Banks may be able to sell products of multiple insurance companies, but in a controlled manner, according to draft guidelines issued by the Insurance Regulatory and Development Authority (Irda). At present, one bank can sell products of any one insurer in the life and non-life segments.
Multiple tie-ups in different states: The draft guidelines have suggested that banks continue to tie up with one insurance company in the life, non-life and health insurance spaces but only in a specified number of states. In other words, banks can have tie-ups with multiple insurance companies in different states.
The draft guidelines have divided the states in three zones. Zone A includes Delhi, Mumbai, Chennai and Bangalore. Zone B includes Uttar Pradesh, Rajasthan, Bihar and Madhya Pradesh and zone C includes north-eastern states along with Goa and Uttarakhand. An insurance company can’t tie up with any bancassurance agent in more than nine states and Union territories (UTs) in zone A and six states and UTs in zone B. Since the guidelines are quiet about zone C, one can assume that the insurer can tie up with one bank in all the states under zone C.
But this could lead to a lot of administrative hassle. Says G.V. Nageswara Rao, CEO and managing director, IDBI Federal Life Insurance Co. Ltd: “Having multiple tie-ups across states could lead to administrative problems. For instance, what if the specified person gets transferred from one state where the bank has a tie-up with one insurance company to another state where the bank has a tie-up with another insurer? This could lead to confusion.”
Multiple tie-ups in one state: According to the draft guidelines, a bank can tie up with a specialized insurance company in addition to an insurance company. Also, a specialized insurer can tie up with any bancassurance agent across the country. However, the guidelines have not defined a specialized insurance company.
Says Suresh Agarwal, executive vice-president and head (distribution and strategic initiatives), Kotak Life Insurance Co. Ltd: “Specialized insurance company could mean the existing big bancassurance partner of an insurance company. For example, in the case of Kotak Life, it is Kotak Mahindra Bank Ltd.”
If this is true, then banks will be able to tie up with two insurers in the same business in a given state. Adds Agarwal: “Growth of the insurance industry will come from distribution channels where the cost is low. It will also increase penetration as competition will ensure that all the bank branches are utilized.” However, insurers await further clarity on this proposed guideline.
The draft guidelines have also allowed banks to tie up with an additional non-life company just to sell health insurance in case the existing general insurer does not have any health product.
Capping commissions: The draft guidelines have also suggested capping the commission to 85% of the commission payable under the Insurance Act, 1938.
The draft has several other guidelines, including the code of conduct and licence of bancassurance agents. Find the full copy of the guidelines at www.irda.gov.in . The guidelines are open for public comment till 12 December.