Insurance companies may be able to offer only standard insurance products through the banking channel, a compromise worked out by the finance ministry to accommodate the concerns of the banking regulator on allowing banks to become insurance brokers.
Finance minister P Chidambaram in his budget speech this year had said that banks will be permitted to act as insurance brokers so that their greater reach can be leveraged to increase insurance penetration in the country that is as low as 4.4% of GDP in case of life insurance.
The Insurance Regulatory and Development Authority had earlier this month notified rules allowing banks to act as brokers of insurance companies, a process termed as bancassurance.
Under the current rules, banks can sell insurance products as agents of insurance companies and one bank can sell product of only one company under this agent-agency model. "While banks are well suited to distribute insurance products because of their wide network, several issues have arisen regarding their conduct in the process, generally pertaining to mis-selling and certain restrictive/ unfair practices (such as linking provision of locker facilities to purchase of insurance products, selling of unsuitable and/or multiple policies etc.)," the RBI had said in Financial Stability Report released in June.
The Financial Stability & Development Council (FSDC), an inter-regulatory coordination body, had deliberated also the issue of banks selling insurance products for more than one insurance company under the bancassurance model on August 7, a day before the guidelines were announced by IRDA.
The RBI is believed to have raised concerns again at the FSDC. The finance ministry feels a standardized product fromall insurers should take care of RB's concerns, and allow insurers to ride on bank networks to increase insurance penetration.
"The aim of allowing banks to act as brokers was to increase the insurance penetration. Same features product will not only prevent mis-selling but also ensure that customers can chose a product based on the performance and efficiency of the insurer," a finance ministry official told ET. The insurance regulator will ensure that all products sold through banks will be standardised in terms of features and commission structure, the official said.
At present, insurance business through Bancassurance is only about 7.5% of the total insurance premiums and only about 15,000 of the existing 100,000 bank branches are engaged in selling insurance policies.
"Standardised products will ensure that banks do not push a particular company's product as almost all products will be similar except for their brand name. Moreover, if a company wants to sell a complicated product it will have to take prior permission from IRDA," the finance ministry official said.
The RBI had further called for an urgent need to revisit the marketing and sales strategies used by the banks in pushing insurance products, especially since insurance is among the more complex of financial products. It also felt there could be a conflict of interest if bank acting as an insurance broker was also promoter of an insurance company.
Finance minister P Chidambaram in his budget speech this year had said that banks will be permitted to act as insurance brokers so that their greater reach can be leveraged to increase insurance penetration in the country that is as low as 4.4% of GDP in case of life insurance.
The Insurance Regulatory and Development Authority had earlier this month notified rules allowing banks to act as brokers of insurance companies, a process termed as bancassurance.
Under the current rules, banks can sell insurance products as agents of insurance companies and one bank can sell product of only one company under this agent-agency model. "While banks are well suited to distribute insurance products because of their wide network, several issues have arisen regarding their conduct in the process, generally pertaining to mis-selling and certain restrictive/ unfair practices (such as linking provision of locker facilities to purchase of insurance products, selling of unsuitable and/or multiple policies etc.)," the RBI had said in Financial Stability Report released in June.
The Financial Stability & Development Council (FSDC), an inter-regulatory coordination body, had deliberated also the issue of banks selling insurance products for more than one insurance company under the bancassurance model on August 7, a day before the guidelines were announced by IRDA.
The RBI is believed to have raised concerns again at the FSDC. The finance ministry feels a standardized product fromall insurers should take care of RB's concerns, and allow insurers to ride on bank networks to increase insurance penetration.
"The aim of allowing banks to act as brokers was to increase the insurance penetration. Same features product will not only prevent mis-selling but also ensure that customers can chose a product based on the performance and efficiency of the insurer," a finance ministry official told ET. The insurance regulator will ensure that all products sold through banks will be standardised in terms of features and commission structure, the official said.
At present, insurance business through Bancassurance is only about 7.5% of the total insurance premiums and only about 15,000 of the existing 100,000 bank branches are engaged in selling insurance policies.
"Standardised products will ensure that banks do not push a particular company's product as almost all products will be similar except for their brand name. Moreover, if a company wants to sell a complicated product it will have to take prior permission from IRDA," the finance ministry official said.
The RBI had further called for an urgent need to revisit the marketing and sales strategies used by the banks in pushing insurance products, especially since insurance is among the more complex of financial products. It also felt there could be a conflict of interest if bank acting as an insurance broker was also promoter of an insurance company.
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