The trend of selling insurance products through commercial banks, or Bancassurance, may be at risk, as the Insurance Regulatory & Development Authority of India (IRDA) has hinted that the banks would have to own up the responsibility for policies offered through them.
Bancassurance, which is emerging as the preferred route for growth of the insurance sector, could suffer as the IRDA threat to impose penalties for mis-selling the policies, could make banks wary of such deals.
The purpose of the insurance regulator is to bring better surveillance and discipline in the sector, according to a top official of a private insurance company. This will ensure proper trust and seriousness in relationships with their insurance partners, he added.
This may discourage banks from entering into plain distribution partnerships with insurance companies. Banks may prefer to be equity partners so that they have a better control over the eco-system, the official said.
Insurance companies tie up with banks to sell products because it is a low-cost distribution channel and gives them access to a large customer base. The most recent partnership was between Punjab National Bank and MetLife. IndusInd Bank has a corporate agency tie-up with Aviva, which is coming up for renewal.
Many banks including Indian Overseas Bank, Syndicate Bank, Central Bank, Allahabad Bank and UCO Bank are without any equity partnerships.