Banks not happy with proposed IRDA norms

Banks have reportedly opposed the revised guidelines proposed by the Insurance Regulatory & Development Authority (IRDA) for distribution tie-ups between them and insurance companies and banks for the sale of insurance policies.

Their concerns centre on possible dual regulatory supervision and resistance from foreign partners in their insurance joint ventures, according to a report in the Mint citing unnamed sources.

To create a level playing field, IRDA had proposed a state-wise arrangement for such distribution tie-ups, known as bancassurance. With their extensive national networks, commercial banks provide an ideal platform for insurance companies to sell their products.

With many banks starting their own insurance ventures, newer, non-bank promoted insurers have difficulty in finding distribution partners with a wide network. This is because existing regulations deem that one bank can tie up with only one life and one non-life insurance company across the country.

The banks, through industry lobby Indian Banks' Association (IBA), have written to IRDA opposing most of the draft guidelines issued by the regulator in November, the report said.

Irda's draft bancassurance guidelines divide Indian states into three zones and place a cap on the number of states in which an insurance company can tie up with one bank. As per the draft, no insurance company can tie up with any bancassurance agent in more than nine states in zone A and six states in zone B.

The draft guidelines give IRDA the power to inspect the premises, books of accounts, records and documents of the bancassurance agent (or bank) to check if the activities are carried in line with regulations. Banks are concerned that this will put them effectively under the supervision of two regulators, the Reserve Bank of India (RBI) and IRDA.

The draft guidelines also put the onus of any mis-selling on banks rather than insurance companies, which the lenders are opposing.