If the regulator stays firm on the decision to cap partnership between banks and insurance companies, then soon banks will be seen splitting their business across multiple insurers.
Bancassurance (selling insurance through banks) is one of the strongest insurance distribution models world-over. In India too, several insurance companies source majority of their business through their partnered banks. Current rule allows a bank to act as a corporate agent and partner with one life insurer and one non-life insurer. Several banks had signed up partnerships with insurance companies on the basis that they will have an exclusive distribution arrangement.
Recently, Insurance Regulatory and Development Authority of India (IRDAI) had proposed partnership caps between insurer and banks.
IRDAI proposed cap for bancassurance channel:
– Bank should do about 90% of the business with any one insurer in the 1st year
– The limit should come down to 75% and 60% during the 2nd and 3rd years,
– The limit should not to be more than 50% from the 4th year onwards.
Off late, the share of business sourced by banks has dipped for several insurance companies. In such a scenario, if suddenly the contribution from this channel reduces or becomes unavailable, then the insurance companies will have to do a serious relook at their business model. As of today, there are 9 bank-promoted life insurance companies and 4 general insurance companies.
“Many of these partnerships will find it difficult to accept caps which go down to 50%” said Amitabh Chaudhry, Managing Director and CEO of HDFC Life.
