Insurers, banks oppose mandatory cap on business from one insurer

Banks and insurance companies with a strong bank partner or promoter have opposed the Insurance Regulatory and Development Authority of India (Irdai) cap on business from insurers in life, non-life and standalone health.

Irdai, in its exposure draft on licencing of corporate agents, has said no corporate agent can get more than 90% business from one insurer in life, non-life or health in their first year of operation.

A senior industry official said they have sought that even if caps are imposed, they should not less than 80-85% Stock Market Trading Tips

"Several foreign partners have entered the Indian market through a joint venture only because of the prospects of distribution given by the bank partner. Taking that away in an abrupt manner will impact the business," said the chief executive of a major life insurance company.

Due to the new draft, exclusive tie-ups of a bank and insurance company as a corporate agent would be a thing of past with the regulator putting a cap on maximum business a bank can get from one insurer. The insurance regulator has now allowed banks to tie up with maximum three insurers each from life, general and health segment.

Accoring to current laws, corporate agents (like banks and non-banking finance companies) are allowed to tie-up with only one life insurer, one non-life insurer and one standalone health insurer Financial Astrology Trading Tips

Furthermore, the insurance regulator has mandated that not more than 75% of the premium shall be placed with any one insurer in the second year and not more than 60% of the premium can be placed with any one insurer in the third year of their operations.From the fourth year onwards, no corporate agent shall place more than 50% of their business as specified above, with any one insurer.

The chief distribution officer of a bank-promoted insurer said that the real trouble will arise from the fourth year when business is limited at 50%. "The USP of a lot of companies comes from the bank through which they conduct maximum business. We have requested Irdai to consider such companies before taking a final call on this issue." he said Personal Numerology Trading Tips

Irdai has given time till April 24 to all stakeholders to present their views on this issue.

Banks are not comfortable with caps (ceilings). This issue has been discussed threadbare under ageis of industry lobby group Indian Bank's Association. Top bank executive said banks are handling bank assurance business for over a decade now. they have matured to deal with partnerships. Any ceiling will only limit the choice for customers.

"There should be open architecture without restrictions," said senior public sector bank executive. He, however, did not elaborate on when banks would have dialogue with insurance regulator.

In January 2015, Reserve Bank of India (RBI) had also brought out guidelines enabling banks to become insurance brokers. In the final norms, RBI said that a bank can enter insurance broking only if the capital to risk (weighted) assets ratio is 10% or above and the level of net non-performing assets is three% or below Intraday Trading Tips

The chief executive of a life insurer with a large bank partner explained that while an open architecture in insurance will be beneficial, banks cannot be forced to tie-up with more than one insurer in each category, since their business model will be different.

Irdai has said that the registration of a corporate agent who fails to comply with these norms will be suspended or even face cancellation of licences, apart from facing financial penalties. All existing corporate agents would have to register afresh and apply for a license to Irdai as per the new norms once they are finalised.

This year the size of the bank-led insurance business market is set to cross ~10,000 crores led by a strong growth in unit-linked insurance plans' sale. Here, the private banks reported a stronger business than public sector banks Commodity Trading Tips

Industry officials said that some joint ventures have been set up and foreign partners have come on board only on the basis of the fact that they will have a bank promoter or group bank who will solely sell their products. "It is a risky business model and JVs would have to reconsider their shareholder agreements," said the chief distribution officer of a bank-led private life insurer.

Insurance companies who entered the sector at a later stage did not have any bank to tie-up with, since most banks were either promoters of insurance companies and were selling only the subsidiary's products or had already tied up with one insurer in each category. These newer insurers then approached cooperative banks and regional rural banks for tie-ups.

Irdai has said that there would be three categories of corporate agents who can be licensed, corporate agent (life), corporate agent (general), corporate agent (health) and corporate agent (composite). In each category, the corporate agent is allowed to sell maximum of three insurance companies' products Nifty Trading Tips