Betting on bancassurance | The financial express

By Amar Patnaik

Despite the unprecedented push on insurance promotion after the launch of JAM policies, India has not performed well in the insurance sector. The number of schemes has increased with policies such as Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Suraksha Bima Yojana, Atal Pension Scheme and Ayushman Bharat Health Insurance Scheme among others, but penetration remains very low. India has an insurance penetration of only 4.2% of its GDP, compared to a global average of 7.5%. This lackluster situation can be improved by capitalizing on the enormous potential offered by “bancassurance”.

Bancassurance refers to the simple practice of selling insurance using bank infrastructure and customers. So far, the bancassurance journey has been very beneficial for banks and insurance companies. The insurance business increases the bank’s income, and the use of the bank’s infrastructure and customer base reduces a large part of the costs for the insurance companies. It also contributes greatly to greater insurance penetration as people are less reluctant to purchase insurance from banks as they have established trust through their operations over a long period of time.

Banks have evolved to have different needs from their insurance partners. Recognizing this, the Insurance Regulatory and Development Authority (IRDA) notified in August 2015 a new regulation on corporate agencies, which allows a corporate agent to associate with up to nine companies insurance. Banks (like any other corporate agent) were allowed up to three life insurers, three general insurers and three independent health insurers. By increasing the number of insurers, regulation allowed banks to increase non-capital consuming income, a lifeline for their distressed loan portfolios, thereby improving the overall health of the financial sector. In addition, they also offered more choice to consumers.

While these regulations are well-intentioned, they are by no means sufficient. Contrary to its purpose, the regulation seriously, albeit unintentionally, harms the prospects of bancassurance by prohibiting its growth. They do not recognize the similarities between insurance and banking and treat bancassurance as a collaboration between insurers and any other legal entity. This diminishes the benefits of collaboration between banks and the insurance industry by causing many overlaps in regulations, thereby increasing transaction costs and decreasing the ease of doing business. These ambiguities also create obstacles to the modernization of bancassurance services. The fact that only four Indian banks offer online insurance even though 60% of the rest of the banking business is online is proof of this.

In addition to this, the mandatory mandate on Specified Person (SP) certification and Insurance Autonomous Network Platform (INSP) has brought other inconveniences for banks. Individual bank employees must obtain SP certification from the IRDA and training to offer insurance. These are not necessary for bankers with sufficient experience in dealing with financial matters. Similarly, banks already operate mobile apps, internet banking and other technology initiatives that must adhere to regulatory guidelines on data privacy and security protocols. Thus, ISNP requirements are onerous and do not add value to the bancassurance ecosystem.

What needs to be done? First, corporate agent guidelines should not apply to banks. Instead, specific bancassurance guidelines with simple regulatory and reporting requirements for banks and NBFCs should be notified. Only a set of independent guidelines, drawn up in accordance with the basic principles and ethics of bancassurance, would be able to guarantee maximum synergies in this collaboration between banks and insurers.

Second, the SP certification requirement should be waived for bankers with degrees and more than five years of banking experience selling insurance products. A similar exemption should also be granted with respect to the INSP guidelines. This will lead to increased bandwidth to market insurance products.

Third, liberalizing product classification and expense ratios will also help. If the motive for regulation is to protect the interests of customers, then they should focus only on the terms of the expense ratio of banks and NBFCs, and set a cap on the charges levied on customers. Insurers should have their space to innovate by allowing them to deposit products for sale by banks and NBFCs and should be directly authorized to market them through banks.

Another systemic flaw in the bancassurance model is the lack of incentives for individual bank employees to promote insurance. All conventional insurance agents enjoy many incentives in terms of rewards and recognition, which often means that their salary is indexed to the number of clients they bring. This is not true for bank employees. If bankers also benefit from these incentives, their efforts to increase insurance penetration will increase. A cap on these incentive revenues can be set to avoid unnecessary intra-bank competition.

Finally, banks must report their annual insurance turnover, including premiums and policies sold for various insurers.

The author is a member, Rajya Sabha.

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