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Though the Insurance Regulatory and Development Authority (Irda) is considering open architecture, the insurance industry is divided over the issue.
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The move, which would allow a bank to sell products of multiple insurance companies, is being opposed by most of the banks that have floated insurance ventures. State Bank of India, ICICI Bank, HDFC, Bank of India, Union Bank and ING are some of the banks, that have floated insurance underwriting ventures.
Of the 22 life insurance companies, eight are promoted by banks while of the 21 general insurance companies, three are bank-promoted.
Less than half a dozen banks sold insurance policies of their insurance subsidiaries. Many banks which did not have insurance subsidiaries sold policies of an insurance company that offered them a higher commission. Insurers anticipated that this could lead to an increase in premium paid to banks. Depending on the nature of the product insurers paid 2-22 per cent of the premium to banks as commission. For companies such as SBI Life, SBI accounted for as much as 30 per cent of the sales. ICICI Prudential Life had a lower share but wanted to push the level to around 25 per cent.
The regulator had formed a committee to look into the bancassurance model after a host of life and non-life insurance companies sought relaxation in the current rules for agency tie-ups that allowed an entity to be an agent for one life and one non-life insurance company. In an interview, J Hari Narayan, Irda’s chairman had said the committee had not decided on whether to allow agents to sell products of more than one company. Insurance companies promoted by banks are opposing multiple tie-ups. They have sent their opinion to the Life Insurance Council, the representative body of life insurance companies.
The managing director of a large private sector life insurance company, which is promoted by a large private sector bank, said, “A lot of control needs to be brought before going in terms of process structure before allowing open architecture.”
Opposing the idea of open architecture, K Sahay, CEO of Star Union Dai-ichi said: “This will develop unhealthy practices. Banks should be allowed to sell products of one insurance company if the regulator wants customers to be well informed, as it will lead to confusion. Every insurance company has minimum 25-30 products and banks don’t have a dedicated workforce.” Star Union Daiichi is promoted by Bank of India, Union Bank of India and Japan’s Dai-ichi Mutual Life.
“The market is not mature enough for open architecture. Any system should ensure that customers’ interests are protected. It will widen the scope but many things need to be put in place. There are different distribution models other than banks, which is doing well for companies,” said IDBI Fortis MD and CEO G V Nageswara Rao. In an interview last week, SBI Life Insurance MD and CEO M N Rao had told Business Standard that a bank should hawk the products of one insurer.
An insurance company, which is not a bank subsidiary take advantage of their promoter’s distribution channel. While Bharti AXA Life Insurance is using telcassurance, Future Generali is acquiring business through mallassurance. Lured by the distribution channel, customer base and reach of the banks, insurance companies not promoted by banks says open architecture will help them bring down their expenses.
“Eventually, that should be the way to go. Each insurer has to invest heavily on infrastructure. It would do good to support open architecture and to tie-up with banks. This will give more choice to banks and customers, as they have both reach and distribution. We are, however, investing in other channels and this move would only supplement that,” said Aegon Religare Life Insurance MD and CEO Rajiv Jamkhedkar.