The Insurance Regulatory and Development Authority of India (IRDAI) has proposed changes in the bancassurance model. According to a report by CNBC-TV18, IRDAI has proposed to the Ministry of Finance to replace the current commission-based model with a transaction fee model.
What is the Bancassurance model
The Bancassurance model is a partnership between the bank and the insurance companies where the banks sell the insurance products to their existing customer base. The bank uses its existing branches and infrastructure to sell the insurance. In turn, the banks get a commission on the sales of insurance.
In the proposed model, the bank would not get a commission from the insurer rather a transaction fee for each transaction. As per CNBC TV-18, the pricing of the transaction fee would have no ceiling, and it would be determined by the market.
IRDAI keen to address customer concerns
In recent years, the Ministry of Finance and IRDAI have taken note of the customers’ concerns over forced selling or mis-selling of insurance products by the banks. In 2023, IRDAI launched a task force to examine the bancassurance model and find out the issues and improve efficiency. The offering of poor products and asymmetric incentives on products has been the key concern for IRDAI.
The major banks in India have affiliated insurance companies, which get a large proportion of their customer base from the banks. Insurance company SBI Life is backed by the State Bank of India and gets 60 percent of its business from the bancassurance partnership, says a report by Emkay Research.
Similarly, HDFC Life and ICICI Prudential Life Insurance, which are backed by HDFC Bank and ICICI Bank, get 65 percent and 29 percent of their business from the bancassurance partnerships.