In an unprecedented move, the finance ministry has directed the insurance regulator to suspend its proposed regulation onbancassurance and hold consultation with banks and insurers before framing the rules.
The draft Irda (Licensing of Bancassurance Entities) Regulation 2013, which was taken up for discussion in the last board meeting of the regulator on June 28, does accept an open architecture. It does suggest that banks must have exclusive tie-up in one geographic region. Even in the board meeting, concerns were expressed by the government nominees and other members of the board, said a top official in the regulatory authority. However, the regulator is expected to issue the final bancassurance guidelines next month, he said.
“The matter was subsequently discussed in the department of financialservices (DFS) and it was felt that the exact purpose and rationale for taking up bancassurance on the geographical basis need further discussion and clarity,” says the finance ministry letter dated July 3.
It further states, “…that the issuance of regulation may be put on hold till the wider consultations take place with all stakeholders, including banks andinsurance companies.”
“The strong stand taken by the finance ministry will force the Insurance Regulatory & Development Authority that was expected to come out with bancassurance guidelines next month to put it in abeyance,” said the official.
Irda chairman TS Vijayan told ET that the regulator will have wider consultations before finalising the regulations. “Some of the membersexpressed some concerns in the previous board meeting. We are going to havetalks with banks and other stake holders to figure out what is the best solution to increase the reach of distribution,” he said.
As against the current norm of a bank entering into an exclusive agreement with insurer for selling insurance products across the country, Irda has proposed that an insurer can tie up with a bank on exclusive basis in a particular region and cannot tie up with an individualinsurer for a pan-India footprint. It has suggested that the country needs to be divided into three zones, which will be further subdivided into 40 geographical entities. And, a bank can tie up with an individual insurance firm for a maximum of 10 regions on exclusivebasis. However, government official said that the possibility of increasingpenetration through bancassurance or through other means may be examined rather than disrupting the corporate agent arrangement on the zonal basis.
Banks are not in favour of multiple tie-ups and want to continue with exclusive arrangement with insurance firms as they make money by selling insurance products on exclusive basis.
Under the existing guidelines, bancassurance is similar to the corporate agent where banks are allowed to tie up with only one insurance firm exclusively. As a result, banks are charging huge upfront premium for entering into long-term exclusive contract with a single insurance firm. This is in addition to the regular commission.
Vijayan said that the regulator is looking into it and exploring various options. “One of the options that was suggested is to treat the bank as broker without going through the subsidiary route, which is currently not permitted. That will solve the exclusivity issue,” he said. Banks which are regulated by the RBI are not allowed to set up wholly owned subsidiary for insurance broking business, at the same time Irda does not allow banks to become insurance brokers since it needs separate capital.
Source :The Economic Times.
Date : 8/07/2013
Writer: ARUN KUMAR NEW DELHI