After doing away with the criteria of maintaining a minimum persistency ratio of 50%, IRDA has taken another u-turn with its Chairman TS Vijayan’s recent announcement to renew corporate agency licenses of banks on the sidelines of a recent conference.
On renewal of corporate agency license of banks, Vijayan said, "We do not want to make any abrupt change and would not stop corporate agency renewals that are on the anvil. Our motive is to ensure we do what is best for the policyholder." He, however, had also said that they would favour banks who wish to become brokers by ensuring smooth transition. In addition, he stated, “We have brought out the guidelines for banks acting as insurance brokers. We expect this to happen in due course of time. It can’t be abrupt and will take some time.”
The statement to renew corporate agency license of banks is contrary to the announcement made by Rajiv Takru, Secretary (Financial Services), Ministry of Finance at a Bloomberg event that corporate agency licenses of banks under bancassurance model would not be renewed.
Under the bancassurance model, banks are allowed to act as corporate agent of only one life insurance company and one general insurance company.
Last year, IRDA had imposed hefty fines on many banks and insurers like Aviva, Future Generali, Max Life, Punjab & Sind Bank, IndusInd Bank and Barclays Bank for violating various norms under corporate agency model. This year too, the regulator has warned HDFC Life, ICICI Prudential Life Insurance and their corporate agents for violation of anti-money laundering guidelines.
Renewal of corporate agency license will give banks another three years to continue with the existing tie-up model. Pankaj Mathpal of Optima Money feels that the move may perpetuate mis-selling for another three years if IRDA renews their license. He believes that insurance broking model will reduce mis-selling since broker represents interest of policyholders before insurance companies.
The sales head of a large insurance firm said, “Corporate agency model has many flaws. In fact, we had apprised IRDA of practices of multi-level marketing in banks especially those who have insurance business as subsidiary. As an internal action, the regulator had served a show-cause notice on such insurers and banks. Due to continuous instance of mis-selling in banks, IRDA thought of introducing the broking model for banks with a view to reduce mis-selling and increase financial inclusion.”
Last year in December, the finance ministry has asked public sector banks (PSBs) to implement insurance broking model in order to leverage their wide network to increase insurance penetration. Suresh Sadagopan of Ladder7 Financial Advisories is skeptical about the move and said that it can cause uneven playing field. He questioned, “Why are only PSBs being forced to opt for broker? A lot of private banks have earned bad names for mis-selling. Why were they left out? In fact, IRDA should scrap corporate agency model and mandate insurance broking for all banks for distribution.”
Both RBI and IRDA have come out with guidelines for banks to become brokers. However, RBI is yet to finalize its decision. A CEO of a general insurance company said, “Since the RBI stand on banks to act as a broker is yet not clear, IRDA may not want to disrupt the distribution business of banks in spite of reservations about their current practices.”
Another CEO of an insurance company said, “After implementing new product guidelines which came into effect from January 1 to make insurance policies more transparent and customer friendly, IRDA has shifted its focus to improvements in distribution channels. This may have been a reason for IRDA to consider imposing the insurance broking model on banks. However, due to tepid response from banks and RBI, IRDA has no other option left then to renew their licenses.”