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Although customers will now have more choice while buying insurance from banks, the bankers are divided on the impact of the move to turn them into brokers for multiple insurance companies.
Banks that are strongly dependent on the bancassurance model are a worried lot. “Insurers with large corporate houses as promoters will be able to negotiate better with the banks through side-deals outside of the purview of insurance. This will open (up) the market for malpractices,” said a senior executive of a large insurance company. Bancassurance has been a significant channel in insurance. It accounted for 40 per cent of total premiums collected by private insurers in 2012-13.
It may also prove tough for banks to meet the deadline. “There is an anomaly in the Finance Ministry’s circular. It has not taken into consideration that RBI norms issued on the matter are draft guidelines and the deadline to give our feedback is till the end of this month. Even if we assume that RBI gives final norms on Jan 1, 15 days is to less to change over,” said the CMD of a public sector bank.
As per IRDA guidelines issued earlier, banks also need to take approval from it to act as insurance brokers. Banks had already taken up the issue of the deadline with the Finance Ministry through the Indian Banks’ Association.
The Finance Ministry had set January 15 as the deadline for banks to start selling products of more than one insurance company, according to a circular dated December 20.
Until now, banks were functioning as corporate agents for insurers and were permitted to sell products of one life and one non-life insurer .
“The present model of corporate agency of selling insurance by banks may be dispensed with and each bank may train and orient its staff (to be an insurance broker),” according to the circular. As on date, there are over 500 products in the life insurance segment alone.
From a customer’s point of view, the directive may be helpful as it would make products of all insurers available at all bank branches, a move that will help expand insurance penetration. As of now, the insurance share is as low as 3.86 per cent of the country’s gross domestic product .
However, some industry players say the move will prove beneficial.
“As of now, only a small proportion of banks (not more than 15,000 branches) are selling insurance products. The proposed norms will help in expanding this distribution base and penetration of insurance,” Manoj Kumar Jain, CEO, Shriram Life Insurance told Business Line .
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