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Banks can only sell standard insurance products through branch

New Delhi, Sept 9, 2013 (PTI):

Banks will be allowed to sell only standard or vanilla insurance products through their branches following the relaxation of brokerage norms by the sectoral regulator Irda, said a finance Ministry official.

The move is aimed at ensuring that lenders do not sell customised insurance products where risk assessment is more complex.

It will also address various concerns of the Reserve Bank, including those pertaining to conflict of interest. RBI does not want banks to undertake new risk in the form of insurance broker.

"Products with same features will not only prevent mis- selling but also ensure that customers can chose a product based on the performance and efficiency of the insurer," the official said.


Irda will ensure that all products sold through banks are standardised in terms of features and commission structure, the official added.

A broking licence will allow a bank to sell products of multiple insurance firms, compared with the current bancassurance model that allows lenders to sell products of just one life and non-life insurance company.

Banks have wide network of delivery channel, over 1 lakh branches, which can be leveraged to increase insurance penetration in the country.

Finance Minister P Chidambaram in his budget speech this year had said: "Banks will be permitted to act as insurance brokers so that the entire network of bank branches will be utilised to increase penetration."

Life insurance penetration in the country is as low as 4.4 per cent of GDP.
Last month, the Insurance Regulatory and Development Authority (Irda) notified rules allowing banks to act as brokers of insurance companies, a process termed as bancassurance.

As per the norms, there is no capital requirement for insurance broking business carried out by banks, according to Irda (Licencing of Banks as Insurance Brokers) Regulations, 2013.

To qualify for the licence, each bank will have to have the principal officer - an officer of general manager or equivalent category, who is appointed exclusively to carry out the functions of an insurance broker.

The licence, once issued, will be valid for three years from the date of issue, it said, adding that the renewal of licence can be applied 30 days before expiry of licence.

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 said.

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