Customers to get more choice, but cos which paid big for bank tie-ups may not cheer move
India’s insurance regulator is considering making it mandatory for banks to adopt open architecture under which they will have to sell products of multiple insurance companies.
The Insurance Regulatory and Development Authority (Irda) said this to the chief executives of about 50 insurance companies at a meeting last week. “The regulator has clearly said that they are going to make open architecture mandatory in order to give choice to customers and boost insurance penetration,“ said a private sector life insurance company’s CEO, who attended the meeting.
The share of banks in total individual new business went down to 15.62% in 2013-14 from 16.18% in 2012-13, according to Irda’s latest annual report. Confirming the move to make open architecture mandatory , an Irda official said, “Making open architecture mandatory was discussed during the meeting. As Irda can ask banks to sell products of more than one insurance company .“ The regulator may ask banks to sell products of three companies, with one not exceeding 50% for the promoter company , said the official, who did not wish to be named.
Under the corporate agency tie-up, banks sell one life insurance, one non-life insurance and one specialised insurance like standalone health insurance.
If Irda goes ahead with its plan, customers will get more choice. However, many companies that have paid hefty amounts for the bank partnership are unlikely to cheer the move. Recently, the Reserve Bank of India allowed banks to become brokers if they so chose. “The broking model could provide an opportunity to the banks to increase their fee-based income while providing a greater product choice and taking on the fiduciary responsibility towards the consumers,“ said Tarun Chugh, managing director and CEO of PNB MetLife India Insurance.
Broking is expensive as it involves training and educating staff. Banks will have to hire dedicated manpower since they are all ready short-staffed. In August 2013, Irda had released the final guidelines on bancassurance. According to the rules, business done with a promoter bank is capped at 25% while the bank can do 50% with another insurance company and 25% with the third company.
Large foreign banks have entered into long-term agreements as part of regional deals which are not available to insurance companies for a longer duration.
Source: The Economic Times
Date: February 17, 2015