Bank assurance sought to curb misselling of insurance products

The government has sought suggestions from lenders on steps to curb misselling through banking channels as part of efforts to strengthen regulatory oversight of the bancassurance model, said people aware of the matter.

Bancassurance is a partnership between banks and insurance companies to sell insurance products through bank branches.

Some of the measures being considered may include a cap on commission charges paid to banks for selling insurance products, stricter disclosures of commission while selling policies, and delinking bank employees' performance appraisals from insurance sales targets, said the people.


Last month, financial services secretary Vivek Joshi held a meeting with chiefs of state-run banks over issues related to bancassurance, including its effectiveness in increasing insurance penetration and challenges in the form of misselling.

In 2022-23, the contribution of banks as corporate agents was 5.93% in non-life premiums and 17.44% in new business premiums for life insurance.

A senior bank executive said discussions are being held with all stakeholders, including the Insurance Regulatory and Development Authority of India (IRDAI) and both life and general insurance councils.

In October 2023, the IRDAI had set up a task force to review the existing banking intermediation model and carry out modifications in the regulatory framework. The committee is to submit its report this month.

"One suggestion is that there should be a cap of around 15% of the total premium on commissions and other charges paid to banks for selling insurance products," the executive said on condition of anonymity, adding that the government also wants proper disclosure while issuing policies on commissions and other charges paid to banks.

Last year, the regulator, under the IRDAI (Payment of Commission) Regulations, 2023, in order to enable and provide flexibility to insurers to manage their expenses within the overall limits based on their gross written premium, replaced the cap on commission payments with an overall cap on expenses of management (EoM) of insurers.

The maximum amount that can be incurred towards EoM is 30% of the gross written premium for that financial year. In the case of standalone health insurance companies, the limit is 35% of the gross written premium.