The Insurance Regulatory and Development Authority (Irda) may soon make the broking model for banks compulsory if significant traction is not achieved in insurance penetration.
“Irda is already in touch with the ministry of finance and the RBI in this regard. A decision with regard to making ‘broker’ model for banks rather than agent model, if (agent model) does not see traction in the next two to three months is on the cards,” a senior insurance company official quoted the insurance watchdog as saying at a two-day stakeholder meeting hosted by the Irda.
Irda chairman TS Vijayan had earlier indicated that the regulator is in favour of banks acting as ‘brokers’.
Banks are selling insurance products to their customers only. So, they should act as brokers representing multiple insurance companies giving the best option to the customer rather than trying to sell a particular company’s product(s), Vijayan had recently said.
As a insurance broker, a bank is liable to consumers, with respect to an insurance policy, unlike a corporate agent. The liability could be high as a bank will sell the products of multiple insurers. In December, the Finance Ministry in a circular asked public sector banks to take up insurance broking by January-end in view of the meager insurance penetration levels in the country, especially in rural areas.
Data from the Irda shows that India now stands much below the global average of 6.5% (of GDP) in insurance spread at 3.96%.
“The major agenda of the meeting was to discuss various distribution channels and get feedback from the insurance companies,” a senior official of the Irda said. The regulator had issued draft guidelines to allow banks to act as brokers and sell products of more than one insurer in July last year.
Subsequently in November, the RBI decided to permit banks to undertake insurance broking business departmentally through draft guidelines.