For the first time since they began selling insurance policies in 2002, banks will now be held accountable for mis-selling such policies.
A bank and its specific employee found guilty of mis-selling of insurance products will face action under the new Insurance Act.
The Insurance Regulatory and Development Authority of India (Irdai) has directed banks to map policies sold by their employees and maintain records that it can access in case of a complaint.
The new law defines corporate agents as intermediaries, representing the customer. ''…they have to act in the best interest of the customer,'' Irdai chairman T S Vijayan said at an event in Mumbai on Thursday.
Irdai is set to make corporate agents, including banks and their employees, liable for all insurance policies they sell. Vijayan said the regulator would consider corporate agents an intermediary, which would benefit the customer.
As of now, corporate agents are considered entities working on behalf of an insurance company, a distributor of its products. An insurance broker, on the other hand, sells products of multiple insurers. While an insurance broker can be held liable for the sale of a product, agents can't.
Currently, banks act as corporate agents through bancassurance agreements with insurance companies. As corporate agents, banks were earlier allowed to sell policies of a life, a non-life and a standalone health insurer. Now, they can sell the products of three life, three non-life and three standalone health insurers.
Banks are the largest distributors of private life insurers' channel mix, accounting for 43.6 per cent of the sales.
''If there is a complaint, Irdai should have ready access to the record as to which person in the bank (or corporate agency) sold the policy. We will implement this in due course,'' Vijayan said.
He added that intermediaries should work in the best interest of customers and be responsible for all their sales. ''We noticed banks did not have much of an idea of the policies being procured through their network. This loophole is being plugged so that whenever there is any complaint, we can ask the bank to respond.''