Open architecture of bancassurance now a reality in insurance

India's largest insurer Life Insurance Corporation of India (LIC) has signed an agreement with private sector lender Axis Bank as its bancassurance partner last week. This was one of the biggest tie-ups post April 1 when the new corporate agency norms came into being. This joins the several other tie-ups made by banks with multiple insurers, bringing into reality open architecture of bancassurance in insurance.

From April 1, norms have been revised under which corporate agents like banks are allowed to tie-up with three life, three non-life and three standalone health insurance companies. Earlier, the bancassurance model meant that banks could only sell products of one life, one non-life and one standalone health insurer.

After several rounds of discussions with insurers who had expressed apprehension over opening up their 'exclsuive' bank partner networks to multiple insurers, a consensus was achieved. Unlike earlier draft norms where banks were asked to mandatorily open up and reduce business from any single insurer, the final norms said that banks had an option of tying up with up to nine insurers including life, non-life and health.

Both private banks as well as public sector banks have shown interest in making multiple tie-ups. For instance, Tata AIG General Insurance has entered into corporate agency (non-life insurance) agreement with public sector lender Bank of Baroda to distribute multiple general insurance products to its customers. Earlier, Star Health Insurance and Bank of Baroda entered into a Corporate Agency agreement today to market Star Health products across the Bank's branches, across the country.

Bank of Baroda has been among the most active among the public sector banks with respect to the tie-ups. It also tied-up with standalone health insurer Max Bupa to offer the latter's health insurance offerings to the bank customer base spread across the country.

Apart from Axis Bank, other private banks have also entered into multiple tie-ups. In May 2016, IndusInd Bank announced that it has entered into a tie-up with Reliance General Insurance to distribute its insurance products across all its bank branches. This was one of the first private sector bank agreements signed after the new corporate agents norms came into being.

Data shows that the bancassurance market size was Rs 9,500 crore in FY14 (individual segment) and it grew to more than Rs 11,000 crore in FY15 driven by large unit-linked insurance policy sale. There is still a large scope since public sector banks with more than 400 million accounts have an insurance penetration of just over one per cent. It is estimated that increase of penetration in the public sector banks alone to 15 per cent, can add 50 million customers and generate additional Rs 60,000 crore in life insurance premium in the next five years.

Opening up of all bank branches to multiple insurers is still some time away, though the insurance regulator has said that bank boards must give out their plans to open up their branch networks to multiple insurers. The aim is that no one bank can remain an insurer's exclusive partner.

However, with multiple tie-ups, the liabilities also rise. Insurance Regulatory and Development Authority of India (IRDAI) has said that the bank and its employee(s) would be responsible for any insurance sale made and hence if any misselling complaints arise, they can be called into question.

In a recent directive to banks and non-banking financial companies (NBFCs,), IRDAI has said that they should strengthen their processes to discourage forced selling or misselling. "It is emphasized that refunding the money or allowing the customer to change the mode of payment or plan is not the solution for this vexatious issue (misselling or forced sale). Instead the Banks/NBFCs should have a system which should proactively detect and discourage such kinds of misselling/forced selling/wrong selling," the regulator said.

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