The Lucknow bench of Allahabad High Court has admitted a Public Interest Litigation (PIL) filed against SBI Life Insurance, an insurance joint venture between India?s largest lender State Bank of India (SBI) and French insurance major Cardif. The way the lawsuit proceeds will have direct implications on the thriving bancassurance model in the country.
The bancassurance model, which has been a great success in the country, operates on the premise that the bank sets up insurance business as a subsidiary and branches of the bank sell the products of the insurance subsidiary to existing customers.
In the case filed against SBI Life, Dhruv Kumar, the petitioner has cited Insurance Act, 1938 which prohibits an insurance agent from being appointed on the board of directors of the insurance company. The petitioner contends that SBI cannot have a board of directors in SBI Life as the bank acts as a corporate agent of the insurance company and sells its products through its 16,000 branches.
SBI has received permission from the insurance regulator Irda to act as its corporate agent and from the insurance regulation point of view, there is no difference between an individual agent and corporate agent.
Kumar has pleaded that since SBI has four directors in SBI Life, it is a gross violation of the provisions of Section 48 of the Insurance Act and that the bank?s corporate agency licences should be cancelled.
?As an agent of its own company SBI Life, the bank has been exploiting borrowers of the bank and predatorily priced policies are being sold by it,? said the petition.
While the case is being heard on January 18 in Lucknow HC, the life insurance industry feels any negative verdict will paralyse the the industry as all the top banks like SBI, ICICI, Bank of Baroda, Canara Bank, Bank of India and Union Bank have floated insurance companies and are selling their insurance companies? products through their extensive branch network.
Life insurance industry, where companies promoted by banks are plenty, has taken a collective stand against the case. Life insurers led by ICICI Pru Life have already written to Irda through the Life insurance Council (LIC), the official representative body of life insurance industry to clarify the situation.
? When the norms of said Act were laid down way back in 1938, no body must have thought about the bancassurance model. There must be a distinction between an ordinary corporate agent and a shareholder corporate agent. Irda has to represent the case accordingly in Lucknow HC,?? said the CEO of an insurance company.
The court has issued notice to SBI, SBI Life and Irda in the case.
According to Towers Watson India Bancassurance Benchmarking survey, bancassurance will play a crucial role in the overall development of the Indian insurance sector with the channel expected to generate 40% of private insurers? premium income by 2012, compared to the current 25-28 %. In general insurance, at present 17% of premium income comes from bancassurance.
Apart from SBI, other leading banks following the bancassurance model include ICICI Bank, Bank of India, Canara Bank, Bank of Baroda, Union Bank of India and HSBC.