HDFC's acquisition of Centurion Bank of Punjab may cost Aviva Life its bancassurance partner

Venkatachari Jagannathan
23 February 2008

Chennai: Bank mergers in India not only have their echo in the banking sector but also increasingly in the insurance sector.

With the board of directors of Centurion Bank of Punjab having today accorded in principle approval to the proposed merger of their bank with the larger HDFC Bank (See: Centurion Bank of Punjab and HDFC Bank merger plans afoot), is certainly to affect Centurion's bancassurance deal with Aviva Life Insurance Company Limited.

This is because the acquiring bank, HDFC Bank, has a similar deal to sell the life insurance policies of its sibling HDFC Standard Life Insurance Company Limited and can hardly be expected to vend policies from Aviva, a rival of HDFC Standard Life.

That he merger would affect Aviva is because private insurers, particularly life insurers, are finding it difficult to sign up with banks to sell their policies as early entrants have already tied up bancassurance deals with all major banks. Most of the bancassurance deals are for 3 or 5 years.

For life insurers the bancassurance channel is a major source of business.

Morevover, insurance regulator Insurance Regulatory and Development Authority prohibits a bank from selling policies for more than one life insurer.

Realising their importance in life insurer's plan for topline growth banks have been striking a hard bargain for higher commissions. In some cases the commission and incentives go as high as 70 per cent of the first year's premium even though the statutory limit is around 40 per cent.