The move is expected to increase insurance penetration in India.
In order to leverage the wide network of Public Sector Banks (PSBs) to increase insurance penetration, the finance ministry has asked them to implement insurance broking model by January 15, 2014.
Also, the ministry has asked banks to train their staff in line with the guidelines of RBI and IRDA so that they can carry out insurance broking business.
In a recent circular issued to CEOs of PSBs, the finance ministry said, “PSBs may join the insurance broking business in order to increase insurance penetration and avoid mis-selling of insurance products.” The ministry also said that present model of corporate agency may be dispensed soon. Rajiv Takru, Secretary (Financial Services), Ministry of Finance had earlier told Cafemutual that corporate agency licenses of banks under Bancassuance model would not be renewed.
Under the Bancassurance model, banks were allowed to act as corporate agent of only one life insurance company and one general insurance company. Often, the banks were corporate agents of their promoter group company. Under the broking model, banks will be able to sell insurance policies of five life and five general insurance companies.
Earlier, Union Finance Minister P Chidambaram in his budget 2013-14 speech had announced that banks would be permitted to act as insurance broker so that the entire network of banks could be utilized to increase insurance penetration.
Recently, RBI came out with a draft circular in which it notified that banks having net worth of Rs. 500 crore can act as insurance brokers. In a circular, IRDA notified that banks should have to appoint a principal officer who has undergone 100 hours training from any recognized institute to carry out insurance broking business,. Also, the insurance regulator had asked banks to maintain separate record of accounts such as balance sheet, profit and loss statement and so on.