Insurers may soon be allowed to sell all products through banks

The Insurance Regulatory and Development Authority may allow insurance companies to sell all their products through bank branches against the earlier proposal to allow the sale of only standardised products.

In an earlier proposal, to avoid mis-selling of complex products through branches in cases where banks opt to sell policies of multiple insurers (as brokers), the insurance regulator was earlier considering allowing sale of only standardised or vanilla insurance products.

“While there was a proposal to allow sale of only standardised products, we feel as brokers, banks will be representing the customer unlike agents who represent the insurer.

“Also, as brokers, banks will have a fiduciary responsibility to the customer and will have to invest in training their staff for selling insurance,” said a senior IRDA official.

Recently, Financial Services Secretary Rajiv Takru had said it would be mandatory for all public sector banks to undertake selling insurance products via the broking channel by February.

‘In the right direction’ Anup Rau, Chief Executive Officer, Reliance Life Insurance, said, “The step (on banks becoming insurance brokers) is in the right direction as customers will have more choice in buying policies and it will also help improve insurance penetration through the 50,000 plus bank branches.”

Rau also said complex life insurance products, such as highest NAV (net asset vale) products and index-linked products have been taken off the market under the new regulatory regime by IRDA, resulting in banks selling only simple life insurance products.

Under the current norms for distribution through banks (bancassurance), they can become only a corporate agent, which allows them to sell products of only one insurer.

According to industry officials, at present most banks are not interested in becoming insurance brokers as many of them have promoted insurance companies. Also, many banks feel the business of selling policies of multiple insurance companies is complex and they will need to invest in educating their staff in this exercise.

K.R. Kamath, Chairman and Managing Director, Punjab National Bank, and Chairman of Indian Banks’ Association, said banks will have to apply their minds and look at the obligations of taking on the mantle of becoming insurance brokers.

Divided view Insurance companies are divided on the issue of banks turning brokers. While some older life insurance companies have tied up with big banks, newer, non-bank promoted insurers have been facing difficulty in finding distribution partners with a wide network.

“At present, insurance accounts for only around 2 per cent of banks’ fee income. If it is made mandatory for banks to become insurance brokers, they may opt out of selling insurance all together,” said the CEO of a private life insurer.

> deepa.nair@thehindu.co.in

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