Of course, the bank will need to have an insurance broker’s license for this.
Recently, the insurance regulator changed the architecture of the bancassurance (distribution of insurance products through banks) channel.
Through these regulations, the Insurance Regulatory and Development Authority has allowed banks to become brokers, as opposed to corporate agents, for insurance companies.
The regulations have come into effect, provided the Reserve Bank of India has no objections.
RBI in its Financial Stability Report had said banks assuming the role of brokers might lead to conflict of interest.
RBI said in some cases, it was observed banks did not have a clear segregation of duties of marketing personnel from other branch functions.
Bank employees were directly receiving incentives from third parties such as insurance companies, mutual funds and other entities for selling their products.
Experts feel the new regulations are advantageous for potential policyholders.
“The business of broking is more customer-centric and that of an agent is manufacturer-centric,” explains Monish Shah, senior director at Deloitte India.
This means, as brokers, banks will be responsible for the policyholders (say, mis-selling), which is not the case for corporate agents.
In the case of corporate agents, the insurance company is responsible to policyholders.
This also means banks will need to be on top of the varied policies they sell, as brokers also need to offer advisory business.
“Once a bank becomes a broker, it can offer products of multiple insurance companies. This will mean more products to choose from for customers,” says Deepak Mittal, managing director and chief executive officer of Edelweiss Tokio Life Insurance.
Under the current norms, a bank is allowed to become the corporate agent of only one life, one general insurer and a stand-alone health insurer.
The main challenge will be training the staff to have knowledge about all insurance products across insurers.
However, there isn’t surety that appointing banks as brokers will reduce mis-selling.
Says a senior executive of YES Bank: “Because we don’t have an insurance firm, we might be impartial to products from all insurers.
“However, the same might not be true for banks which have insurance firms as subsidiaries.”
A lot of mis-selling is known to happen through bank branches where bank customers are coerced into buying policies.
These regulations will be beneficial for insurers which do not have banks as promoters.
Such firms have long been asking for an open architecture for bancassurance, like these
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