Corporate agency licenses of banks under bancassurance model will not be renewed, said Rajiv Takru, Secretary (Financial Services), Ministry of Finance at an event ‘Insurance Agenda’, organized by Bloomberg TV in Mumbai.
Earlier, under the bancassurance model, banks were allowed to act as corporate agent of only one life insurance company and one general insurance company.
Typically, many banks are corporate agents of their promoter’s group company. Henceforth, banks who wish to sell insurance policies will have to take insurance broking license. If they opt for a broking license, banks will be able to sell insurance policies of five each for life and non-life companies.
On the sidelines of event, Takru told Cafemutual that the Ministry is also planning to put a cap on the sales of promoter group’s insurance policies by the insurance brokers. “There will be no dominant player in insurance broking model. It will stem mis-selling and establish fair business practice.”
Earlier, IRDA mandated banks to sell only 25% policies of any single insurer. IRDA 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.”
Takru struck an optimistic note, “Allowing banks to act as an insurance broker would be a game changer for the industry. Earlier, banks were allowed to act as corporate agents where they represented insurance company before policyholders whereas under insurance broking model, they will represent interest of policyholders before insurance companies. It will reduce mis-selling, increase insurance penetration, decline dropout rates and built trust among people.”
Recently, RBI came out with a draft circular in which it had notified that banks having net worth of Rs. 500 crore can act as insurance brokers. Only large banks fall under this criteria and most of them are selling insurance policies of their group company. Industry experts said that these banks were unwilling to change their model.