Exclusive tie-ups between banks and insurance companies to sell their products are set to be history, with the regulator putting a cap on the business a bank can get from a single insurer.
While the move will benefit insurance companies such as Reliance Life, which does not have tie-ups with banks for selling its products, banks will be disappointed.
Earlier, when the Department of Financial Services had brought out a circular asking public sector banks to become insurance brokers, there was stiff opposition from banks, as their shareholder agreements had prescribed they would only sell products of their subsidiaries.
In cases such as Canara HSBC Oriental Bank of Commerce Life Insurance, the insurer follows a model of 100 per cent business from its bancassurance channel.
In its exposure draft on licensing of corporate agents, the Insurance Regulatory and Development Authority of India (Irdai) has said no corporate agent (such as banks and non-banking financial companies) can collect more than 90 per cent of the premium from a single insurer in each category -- life, general and health insurance. But this is only for the first year.
For the second and third years, the cap has been fixed at 75 per cent and 60 per cent, respectively.
From the fourth year, no corporate agent can collect more than 50 per cent of the premium from a single insurer.
This means, banks will have no option but to tie up with more than one insurer in each category.
According to current norms, corporate agents such as banks are allowed to represent only one life insurer, one non-life insurer and one standalone health insurer.
The insurance regulator has now allowed banks to tie up with up to three insurers from each of the three segments.
The regulator has said for corporate agents failing to comply with these norms, registration will be suspended.
They could even face cancellation of licences, apart from financial penalties.
Anup Rau, chief executive of Reliance Life Insurance, said while this would open the bank network to more than one insurer, the regulator should have prescribed a minimum tie-up criteria for each bank.
A presentation by Reliance Life said the bancassurance market size was Rs 9,500 crore (Rs 95 billion) in FY14 (individual segment), adding in FY15, it was likely to show significant, growth, primarily driven by unit-linked insurance plans.
The presentation added public sector banks, with 400 million accounts, had insurance penetration of just about one per cent.
If this penetration was increased to 15 per cent, it could add 50 million customers and generate an additional Rs 60,000 crore (Rs 600 billion) of life insurance premium in the next five years, the presentation said.
All existing corporate agents will have to register afresh and apply for a licence to Irdai, according to the new norms, once these are finalised.
Insurance companies that entered the sector at a later stage did not have any bank to tie up with, as most lenders were either promoters of insurance companies and were selling only its subsidiary's products or had already tied up with an insurer in each category.
As such, these new insurers approached cooperative banks and regional rural banks for tie-ups.
Irdai has said four categories of corporate agents will be licensed -- corporate agent (life); corporate agent (general), corporate agent (health) and corporate agent (composite).
In each category, the corporate agent will be allowed to sell the products of up to three insurance companies.
A senior executive of a bank-promoted insurance company said banks might approach the Reserve Bank of India for clarification.
"While the regulator has put in some norms, large banks might wish to seek clarification on whether they would be mandated to end their exclusive tie-ups with their group insurance entities," he said.
According to the draft, a corporate agent should have a principal officer (who should be a graduate, at the least) to supervise the corporate agent.
The corporate agent will engage the services of specified persons who will procure business.
For exclusive corporate agents, share capital and net worth of at least Rs 50 lakh has been prescribed.
IRDAI DIRECTIVES
- Each corporate agent can tie up with up to three insurers, in the life, general and healthcare categories
- Fresh applications to be sent for licensing as corporate agents in life, general, health or composite category
- Corporate agents cannot get more than 90% business from one insurer in each category in the first year; to be brought down to 75% in the second year and 60% in the third year
- Cannot procure more than 50% from each insurer from the fourth year
