Leg up for insurers, given new channels to expand business

Insurance companies may no longer need to form exclusive partnerships with banks to sell their products through their branches.

Finance minister P Chidambaram in his budget has proposed to allow banks to act as brokers rather than corporate agents, which would enable banks to tie-up with multiple life and non-life insurance companies.

At present, banks are only allowed to enter into partnership with one life and one non-life insurance company to distribute their products.

“The proposal is very encouraging as it would increase competition and insurance penetration. Bancassurance guidelines were expected from the insurance regulator, however, we would have to wait a little more to get some clarity on whether they would still be encouraging or not,” said Alok Roongta, chief financial officer, Bharti Axa Life Insurance.

Selling insurance plans of multiple insurance companies might not be a good news for retail policyholders because of the concern over commission driven sales taking place instead of need-based selling. Although the regulator has fixed the upper limit on the commission for various distribution channels, banks might be biased towards high premium products to increase their commission earning.

“It would largely depend on insurance companies to launch right product for the right customer segment. There would be lot of responsibility on insurers to provide proper training to insurance experts manning the desk at banks to curb mis-selling,” said Sunil Sharma, chief actuary at Kotak Mahindra Old Mutual Life Insurance.

Insurers will also be allowed to accept know your customer (KYC) documents of banks to issue products. “This would expedite the process of policy issuance. However, insurance companies will still have to analyse financial and medical risk before underwriting,” added Sharma.

To improve insurance penetration in smaller cities and towns, the finance minister announced that LIC and at least one public sector general insurance company will open an office in towns with a population of 10,000 or more by the end of next financial year.

In order to open new branches in tier-II and other smaller cities, insurers will not need any prior approval of the Insurance Regulatory and Development Authority.

Rashtirya Swastha Bima Yojana (RSBY), which covers 3.4 crore below poverty line families, is proposed to be extended to cover rickshaw pullers, auto and taxi drivers, sanitation workers, rag pickers, and mine workers.

“The consolidation of all government schemes like RSBY to extend coverage will increase the overall premium for the industry. The industry will look forward to passing of the insurance bill in the budget session as an affirmative step to attract FDI,” said Amarnath Ananthanarayanan, MD and CEO, Bharti Axa General Insurance.


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