Banks may get to play the role of insurance brokers soon, which will make them more accountable for the policies that they sell to their customers. The Insurance Regulatory and Development Authority (IRDA) is actively considering changes to its broking norms that will permit banks to register themselves as insurance broking entities.


At present, banks are selling insurance products by acting as corporate agents of insurance companies. Under the present arrangement, they are not registered by the insurance regulator and they are accountable only to the insurance companies. The insurance companies, in turn, are liable for any mis-selling by banks. As corporate agents, banks are allowed to represent only one life and one non-life company.

Of late, they have been allowed to represent an additional health insurance company. If they are allowed to register themselves as brokers, they will be allowed to sell policies of all companies and will be registered by IRDA. As registered entities, they will also be more intensely regulated by IRDA and the risk of mis-selling will expose their own balance sheets.

"What we have seen is that banks generally sell policies to their own customers. Therefore, their primary responsibility should be towards their customers. Unlike a corporate agent, a broker is a representative of the customer," said T S Vijayan, chairman, IRDA. He confirmed IRDA is working on regulations to permit banks to become broking firms.

The life insurance industry has made a representation to the insurance regulator, stating that a bank should be allowed to sell policies of five companies. Under the present arrangement, the bank does not need any special permission to sell policies. Nor does its becoming a corporate agent have any implication on its balance sheet. All this will change if a bank were to become a corporate agent.

Allowing banks to become brokers would require an overhaul of regulations for brokers because current norms require that broking activity cannot be done departmentally by a financial services firm and anyone wanting to get into this business will need to float a separate company for the purpose.

Meanwhile, IRDA has not detected any major irregularity in the banks that were exposed in a sting operation conducted by a web portal earlier this year. Although a couple of instances of procedural lapses have been detected, these have been rectified and it is unlikely that any major penalty will be imposed.



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