Banks may get to sell products of 4 insurance companies
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Banks may soon be allowed to sell products of four insurance companies. According to a report of the Committee on Bancassurance, banks may be allowed to tie up with any two sets of insurers - two in the life insurance sector , two in non-life, two in health, ECGC and AIC.
Bancassurance, a distribution model where insurance products are sold through bank branch network, will be allowed to operate on principles of tied agency, which is the current status of the bank. With a network of over 80,000 branches, bancassurance is said to be the most efficient way to achieve financial inclusion in the insurance sector. There are 17 banks with shareholding in insurance companies.
Insurance companies may not be able to sell equity stake to banks for distribution tie-ups at a discount. The committee has recommended that the discount in valuation of equity share given by insurers to bank distribution partners should be valued as per accounting standards and treated as advance commission and amortised in a period not extending beyond three years. Recently, Axis Bank had picked up 4% stake in Max New York Life at face value for a strategic tie-up for 10 years. The committee has, however, suggested that the tenure of the agreement between the banker and the insurer shall not be less than five years.
The committee has recommended that banks should not be eligible for any compensation other than the commission payable for distribution of insurance products. At present, banks are given compensation over and above the commission. The report has pointed out that the referral model is costlier than the corporate agency model. "Inequitable relationship between the banker and the insurer has resulted in higher premium on the policyholder. The referral system shall not be available to bancassurers," it said.
The premium collected through bancassurance has gone up to Rs 21,947 crore in 2009-10, which is 7.31% of the total premium income of life and non-life insurance sectors.
Source : Economic times
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