In the draft guidelines released on Wednesday, the Insurance Regulatory and Development Authority (Irda)

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has proposed zonal tie-ups for bancassurance allowing insurance companies to tie up with more than one bank for selling its insurance products.

Under the bancassurance system, at present, one bank can tie up with only one life and one non-life insurance company.

Irda has proposed dividing the country into several zones, and has put a cap on the number of states an insurer can sell its products through a bank. However, one bank can sell products of only one life and non-life insurance company in a zone.

“Irda has categorised different states and union territories into three zones. The insurance companies will be allowed to have only one bank tie up in nine states and six union territories. In all the other states and union territories, they will have to form new bank tie-ups to sell their products. However, there is no upper limit on the bank tie-ups insurers can have in the country,” said Suresh Agarwal, executive vice-president and head of alternate channel and strategic initiatives of Kotak Mahindra Old Mutual Life Insurance.

If these proposed guidelines become effective, insurers will look at tying-up with more banks in regions/zones where they have a stronger presence. Irda has invited comments from all stakeholders by December 12, 2011. In an open architecture system, an insurance company can tie up with multiple banks.

“Open architecture can significantly increase penetration in a cost-effective manner. Internationally, it has been observed that in comparison with the individual agency model, the cost of distribution is quite low in the bancassurance model. Due to recent changes in charge structure in unit-linked products, a number of insurers have exited semi-urban and rural areas as the direct agency channel has become increasingly unviable. Allowing banks to enter into multiple tie-ups will help insurance companies reduce the cost of distribution,” said TR Ramachandran, chief executive officer and managing director, Aviva India.

Irda has also put a cap on commission paid to bancassurance agents to 85 per cent of the total commission. For example, for selling an insurance policy, if a regular agent is entitled to get

Rs 100 as commission, a bancassurance agent (bank) for the same policy will get a maximum of Rs 85. “The commissions to be paid to the bank channels have also been considered in the draft regulation. On traditional life insurance products, banks will earn 85 per cent of total commission provided to a normal agent, however, the commission for Ulips (unit-linked insurance policies) are more or less similar,” said P Nandagopal, chief executive officer and managing director of IndiaFirst Life Insurance.

Out of 24 life insurance companies operating in India, 11 companies have banks as stakeholders. Bank-funded insurance companies have been opposing an open architecture. Insurance companies earn about 30 per cent of new business premium through bancassurance partners.

sagarsen@mydigitalfc.com