BANCASSURANCE RULES ARE LIKELY TO BENEFIT BANKS AS INSURERS OFFER HIGH COMMISSIONS

Bancassurance - the sale of life and other insurance products by banking institutions - as planned by the regulator may turn out to be a hotchpotch with neither the consumer nor insurance companies gaining. Probably banks will, but that's not the constituency that the Insurance Regulatory and Development Authority, or IRDA, is created to develop.

As with any plan, there are those who welcome what the regulator is planning to do, and those who oppose it. Those at a disadvantage now without a partnership with banks - the new life insurance companies - are for it. But those dominant and mentored by banks are not.

Those who have little business, smell an opportunity to grow. Those who are on top fear the change in the rules of the game may turn their fate something similar to that of the Indian hockey, which surrendered its top slot when the rule changes favoured the European power play, instead of the stylistic short-pass one.

"There should be a minimum limit like one bank cannot sell more than 50% of products of one insurance company, or less than 20% of another insurance company," said SB Mathur, secretary general, Life Insurance Council, an industry lobby group. "Just by allowing two insurance companies will not serve the purpose," said Mr Mathur, a former chairman at state-run Life Insurance Corporation of India, which enjoyed a monopoly till a decade ago.

IRDA had put draft rules for Bancassurance products as most loss-making insurance companies are looking for distribution channels to avoid capital expenses. Some deals between banks and insurance companies have already happened, but most of them were without order and may be harmful for policy buyers.

So, it has proposed that one bank could be allowed to sell products of two sets of insurers - two life, two non-life and two health insurance companies. The government's financial inclusion agenda and the saturation of urban markets where insurance is mostly sold as investments, are going to drive what the regulator intends to do. "The premium growth seems to have reached a plateau due to the inability of both the banker and insurance companies in exploiting the full potential of bank customer profile," IRDA has said in the report. Large insurance companies such as SBI Life accounted for as much as 38% of the sales.

SOURCE: http://articles.economictimes.indiatimes.com/2011-07-20/news/29795056_1_insurance-companies-life-insurance-council-bancassurance