Banks seek insurance broking relief

 Commercial banks have sought the easing of at least three conditions from the government before they embrace the new insurance broking model.

Lenders now follow the corporate agency model that allows them to collaborate with one life, one non-life and one standalone health insurer to sell their products. When a bank becomes the corporate agent of an insurance company, it is known as a bancassurance partnership.

Several banks in the country have such joint venture agreements with insurance companies where they hold the majority stake.

In December, however, the finance ministry issued a circular directing banks to turn into insurance brokers. An insurance broker can market the product of more than one insurance company. Banks fear that their insurance subsidiaries could lose business if they convert into brokers.

“Giving up the current agency structure and model is likely to raise legal issues, besides leading to the loss of credibility of domestic partners in attracting further investments from their bancassurance partner,” says a senior official of a bank, which has a life insurance tie-up with an overseas partner.

Lenders have asked the authorities to do away with the rule that broking staff involved in sourcing insurance business will not be permitted to conduct any banking transactions.

“Apart from adding to our costs, deploying exclusive resources for insurance business at each branch will not be practical. Thus, many of our branches will not be able to offer insurance to their customers, thereby impacting penetration adversely, which is directly in contravention to the government’s intention,” R.K. Dubey, chairman and managing director of Canara Bank, told.

Banks also want the government to relax the norm that stipulates an insurance broker will not earn more than 25 per cent of its business in a fiscal from the company it has promoted.Besides, banks want the government to ease the earning cap from broking. The insurance regulator has suggested that the maximum commission a bank can earn as a broker should be 30 per cent. This is lower than the 35 per cent ceiling in bancassurance.