Now banks can sell insurance products of five companies.
IRDA has allowed banks to acts as insurance brokers in order to increase insurance penetration in small cities and rural areas.
Earlier, under the bancassurance model, banks were allowed to act as corporate agent of only one life insurance company and one general insurance company. The new rules allow banks to choose between corporate agency and insurance broking. If they opt for a broking license, banks are allowed to sell insurance policies of five companies.
In a notification, the insurance regulator has said that banks need not require any capital to carry out insurance broking business in India. However, banks have been instructed to keep deposit of Rs 50 lakh.
To carry out insurance broking business, banks should have to appoint a principal officer who has undergone 100 hours training from any recognized institute. Also, the insurance regulator has asked banks to maintain separate record of accounts such as balance sheet, profit and loss statement and so on.
IRDA has said that the premium collection from any single client must not exceed 50% of total collection. Also, the regulator has said, "Not more than 25 per cent of insurance handled by the insurance broker in any financial year is placed with the insurance company within the promoter group, separately for life and general insurance business.”
The license will be valid for three years and subject to renewal at least 30 days prior to the date of expiry.
Typically, insurance brokers can charge 30% of the first year premium and 5% afterwards as their commission.
“Permitting banks to sell products of more than one life insurance company will boost the penetration of life insurance. Also, customers will get better service. The industry has to ensure that the customer interests are protected at all times. Ultimately, what is good for the customer is good for the industry”, says Tarun Chugh, Chief of Distribution, Operation & Marketing, ICICI Prudential Life Insurance.
Krishnamoorthy Rao, CEO, Future Generali General Insurance believes that the move will help people to choose suitable insurance policies from the product basket as they will have more alternatives. Also, insurance companies which are not promoted by any banks will benefit from the move, he adds.
However, it has been speculated that neither banks nor RBI are keen to adopt the broking model as would expose banks to potentially higher liabilities.
Will banks take the broking route? Does ‘open architecture’ – allowing the sale of multiple insurance companies more customer centric than the tied agency model? Share your views and comments now!