IRDA gives options for bancassurance tie-ups

The insurance regulator has come put with a revised set of draft regulations on bancassurance tie-ups. Bancassurance refers to  the arrangement through which banks sells insurance products.

The Insurance Regulatory and Development Authority (IRDA) has suggested banks can sell insurance products by playing either  a corporate agent or a broker to insurance companies. Corporate agents can sell insurance products for only one insurer while  a broker can sell multiple companies’ products. Those opting to be a broker will have to first withdraw from their existing  bancassurance partnership.

“The channel of distribution for bancassurance may either go through the agency channel or the broking channel. The conduct  of bancassurance through a broking channel will be governed by the IRDA (Insurance Broker) Regulations, 2002 and applicant desirous of conducting such business may apply as per the procedure laid down in the said regulations. The conduct of business through the agency channel will be as per the regulations herein contained,”the IRDA draft norms say.

At present, the bancassurance policy is one bank one insurance company (one life and one non-life). Under this, the bank acts as the agent of the insurance company. Last week, the finance ministry allowed banks to sell insurance products offered by more than one company through a broking agency.

But the controversial clause where banks are required to compulsorily tie up with insurance companies other than those promoted by them has been retained.

There is a third bancassurance tie-up, zonal tie ups, where some changes have been brought about. Under the new norms, the regulator has divided 40 locations across the country into three separate zones — A, B and C. Zone A includes metro and other tier I cities, Zone B and C include tier II cities, north-eastern states and Union territories.

Under the proposed rules, a bank can at the most tie up with one life, non-life and health insurance company in maximum 20 and minimum 10 locations. For the remaining areas it will have to look for different partners. This means even banks with their own insurance entities will need to tie up with other insurance companies.

As per the draft norms, no bancassurance agent can tie up with more than one life, one non-life one standalone health insurance company and one each of the specialised insurance companies in maximum 20 and minimum 10 locations. For the remaining areas it will have to seek different partners.

The commission to be paid to bancassurance agent will not exceed 85% of the limit specified in the insurance Act 1938.

Insurance industry experts say that the Reserve Bank of India (RBI) may not be in favour of banks playing broker to insurance companies. Reason: “A broker represents the customer unlike a corporate agent. In that case, all customer and related issues will have to go to the broker. In case of corporate agency the customers will be owned by the insurance company,” explained a senior life insurance executive.

The sale of equity will happen through either transfer of the existing share or by issuance of fresh equity with the prior approval of the authority.

IRDA has asked insurers to submit their views and comments by October 17.