IRDA officials meet RBI, bank chiefs to discuss concerns over insurance broking

The top brass of the Insurance Regulatory and Development Authority (IRDA) met their counterparts from the Reserve Bank of India and chiefs of public and private sector banks on Monday to address their concerns on banks taking the broking route for selling insurance policies.

The three major concerns put forth by the banks were related to their contracts with joint venture partners, equity arrangement and non-compete clause with insurance companies. The other major concern is the IRDA provision that banks will have to cap business from their own group companies at 25 per cent for life insurance with a similar cap on non-life insurance business too. “To ensure that there would be no disruption in business, we explained that 25 per cent cap can be implemented in a phased manner in three-five years,” said a senior IRDA official.

Banks, as insurance brokers, will also have a fiduciary responsibility to the customer for the policies sold by them. “We explained to them that brokers already exist in the insurance market and they are required to take a professional indemnity policy to cover their liabilities,” the IRDA official said.

“On selling products of multiple insurers, we said that the customer will have more choice and will be able to choose the product best suited to his needs rather than the insurer’s product with whom the bank has a an exclusive tie up. On training bank personnel, we explained that comparison is enabled by IT systems,” he added.

While IRDA and RBI cleared the decks by issuing guidelines for banks to become insurance brokers, banks have not shown any interest so far.

At present, 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.

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 many of the older bank-promoted insurance companies have an exclusive tie up with a bank for the use of its branches for distribution, some of the newer insurance entities do not have a tie up with a bank.

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