Finance Ministry seeks Irda rethink on bancassurance

NEW DELHI: In an unprecedented move, the finance ministry has directed the insurance regulator to suspend its proposed regulation on bancassurance and hold consultation with banks and insurers before framing the rules.

The draft Irda (Licensing of Bancassurance Entities) Regulation 2013, which was taken up for discussion in the last board meeting of the regulator on June 28, does accept an open architecture. It does suggest that banks must have exclusive tie-up in one geographic region. Even in the board meeting, concerns were expressed by the government nominees and other members of the board, said a top official in the regulatory authority. However, the regulator is expected to issue the final bancassurance guidelines next month, he said.

“The matter was subsequently discussed in the department of financial services (DFS) and it was felt that the exact purpose and rationale for taking up bancassurance on the geographical basis need further discussion and clarity,” says the finance ministry letter dated July 3.

It further states, “...that the issuance of regulation may be put on hold till the wider consultations take place with all stake-holders, including banks and insurance companies.” “The strong stand taken by the finance ministry will force the IRDA that was expected to come out with bancassurance guidelines next month to put it in abeyance,” said the official.

Irda chairman TS Vijayan told ET that the regulator will have wider consultations before finalising the regulations. “Some of the members expressed some concerns in the previous board meeting. We are going to have talks with banks and other stake holders to figure out what is the best solution to increase the reach of distribution,” he said.

As against the current norm of bank entering into an exclusive agreement with insurer for selling insurance product across the country, Irda has proposed that an insurer can tie up with bank on exclusive basis in particular region and cannot tie up with individual insurer for a pan-India footprint. It has suggested that the country needs to be divided into three zones, which will be further subdivided into 40 geographical entities. And, a bank can tie up with individual insurance firm for a maximum of 10 regions on exclusive basis.

However, government official said that the possibility of increasing penetration through bancassurance or through other means may be examined rather than disrupting the corporate agent arrangement on zonal basis. Banks are not in favour of multiple tie-ups and want to continue with exclusive arrangement with insurance firms as they make money by selling insurance products on exclusive basis.