An open architecture of banc assurance could still be a distant phenomenon, since banks are unlikely to take the broking route.
While the Reserve Bank of India (RBI) has bought out final guidelines for banks
to become insurance brokers, high liability and lower revenue from this model
may dissuade banks from doing do.
In its final guidelines, RBI has said that banks may become
insurance brokers and sell multiple products though it is not mandatory.
To facilitate an open architecture of bancassurance where a
bank is enabled to sell products of all insurance companies, RBI had earlier
brought out draft norms on the same.
Bancassurance, which refers to banks selling insurance
products, now follows a corporate agent structure. This means that banks sell
insurance as a corporate agent and these regulations allow each bank to sell
insurance products of one life, one general and one health insurance company
each.
As per the final RBI norms, a bank can enter insurance
broking only if their Capital to Risk (Weighted) Assets Ratio is 10% and above
and their level of net non-performing assets is 3% or below. RBI said that the
net worth of the bank should not be less than Rs 1,000 crore, compared to Rs
500 crore criteria mentioned in the draft guidelines of RBI.
Insurance players also agree that unless they are forced to
do so, large banks are not likely to voluntarily become insurance brokers.
Amitabh Chaudhry, MD & CEO of HDFC Life said that unless
mandated to do so, banks may not be interested in becoming brokers. He said it
was easier to be a corporate agent than a broker especially since the bank
would be liable for the policies sold in the latter model.
There was a call to have an open architecture of
bancassurance in the insurance industry since there were several late entrants
in the market which did not have a bank to tie-up with.
Almost all the private and public sector banks either have
JV agreements or are corporate agents of insurance companies. Banks like ICICI
Bank, HDFC Bank, Axis Bank and YES Bank apart from State Bank of India, Punjab
National Bank, Oriental Bank of Commerce, Canara Bank are corporate
agents.
An existing JV agreement would restrain players from
opting for the broking route, said the chief executive of a mid-size private life
insurer. “Once these banks become brokers, they would not be in a position to
push products of their group companies. Private insurers, which get almost
60-70% of their new business from these banks, may see a sudden slump if their
parent bank becomes a broker. This is not something the shareholders would
approve,” he said.
As banks have already tied-up with existing players, others
like Reliance Life Insurance and Edelweiss Tokio Life Insurance do not have a
bancassurance partner. On the other hand, players like Canara HSBC OBC Life
Insurance that has three bank partners depends 100% on the bancassurance
channel to procure business.
Rajeev Kumar, chief and appointed actuary at Bharti AXA Life
Insurance said that the regulator could have a model wherein banks are able to
earn higher revenues as brokers. “This will be an incentive for them to become
brokers. While not all banks would want to become insurance brokers, even if
one or two marquee players take this step, others may follow later,” he said.
Insurance Regulatory and Development Authority of India
(IRDAI) had also favoured an open model of insurance distribution by banks.
While proposals like one bank distributing insurance in certain geographies and
others in other geographies was mulled, these were not favoured by the
stakeholders.
Sector experts said that there could also be newer models
between the current corporate agency model and insurance broker model to help
open up the sector. Here, a bank could be enabled to sell two policies of life,
non-life or standalone health companies to begin with.
On 20 December 2013, a letter from finance ministry,
addressing the public sector bank chief executives, said that banks should
become insurance brokers and leverage their branch network for insurance
penetration.
Former finance minister P Chidambaram in his budget speech
had also said that banks could become insurance brokers to boost insurance
penetration, which stands at 4.1% of the Gross Domestic Product (GDP).
However, banks that had a joint venture agreement with
insurance companies had expressed their discontent with this proposal. This
would have meant that they had to sell products of all insurance
companies.
As an insurance broker, the bank is liable to consumers with
respect to an insurance policy, unlike the case with a corporate agent. The
liability is high, especially since the bank will sell products of multiple
insurers.
This too, said the chief distribution officer of a private
general insurer would be a deterrent for banks since they would not wish to
take risks on the books, be it a subsidiary or a joint venture.
RBI has also said that the bank should have made a net
profit for the last three continuous years and that the track record of the
performance of the subsidiaries, if any, of the concerned bank should be
satisfactory.
