Tighter norms issued by the IRDA will make banks liable.
Starting April 1, 2016, corporate agents, banks and their employees will be liable for insurance policies sold by them. The bank and its specific employee found guilty of mis-selling insurance products are likely to face action. This is based on the the Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015. Under the regulations, the insurance regulator has also allowed corporate agents, including banks, to tie-up for three life, three non-life and three standalone health insurance firms against the earlier limit of one only in each category. Banks already act as corporate agents through bancassurance agreements with insurance companies. Bringing a degree of responsibility to banks and corporate agents is a good move considering that between 40-50% of all insurance policies sold in the country are by banks.
What this does is to create a fair degree of responsibility for banks as far as selling insurance products is concerned. So, despite the fact that insurance is not a core product for a bank, it will need to over a period of time create a cadre of employees who know the intricacies of insurance policies they sell. That definitely involves a cost, but is critical in case banks are looking to expand their bancassurance presence. Also, the regulation states that banks need to ensure no policy is sold without proper disclosures about its features. That could well be the first step to bring about transparency in insurance products.