IRDAI removes cap on business from one insurer for banks

Insurance Regulatory and Development Authority of India (IRDAI) has done away with the capping of insurance business from one insurer by a bank in its latest draft. As compared to the previous draft that mandated banks to cap business from one insurer to 50%, IRDAI has removed this cap.

This would mean that those insurers without a bank partner or promoter would still have to wait longer to get business from bancassurance. The regulator has said that an insurer can have tie-ups with up to three insurers in any line of business-life, non-life or health.

Anup Rau, CEO of Reliance Life said, “Unless it is made mandatory, banks would not tie-up with other insurers. Compared to other countries in Asia where there is open architecture as part of regulation and also part of common practice, we do not have it. However, going forward opening up the bank network will become a reality.”

Presently, banks are allowed to tie-up as a corporate agent with one life, one non-life and one standalone health insurer. Hence, insurers who entered the market later did not have any bank partner.

In FY15, insurers with bank partners or promoters had an increase in the business from bancassurance. The industry almost gets 55-65% business from the bank channels.

IRDAI in an earlier draft on corporate agents released in March had said that no corporate agent (including banks) can get more than 90% of the premium from any one insurer in the first year.

It had said that this limit should gradually come down to 75% and 60% during the second year and third year respectively. From the fourth year onwards, it said that this limit should not be more than 50%.

Industry sources said that banks, especially large public sector banks, had approached the finance ministry and requested that the cap be removed, since otherwise their valuations could take a hit.

“The regulator has given an option to choose whether they want to remain as a corporate agent to one insurer or tie-up with more than one insurer. Making it compulsory wouldn’t be viable, since a lot of us have exclusivity arrangements with our promoter banks,” said the chief executive of a large bank-promoted private life insurer.

The regulator has said that at the time of seeking registration, corporate agent has to file a board-approved policy on the manner of soliciting and servicing insurance products.

IRDAI has clarified that this policy has to address the manner of adopting the philosophy of open architecture and going forward in implementing the same. The policy, amongst others, would include the approach to be followed by the corporate agent in having single or multiple tie-ups, the partners in the tie-ups, the business mix, the type of products sold, grievance redressal mechanism and reporting requirements.  

Those banks (corporate agent) whose revenues from their insurance intermediation activities is more than fifty% of their total revenue from all the activities, have to take out a professional indemnity insurance cover throughout the validity of the period of the registration granted to it by the Authority.