With Irdas push, banks could offer more choice of insurance products

Written by Sandeep Singh | Updated: Jan 20 2014, 14:10pm hrs
IrdaEven though several months have gone by, not one bank has gone ahead to apply for the broking license.
In a few months you may expect your bank to start offering you insurance products of various insurance companies rather than pushing for just one companys product with which they have a joint venture partnership. The Insurance Regulatory and Development Authority (Irda) is set to make it mandatory for banks to adopt the broking model rather than following the corporate agent structure.

It will definitely lead to higher choice for the consumer at a particular bank branch and therefore it is good from that perspective, said Subrat Mohanty, executive VP, HDFC Life who added that Irda may also look to allow the 22 lakh odd agents to start selling products of multiple insurers as that will further benefit the customer who will get more choice from his her agent.

Even though several months have gone by, not one bank has gone ahead to apply for the broking license. Insurers, however, feel that not only will it increase choice for the consumer it will also reduce mis-selling and lead to more real comparisons for the consumer when he visits a branch to buy a product.

In a broking model, if products of five insurers are available then the consumer will be shown real comparison of products of five companies in the same category from where he can pick the best one. He will not be shown a comparison of one category of product with another category of product from the same insurer, said Anup Rau, CEO, Reliance Life Insurance adding that need based approach will take a lead as obligation based selling will reduce.

The move that was brought in with a view to benefit the customers who will then have the option to choose from a variety of products offered by various insurers, would also provide level playing field to all insurers as they will have an equal opportunity to offer their products through all banks.

It may be good for the consumers but no bank has yet taken a license to operate as a broker and the latest move from the Irda may now force them to take that route.

What IRDA wants

Irda chairman, TS Vijayan, had in a meeting with the insurers on Thursday made it clear that if the banks continue to sell insurance as agents then it will look to make it mandatory for them to adopt the broking route and advised companies to fall in line before it was made compulsory.

A source who was part of the meeting told The Indian Express that, He (Vijayan) said that if he did not see traction by April then he would not be averse to make the broking model compulsory for banks, said the source.

Vijayan also proposed to ease up things for the insurance companies and banks by way of providing some relaxation to them on the cap proposed earlier. The chairman said that for the short to medium term he is willing to revise the 25 per cent cap per insurer to an upper limit to allow smooth transition, said the source.

Why it hasnt taken off

A number of banks have promoted their own insurance companies and so they are interested in mostly selling their own insurance product. An official with a bank said that banks also feel that when a customer enters a bank he has chosen that brand and products from that house. While this is one factor that stops them from going ahead and becoming a broker there are others who are obliged to sell product of one insurance company as they have entered into a joint venture partnership.

A number of public sector banks such as Punjab National Bank, Union Bank of India, Bank of India and some others have exclusive arrangement with insurance companies to sell their products and have entered contractual obligations to do so.

Also the banks are still awaiting the Reserve Bank of Indias nod to work as an insurance broker and to be able to sell insurance products offered by multiple insurance companies.

The bankers are expected to take this matter up with the finance ministry officials in a meeting scheduled towards the end of this month.

Industry insiders also feel that this may take some time and therefore should be given some time in order to work properly.

I dont think we should rush into it as employees need to be trained to be able to handle several products from various insurers and to follow need based approach rather than selling products that offer higher remuneration, said a senior official with an insurance company.

There are others who feel that while the risk of bank employees pushing products paying high remuneration is there, steps taken by Irda will help reduce such instance in future.

Irda has taken various steps to get toxic products and those that are not transparent off the shelf and is also working towards standardisation of products. This will help reduce mis-selling, said Rau.

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The Insurance Regulatory and Development Authority (IRDA) is set to make it mandatory for banks to adopt the broking model rather than following the corporate agent structure, where only one insurance companys products are sold

IRDA may also look to allow around 22 lakh agents to start selling products of multiple insurers as that will further benefit the customer

Insurers, however, feel that not only will this new model increase choice for the consumer it will also reduce mis-selling and lead to more real comparisons for the consumer when he visits a branch to buy a product

The move may be good for the consumers but no bank has taken a license to operate as a broker and the latest move from the Irda may now force them to take that route