By Amar Patnaik
Despite the unprecedented thrust on promoting insurance after the launch of JAM policies, India has not performed well in the insurance sector. The number of schemes has increased with policies such as Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Suraksha Bima Yojana, Atal Pension Scheme, and Ayushman Bharat Health Insurance Scheme, among many others, but the penetration remains very poor. India has an insurance penetration of only 4.2% of its GDP as opposed to the global average of 7.5%. This bleak situation can be improved by capitalising on the enormous potential offered by “bancassurance”.
Bancassurance refers to the simple practice of selling insurance using bank infrastructure and clientele. So far, bancassurance’s journey has been quite beneficial for both banks and insurance companies. The insurance business adds to the income of the bank, and using the bank’s infrastructure and consumer base cuts a large chunk of the cost for insurance companies. It also goes a long way towards achieving greater insurance penetration as people are less reluctant to buy insurance from banks because they have established trust through their operations over a long period of time.
Banks evolved to have different needs from their insurer partners. Recognising this, the Insurance Regulatory and Development Authority (IRDA) notified new Corporate Agency Regulations in August 2015, which enabled a corporate agent to tie up with a maximum of nine insurance companies. Banks (just like any other corporate agent) were allowed up to three life insurers, three general insurers and three standalone health insurers. By increasing the number of insurers, the regulations enabled the banks to add greater non-capital consuming revenues, a lifeline for their stressed loan books, thereby ameliorating the overall health of the financial sector. Additionally, they also provided a greater choice to consumers.
While these regulations are well-intentioned, they are by no means sufficient. Contrary to its purpose, the regulations are causing serious damage, though unintended, to the prospects of bancassurance by prohibiting its growth. They fail to recognise the similarities between insurance and bank business and treat bancassurance just like a collaboration between insurers and any other corporate entity. This diminishes the benefits of collaboration between banks and the insurance sector by causing many overlaps in regulations, thus increasing transaction costs and decreasing the ease of doing business. Such ambiguities also create impediments to the modernisation of the bancassurance services. The fact that only four Indian banks offer online insurance even when 60% of the rest of the banking business is online is a testament to this.
In addition to this, the compulsory mandate on Specified Person (SP) certification and Insurance Self Network Platform (INSP) led to further inconvenience for banks. Individual bank employees require SP certification from IRDA and training to offer insurance. These are not necessary for bankers with enough experience in dealing with financial matters. Similarly, banks are already operating mobile apps, internet banking and other technology-driver initiatives which have to meet the regulatory guidelines on data confidentiality and security protocols. Thus, ISNP requirements are onerous and do not add value to the bancassurance ecosystem.
What needs to be done? First, the Corporate Agency Guidelines should not apply to banks. Instead, specific bancassurance guidelines with simple regulatory and reporting requirements for banks and NBFCs should be notified. Only an independent set of guidelines, framed in accordance with the basic principles and ethos of bancassurance, would be able to secure maximum synergies in this collaboration between banks and insurers.
Second, the requirement of SP certification should be waived off for bankers who are graduates and have over five years of banking experience in selling insurance products. A similar waiver should also be provided in respect of INSP guidelines. This will lead to an increase in bandwidth to market insurance products.
Third, liberalising product filing and expense ratios will also help. If the motive of regulations is to safeguard customers’ interests, then they should focus only on the terms of the expense ratio of banks and NBFCs, and fix a ceiling for charges levied on customers. The insurers should be given their space to innovate by allowing them to file products for sale by banks and NBFCs and should be directly allowed to market them through banks.
Another systemic flaw in the bancassurance model is the lack of incentives for individual bank employees to promote insurance. All conventional insurance agents get ample incentives in terms of rewards and recognition, often meaning that their pay is indexed to the number of customers they bring. This is not true for bank employees. If bankers are also given these incentives, their efforts in increasing insurance penetration will increase. A ceiling on such incentive income can be fixed to avoid unnecessary intra-bank competition.
Lastly, banks should report their annual insurance business numbers including premiums and policies sold for various insurers.
The writer is Member, Rajya Sabha.