IRDA move: Banks in a tizzy

May have to sell policies of at least two insurers in each category

IRDAI's attempt to make banks sell insurance policies of more than one insurer is part of its draft regulations for corporate agents issued recently. Each corporate agent shall represent a maximum of three insurers in each category of insurers - life, general and health

The Indian insurance regulator's proposal to make banks sell policies of at least two insurers of each category - life, general and health - has thrown up an unexpected brand equity challenge for the banks, insurance experts say. Currently, banks as corporate agents can sell policies of only one insurer each in life, general or health insurance sectors. In India there are three types of insurers - those promoted by banks, those who have appointed banks as their corporate agents and insurers not having any banks to distribute their policies. Banks such as ICICI Bank, HDFC Bank, State Bank of India and others that have floated insurance companies sell only the products of the group companies.

"It would be interesting to note how the banks would choose their principals. This is more so for private banks that have promoted insurance ventures," a senior insurance official told IANS. "It is highly unlikely to see ICICI Bank, HDFC Bank and State Bank of India selling the products of insurance companies promoted by each of them as their brand equity would be affected," he added. Industry officials said while the proposals would open up new channels for several private insurers, Life Insurance Corp of India (LIC) too would benefit as more banks would sign up with the market leader.

"The selection of new principals by banks would depend on factors like their strengths in different market geographies and whether they are direct competitors," Ramanujam Sridhar, founder and CEO, Brand Comm, a brand consulting company, told IANS over telephone from Bangalore. The Insurance Regulatory and Development Authority of India (IRDAI) has been attempting to make banks turn into insurance brokers but has not succeeded. Banks have not shown interest as broking involves higher risks than being an agent.

IRDAI's attempt to make banks sell insurance policies of more than one insurer is part of its draft regulations for corporate agents issued recently. As per the regulations, each corporate agent shall represent a maximum of three insurers in each category of insurers - life, general and health. The regulator has proposed some fetters on corporate agents like limiting the maximum premium per insurer to 90 per cent of the total in the first year. The cap gradually drops to 50 per cent in the fourth year. In addition, IRDAI has proposed that a corporate agent shall sell products that are exclusively designed for the corporate agency channel.

"In other words, corporate agents including banks will not be able to sell complex products like unit linked insurance policies (ULIP). If anybody wants to sell the whole suite of products, then becoming a broker is the way forward," said an official. Welcoming the IRDAI's proposals, Anup Rau, CEO, Reliance Life Insurance, told IANS: "Many players in the industry favour the proposals." Added a senior industry official: "Our only submission is the stipulation that a corporate agent should sell products of minimum two insurers in each category should be mandatory.

"There is a school of thought that the proposal could be made optional. If that is done, then the whole proposal is not worth a piece of paper," he added. More than compelling banks to become a broker through direct or indirect regulations, a different approach should be looked at to achieve the objective, another industry official told IANS. He said: "Compulsion through regulations may not stand the test of law. Instead the banks should be incentivised to sell polices of more than one insurer." According to him, a differentiated compensation scale based on the number of insurer's products a bank sells could be one option to be looked at.

Similarly, a regulator can use the stick approach against banks that have promoted insurance companies and refuse to sell the products of other insurers. "The insurance regulator can stipulate that such bank promoted insurance companies cannot sign up non-promoter banks to sell their products," the official said. Rau said: "Materially such an idea will not change the existing situation. Those banks that have promoted insurance firms will continue to sell the products of their group venture."

By Venkatachari Jagannathan