In order to resolve the concerns of PSU banks for acting as an insurance broker, government’s panel is considering the proposal to define the exact road map to implement the multi-company insurance sale model. The government also indicated that PSU banks must follow broker model to sell insurance instead of corporate agency model. Government wants to use banking network to deepen insurance coverage in the country. Therefore, Finance Ministry, in December, has directed public sector banks to become insurance brokers instead of remaining corporate agents.
Conversely, banks are not keen to acts as an insurance broker as the banking industry is of the view that under this model, banks are likely to see a substantial decrease in their premium collections. As corporate agents, banks can earn up to 35 percent of the first-year premium but as brokers, they would be entitled to a maximum of 30 percent. Further, banks also fear that floating a subsidiary to sell insurance products and ending the exclusive arrangements with insurance companies will be difficult.
The insurance broking model is also backed by the Insurance Regulatory and Development Authority (IRDA), which noted that it is open to further relax norms to facilitate this transition. The insurance regulator has cleared that its guidelines regarding bancassurance will be the same for both state and private sector banks for selling insurance products. As per the IRDA guidelines, banks will have to cap business from their own group companies at 25% for both life and non-life business. Furthermore, according to the RBI guidelines, banks with more than 3% of non-performing loans and lower than 10% capital adequacy ratio cannot undertake insurance broking business, eliminating PSU banks such as Central Bank of India, Allahabad Bank and United Bank of India. Currently, banks are allowed to sell products of one life, one nonlife and one health insurance company.
Conversely, banks are not keen to acts as an insurance broker as the banking industry is of the view that under this model, banks are likely to see a substantial decrease in their premium collections. As corporate agents, banks can earn up to 35 percent of the first-year premium but as brokers, they would be entitled to a maximum of 30 percent. Further, banks also fear that floating a subsidiary to sell insurance products and ending the exclusive arrangements with insurance companies will be difficult.
The insurance broking model is also backed by the Insurance Regulatory and Development Authority (IRDA), which noted that it is open to further relax norms to facilitate this transition. The insurance regulator has cleared that its guidelines regarding bancassurance will be the same for both state and private sector banks for selling insurance products. As per the IRDA guidelines, banks will have to cap business from their own group companies at 25% for both life and non-life business. Furthermore, according to the RBI guidelines, banks with more than 3% of non-performing loans and lower than 10% capital adequacy ratio cannot undertake insurance broking business, eliminating PSU banks such as Central Bank of India, Allahabad Bank and United Bank of India. Currently, banks are allowed to sell products of one life, one nonlife and one health insurance company.
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