entail setting up a separate vertical, making a provision for risk capital and buying a professional indemnity policy.

If banks continue as as agents, the responsibility for mis-selling and the cost of setting up the insurance infrastructure primarily rests with the insurer.

Under the present system of distribution through bank branches (bancassurance), banks act as corporate agents and exclusively sell the policies of only one life insurer, one non-life insurer and a standalone health insurer.

While most life insurance companies, including ICICI Prudential, SBI Life, HDFC Life and Max Life have either tied up or been promoted by banks, other life insurance companies have been struggling to find a bank partner.

To make it a level playing field and open up the banking network to other insurers, Finance Minister P Chidambaram had announced in last year’s Budget that banks would be allowed to become insurance brokers.

However, banks are not keen on this as their commissions are lower under broking regulations and their cost of compliance jumps significantly.

Says Anup Rau, CEO of Reliance Life insurance: “Ultimately, customers need to be offered choice at bank branches. So, a model that works for everyone (banks and insurers) is important to achieve it.”

Manoj Jain, CEO of Shriram Life Insurance, said that at present, out of the 130,000 bank branches, only 30,000 are used to sell insurance products.

By opening up bancassurance, he says, other insurers will be able to utilise the rest.

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