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Banks coy on insurance broking

Mumbai, Dec. 8: Life insurers are finding it difficult to grow sales via banks as the latter are hesitating to opt for a model that involves distributing products of multiple insurance firms.

The Insurance Regulatory and Development Authority (IRDA) had in July notified the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 to enable banks to take up insurance broking departmentally. Subsequently, the Reserve Bank came out with norms governing the entry of banks into the insurance broking.

Bancassurance involves the sale of insurance policies, both life and non life, through banks. As banks have more than 88,500 branches in the country, insurers are keen to use this channel to tap customers.

The insurance broking guidelines will lead to commercial banks hawking products of various insurers apart from their own subsidiaries. However, banks cannot compromise the interest of the consumer and will only sell the product that is best suited for them.

This is different from the corporate agency channel, which came into effect after the Corporate Agency Regulations, 2002. Under this route, lenders can distribute the product of a single insurer for a fee.

According to analysts, this has created a skewed distribution structure with only a few insurers having exclusive arrangements with a significant number of banks.

Some industry sources believe the plan to make banks brokers is yet to take off.

“While the regulation came out in July, no bank has become a broker till date,” a senior official from a leading insurance company said. The official said there were various reasons holding back the scheme.

The RBI has stipulated that the capital adequacy of the bank should not be less than 10 per cent and that the level of non-performing assets should not be more than three per cent. Further, the bank should have made profits for the last three consecutive years.

Analysts said some PSU banks would not meet the norms on NPA and capital adequacy. Many co-opeartive banks may also fail to fulfil the criteria.

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