IRDAI opens bancassurance floodgates for all insurers

Subject : Economy

Insurance regulator IRDAI has now widely thrown open the bancassurance channel for insurers as part of its overall effort to increase insurance penetration in the country.
Also, to achieve the long-term goal of ‘insurance for all’ by 2047, when the country will celebrate its golden jubilee of independence.
Each bank can now have distribution tie up with as many as 9 life insurers, 9 general insurers and 9 health insurers.

About Bancassurance

Bancassurance or Bank Insurance Model refers to the distribution of the insurance and related financial products by the Banks whose main business is NOT insurance.
So, simply Bancassurance, i.e., banc + assurance, refers to banks selling the insurance products.This partnership arrangement can be profitable for both companies.
Bancassurance term first appeared in France in 1980, to define the sale of insurance products through banks’ distribution channels.
Banks earn additional revenue by selling insurance products, and insurance companies expand their customer bases without increasing their sales force.
For Bancassurance, the Banks need to obtain a prior license from the IrDA or Insurance Regulatory and Development Authority, so that they can work as “Composite Corporate Agent” or may have “Referral Arrangement” with the Insurance Companies.
RBI Guidelines: As per the Government of India Notification dated August 3, 2000, specifying ‘Insurance’ as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of the Banking Regulation Act, 1949.

Models of Bancassurance

Referrral Model

Here, Bank will give office space to the insurance company in its branches.
The insurance staff will sit in the bank branch and sell its products to bank customers.
Bank staff doesn’t participate in selling.
Bank faces no risk. Insurance company pays fixed-fees for using the office space.

Corporate Agent Model

Bank ties up with one life, one non-life and one health insurance company. For example:
Majority of banks follow this model.
Bank sells policies of only one insurance company= customer is deprived of ‘choice’, even if other insurance companies are offering better alternatives.
Bank is not liable to customer.

Broker Model

Bank sells policy of multiple insurance companies under one roof. (multiple life insurance companies, multiple general insurance companies, multiple health insurance companies.)
Bank earns commission according to sales-agreement with individual company.