Insurers, bankers seek more liberal bancassurance rules

Insurance companies have reportedly suggested that 'bancassurance' guidelines be revised to allow a bank to tie up with at least five insurance companies as a corporate agent.

According to the existing regulations, a bank can only tie up with one life, one non-life, and one health insurance company.

Industry sources said the proposal had been presented to the Life Insurance Council. The proposal seeks a separate section in the corporate agency regulations for bancassurance which will allow a bank to tie up with up to five insurers, with a maximum 25 per cent share per insurer.

The paper's sources added that leading life insurance companies that do not have a bank tie-up have supported the recommendation.

After this, the proposal will be put before the Insurance Regulatory & Development Authority (IRDA) for approval.

The draft bancassurance guidelines of the Insurance Regulatory and Development Authority had proposed banks could act as brokers and sell multiple insurance products. But without an open architecture of bancassurance, insurers, especially newer ones, have limited options to tie up with banks.

Further, insurers say customers also have limited products to choose from, while buying a product from a bank channel.

There are other regulatory hurdles too. The Reserve Bank of India has said that banks assuming the role of insurance brokers could lead to a conflict of interests where the bank is also the promoter of an insurance company.

However, permitting banks to act as insurance brokers to increase insurance penetration was one of the key reforms proposed by Finance Minister P Chidambaram in his budget for 2013-14.

He had said that the bank would be responsible for the products sold to the customer and to the policyholder.