Multiple Insurer Affiliations for Banks by IRDA

Industry experts say that this move will ensure the banks continue to expand their reach by venturing with insurance companies
Insurance Regulatory Development Authority of India (IRDAI) is contemplating over a
superior choice to articulate Bancassurance- the process of involvement of banks for the sale of insurance related products.

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Banks will consider affiliations with multiple insurers in the life insurance, non-life insurance, as well as independent health insurance sectors. Industry experts believe that this positive shift will now encourage banks to expand their operations, with their new business tie-ups with the insurer companies in newer regions of the country.

Sectoral sources also quoted that regulators seeking to expand their networks will now collaborate with insurers who are new in their networks.

“Simultaneous alliances with several insurers will now be encouraged as the bank regulators no longer intend to have an affiliation with a single insurer in each domain of life, non-life and independent health insurers,” states a private sector’s head of distribution life insurer.

Statistical reports from a Reliance Life’s presentation quotes that from 40 lakhs accounts in the public sector banks have only 1% insurance affiliations. Yet, it also states that with just an increase of 15% penetration of insurance affiliation, public sector banks can generate more than Rs. 60,000 crores worth of premium in life insurance in the coming five years.

IRDAI’s initial proposed several times to consider Bancassurance with an open architecture. Thus, banks can collaborate with a single insurer in each of its regional networks. However, due to constant population migration, banks disregarded this architecture on the grounds of confusion. Regulators also had proposed later to the banks to become insurance brokers, but none of its proposals have worked out so far, and this new proposal is a hope to revive both the banking and insurance sectors.

The recent regulations issued by the Reserve Bank of India (RBI) have enabled the banking sector to work as insurance brokers. The ratio of margins set by the banks to operate, as insurance brokers are weighted (capital-to-risk) assets to be 10% minimum to a maximum of 3% for non-performing assets. Furthermore, RBI limited the bank’s net worth to Rs. 1,000 crores.

Reliance Life’s study quoted the market size for Bancassurance to be Rs 9,500 crores (2013-14) for individual segments. Substantial growth is projected for the financial year 2015 driven by Unit Linked Insurance Products (ULIPs).

The recent authorities’ states that brokers and corporate agents have now become intermediaries for insurance companies however, previously, only ‘brokers’ were defined with ‘agents’ referring to corporate agents.

Authorization to banks to work as corporate agents has been given by IRDAI enabling sale of multiple insurers’ products through them without being termed as ‘brokers’.

Banks had a major roadblock while joint venturing with insurance companies as ‘partners’ in agreement. However, expert sources also suggested that the roadblock can be cleared once banks are sufficiently galvanized to tie-up with multiple insurers then they would be more open to following the route.

India’s insurance giant, The LIC (Life Insurance Corporation of India), is another obstacle as there would be a high possibility of speedy tie-ups with it. The CEO of a huge life insurance company stated that banks would be pushing the envelope further to affiliate with LIC due to its countrywide network presence and a strong business base.

“If all banks were to affiliate only with LIC, this would impact the other insurers who do not have banking affiliations adversely. Therefore, a medium is being set up where there would be no or lesser scope for conflict and multiple banks will be restricted to affiliate with the same lineage of high profit, high premium-making insurers,” he stated.

(Source: This article has been adapted from the article "IRDAI considering multiple insurer tie-ups for banks" that appeared on March 10, 2015 in business-standard.com)

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