New Delhi: In a bid to deepen insurance penetration, Finance Ministry has asked all public sector banks to switch to the broker model from the existing corporate agency structure for distribution of products.
"The present model of corporate agency selling of insurance by banks may be dispensed with and each banks may train and orient its staff to implement the Finance Minister's Budget announcement in earnest," Finance Ministry said in a circular.
Finance Minister P Chidambaram in his Budget speech (2013-14) had said "banks will be permitted to act as insurance brokers so that the entire network of banks' branches will be utilised to increase penetration of insurance."
"Public sector banks may join insurance broking business in order to increase insurance penetration and avoid mis-selling of insurance products," it said.
At present, the policy on bancassurance is one bank one insurance company (one life and one non-life).
Such a move will lead to an open bancassurance architecture and will drive banks to align their interest with their customers, said a CEO of private insurance firm.
Banks can do so by offering them a wider choice of products from a larger number of life companies, instead of the existing practice of pushing products from a single firm, he added.
As per the circular, banks have been asked to report compliance and progress on the issue by January 31.
Insurance sector regulator, Insurance and Regulatory Development Authority (Irda) had issued draft guidelines to allow banks to act as brokers and sell products of more than one insurer in July.
Every insurance broker will, before the commencement of the business, deposit and keep deposits with any scheduled bank as sum of Rs 50 lakh, it had said.
"Not more than 25 percent of insurance handled by the insurance broker in any financial year is placed with the insurance company within the promoter group, separately for life and general insurance business," Irda had said.
Subsequently in November, Reserve Bank decided to permit banks to undertake insurance broking business departmentally through a draft guidelines.
"Since insurance broking is a knowledge intensive activity which requires professional expertise, this will be permitted subject to the certain conditions," RBI had said.
"Banks desirous of offering insurance broking services should seek specific prior approval of Reserve Bank of India. Validity period for the approval granted for insurance broking will be three years subject to review thereafter," it had said.
