IRDAI has issued draft regulations for the registration of corporate agents (including banks, NBFCs). Among other things, the draft guidelines propose that any corporate agent can tie up with up to three insurers in each of the life, general and health categories (at present this is capped at one in each category). The proposal requires that no corporate agent place more than 90% of the premium with any one insurer in the first year, with this cap to be gradually reduced to 50% from the fourth year. The guidelines, if implemented,
could be beneficial for non-bank promoted insurance companies like Reliance Life.
The draft guidelines are applicable for all corporate agents (banks, NBFCs, third party distributors, etc.), but the biggest focus will be on banks. Bancassurance is a very important distribution channel for insurance companies in India (four out of the top five private life companies have strong bancassurance partners). Hence, open architecture for banks has been debated and discussed by the government, regulator and insurance companies for a long time.
At present banks act as corporate agents and can sell the products of one company from each of the life, general and health categories. While the RBI issued final guidelines on banks becoming insurance brokers in January 2015, none of the banks have thus far shown any inclination to convert into a broker. This could be due to restrictive clauses in their existing agreements with insurers or due to concerns over higher liability as an insurance broker vs. that of an agent. Now, with IRDAI proposing a cap on the extent of business that can be originated by a corporate agent for one insurer, banks would be forced to tie up with more than one insurer, which could benefit non-bank promoted insurance companies such as Reliance Life, Birla Sun Life, Bajaj Allianz, etc
Also, almost all the existing agreements between banks and insurance companies will have to be renegotiated. So, we believe that transitioning from the current setup of a tie-up with only one insurer (for banks) to a maximum of three insurers could be disruptive.
