IRDA may bar bank-insurer exclusive tie-ups
07 Feb, 2014 01:01 PM
Banks may not be allowed to sell products exclusively of one insurance company with the insurance regulator IRDA keen on a multi-company distribution arrangement even if the Reserve Bank of India was disinclined to allow banks to take up insurance broking.

Several corporate agency tie-ups between banks and insurance companies are coming up for renewal in 2014, and the regulator has indicated that existing arrangements may not continue. Attempts by the finance ministry and the insurance regulator to get banks to take up the broking route to distribution have been thwarted by the RBI, which is yet to come up with guidelines for this and is likely to set the bar high when it does.

If banks continue to have the option of following a corporate agency model, it would defeat IRDA's attempts to open up banks and get them to give customers a choice of products. Sources said that if banks are not allowed to get into insurance broking, the insurance regulator will look at other ways to develop an 'open architecture' where customers get a choice of several insurance companies' products from their bank.

Last week, the Indian Banks' Association (IBA) discussed the broking issue in two separate meetings with the finance ministry and the RBI. Following the RBI meeting, K R Kamath, chairman of Punjab National Bank and IBA chief, said that it has been decided that a small group comprising banks, insurance companies, RBI and IRDA would look into the matter.

"There is no dispute that banks have to do what is best for the customer. The issue was that instead of one company's product, customers should have a choice. The question is, how to do it? One particular model may not be the right way as many banks have contractual obligations with their joint venture partners," said Kamath. He added that the panel would look into these issues. Sources said that RBI has already constituted a panel under B Mahapatra, executive director, RBI.

According to Kamath, it was decided that banks whose agency contracts are coming up for renewal would, for the time being, renew them until the final guidelines come. This was unless there is a contrary directive from either the finance ministry or from the regulator, he added.

The pressure to open up banks to sell products of more than one company is coming from banks that do not have a tie-up with any major bank. Although broking fees are higher than agent commissions, brokers say that for banks operating as a corporate agency is much more lucrative. This is because in addition to commissions, insurers are allowed to pay infrastructure and administration expenses to banks, which is outside the commission. In the case of broking, such payments are not allowed by the regulator since brokers are supposed to be independent entities.
Source : The Times Of India

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