The Union Budget has allowed banks to set up insurance broking arms. While it is a welcome move that will reduce mis-selling and offer customers choice of products, will banks really go for something that increases their own responsibility? What about banks that own an insurance company?
The Union Budget 2013 has permitted banks to become insurance brokers. Allowing banks to operate as insurance brokers will surely help reduction in mis-selling and give product choices of all insurance companies to customers, but it also means having adequately trained existing or new bank personnel who can take responsibility for the sale. There will be a need for additional investment.
Brokers are supposed to understand the customer’s requirements and offer best choice of products from different insurance companies and give after-sales service. They can provide you with quotes from different insurers for comparison to ensure that you receive the best deal possible.
Currently, bancassurance partners do not own the responsibility of mis-selling as they are mere corporate agents and not brokers. An insurance broker represents customers unlike an agent who represents an insurance company.
Top private insurance companies are backed by banks which will find conflict of interest about being open to the broking idea. For example, ICICI Pru Life, SBI Life, HDFC Life, IDBI Federal, SUD Life, Kotak Life and IndiaFirst are backed by banks like ICICI, HDFC, SBI, IDBI, Federal bank, Bank of India, Union bank of India, Kotak Mahindra, Bank of Baroda and Andhra Bank.
Will these banks really want to sell products of competing insurance companies at a time when the life insurance sector is underperforming? Insurance companies would rather keep monopoly within the parent bank and hope that other banks take up a broking license.
According to Shashwat Sharma, partner, KPMG India, “Many banks who have promoted their own insurance company and have signed distribution agreements for promotion of products of their own insurance JV (joint venture) may find it difficult to immediately become a broker as it may impact their proposed breakeven plan and shareholder returns. Also, those banks whose JVs would manage to reduce their dependence on the partner bank through growth of other distribution channels are more likely to become brokers.”
A similar view was echoed by Miranjit Mukherjee, CFO & senior vice president-finance, Tata AIG General Insurance. According to him, “Insurance broking is a specialized business and may require banks to develop additional skills. This move by the government will allow insurers to take advantage of the banks’ distribution network. We feel that banks promoting specific insurance companies may not be interested in this development; however, by allowing banks to offer products from more than one insurer will lead to customers making an informed choice based on variable factors, such as premiums, exclusions, etc.”
IndiaFirst Life is backed by Bank of Baroda and Andhra Bank. According to its MD and CEO, Dr P Nandagopal, “In the long-term, this would deepen the distribution reach of the banks in offering a wide range of insurance products. We need to check the details and also take steps to see that the broking model does not result in excess distribution costs for the insurance companies which are already reeling under the pressure of thinning margins.”
Banks will have to deal with the additional expense for indemnity insurance for broking business. According to TR Ramachandran, CEO and MD, Aviva India, “Overall, I think this would be a win-win situation for all stakeholders—the customer (with the choices available), the bank (offer best in class products and increase in income as all the branches could be utilized to sell insurance) and the insurance companies (scalable and cost effective distribution model). Also, the IRDA Broking Regulations require broking companies to take professional indemnity insurance which will protect the bank against any fraud or errant behavior of its employees.”
Different issues need to be evaluated in the bank broking model. According to Rajesh Sud, CEO & MD, Max Life Insurance, “While this will offer a wider array of products to the customer, there is a need to evaluate this on level of market maturity and regulatory evolvements.”
There is hope for a reduction in customer complaints with the broking model. Mukesh Kumar, head-strategic planning, HR & marketing, HDFC ERGO, says, “As brokers now they will be able to sell products for all the insurance companies. Brokers being better equipped professionally, as required by the regulations, it is expected that the quality of solicitation will improve. Since the brokers represent the customers, it is expected that the complaints regarding the sales process will considerably go down.”
Will banks really go for the broking license considering that it will increase their liability and performance which will affect their bottomline? The Reserve Bank of India (RBI) may not be in favour of allowing banks to set up broking arms as their performance will affect the balance sheet of the bank itself, which will not be in the interest of the depositors.
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So IMO, allowing banks to become insurance brokers is a good customer-friendly move from IRDA that removes inherent conflict of interest that existed till date on how banks sell insurance policies. However, how this actually improves the way banks sell insurance to its customers on the ground and reduces the huge mis-selling complaints remains to be seen as it depends on a lot of factors. Regulatory change is only the first step in this direction.
Regards..
Saurabh Saxena
http://www.bimadeals.com/
You didn't answer my earlier post on mis-selling, wherein i had stated it has cost investors 1.5 to 2.0 trillion rupees, that too in the last five years.
The industry wide persistency ratio - 50% business lost in last five years. This is derived from eleven firms which make about 90% business & have been in operation for more than ten years.
The gainers in this ripoff were - agents, BANKS, corporates & insu.co's. Be it so.
The good news is that 'financial regulators' to sync efforts to increase oversight, as per March 8, formal agreement entered into
by them, to monitor financial conglomerates.
It has to be appreciated that this has come before granting licenses to new set of private bank applicants, as per announced policy.
The parties to the agreement are [primarily] RBI, then SEBI, IRDA, PFRDA as per FSDC. The said meet was Chaired by RBI Guv.
The seventy three trillion rupee banking system has to be ring fenced of a potential ripple effect, a simple risk management perspective.
There are already concers over rising NPA's & CDR's.
Incidentally private sector banks have lessened rising NPA's.
As i had earlier written to Mr.William Gamble also, Euro zone stability, PIGS in particular & the mighty US is cause of concern for global economy in the coming years.
Hence engaging in macro prudential supervision, FSDC as a super watchdog was an idea mooted by Pranab Mukherjee.
Regards,
in india only lic have presence or psu have well presence in india and private comany want and find good solution to fight agaist lic low cost also should thank to finance minister they allow banker to sell as a insurance borker but if bank today still doing same jop as agent do and they can easily make fool people in india because if public sector bank person sell pvt company life product policy holder think they but bank produt or have gurantee of bank,
which given by company and also ignore and left number of rule and regulation only for just need premium income and agent get commission.
But usually ignore needof policy holder' what they want? policy which we issue should required by policy holder or not exicting risk which they have which term is suitable for policy holder every thing we ignore agent and marketing person only see TARGET SHOULD BE ACHIVED BY THEM,
Reason is simple because rm or marketing person yearly base of promotion base or other reason base shift job one insurance to second than third and fourth countless job change by that type of misselling agent and get top of management post,
who is watiching who is mapping that kind of person who sitting top of company which cost of policy holder money number if you see which i am facing of my link client count less in my city sir,
some case i saw which cant discribe and person who is selling them that kind of policy toper of private company agent,
i am also insurance agent of lic of india i am still associate with lic of india because which is comments with delevy in tradionally product only, and govt of india put on hand on this product,
one question if you ask lic of india managment that why you still not have in your bucket of produt cheaper term plan comparison than other priviate insurance company doing well job in this segment and this is your primary business to provide risk cover in this segment you have only jeevan anmol and amuliya jeevan product which premium if comparison other company higher why india public buy your product and if they buy this product it means they have not knowledge of other product in market or miss selling by some one you cant claim that this is worong thinking by me because i have more than 10 year expreience in this field,
also dealing in mutual fund product last ten year
as a financial advisor we also need insurance broker indvidual basic we also that as bank ifa and insurance agent also can sell multiple product of insurance company for good advise for policy holder,not for company represent,
cost of invetor money target should achive for this month and our branch position should be top in counter or state or city but what policy holder mistake which you are given punishment and who is liable for this kind of miss selling,
much higher than other nation and action agaist mis selling agent and corporate agent if you see agaist number of compalin file in irda nil comarison of complain which was regestred,
'The Govt. has given the bank one more source of making more and easy money at the cost of neglicting the core banking services. Before this , banks have already got the DEMAT, MFs and Investment services. They have been pursuing this by diverting their 'Core Banking Service staff' by making their own account holders to suffer for services.Because of these additions, to deploy the learned staff to provide the basic core banking services to the small/ medium account holders, banks have already been authorized to levy 'service charges' for all and sundry jobs without fixing any upper limit.The Monitoring Authority BSCBI is only a silent entity and has been turning deaf ear to all complaints of unfair charges as the montoring Authority. Now I am sure, the helpless Savings Bank Account holders will find it more difficult to get timely service ,inspite of paying service charge, due to this additional 'Money making business" extended to the banks. In this country, there seems to be no effective remedy
for a Consumer to get even his
"Rightful Service" without incurring cost or waste of time.
Mohan Siroya
The sharp selling methods of banks is 'financial inclusion' of another kind - Not many get spared.
Another foot-in-the-mouth measure.