Multiple Insurance Broking may have to Wait for 5 Years

Banks and insurance companies may breathe easy. The order mandating banks to sell insurance policies of multiple companies may come into force five years from now, helping those with bancassurance tie-ups to reap the benefits of their ventures. 
However, those without such tie-ups such as Birla SunLife may find it tough to gain market share in a cut-throat industry. 
The committee set up by the finance ministry to break the deadlock between the finance ministry and banks on insurance broking is likely to suggest that banks will have to sell covers of multiple insurance companies, but they should be given five years to migrate to this model, said a senior bank official familiar with the report, who didn’t want to be named. Over the past two months, the finance ministry and banks are at loggerheads over the insurance broking issue: while the ministry wants banks to sell cover of multiple insurance companies, banks are opposed to the idea on the ground that different banks are tied to different insurance companies for exclusively dealing in their products. 
Rajiv Takru, secretary, financial services, had set up a committee headed by Reena Banerji, general manager, RBI, to suggest a solution for banks to adopt this model. The panel has members from the Reserve Bank of India, the Insurance Regulatory and Development Authority (IRDA), Indian Banks’ Association and senior officials from commercial banks. “The committee is in the process of finalising its report and it will be submitted to the finance ministry very soon,” said a banker. The report suggests that banks should be given five years to achieve 25% ceiling on the extent of business that a bank can do with an insurance company. 
Meanwhile, Takru also made it clear that private banks will also have to follow the insurance broking model since IRDA and the finance ministry are on the same page on this. Bankers had argued that they do not have the requisite expertise and staff strength to sell insurance covers of multiple companies. The ministry believes that if banks sell products of different companies instead of being tied to a single company, it will reduce the instances of misselling of a product. 
Almost all banks in India currently follow the corporate agency model where they sell products of the company they have an equity tie-up with, or a specific agreement to exclusively sell their products. However, banks are worried since their agreement with insurance companies has an exclusivity clause which could be challenged by their equity partners if they adopt the insurance broking model. 

 

Source: Economic Times

Date : 28th March 2014

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