Insurance broking model to be compulsory for banks soon: IRDA
Soon, the Insurance Regulatory and Development Authority (IRDA) may make the broking model for banks compulsory if significant traction is not achieved in Insurance penetration. Data from the IRDA shows that at present, India stands much below the global average of 6.5 % (of GDP) in insurance spread at 3.96 %.
- As per IRDA, the decision with regard to making ‘broker’ model for banks rather than agent model will be taken if agent model does not see considerable traction in the next two to three months.
- The banks are selling insurance products to their customers only. Thus, they must act as brokers to represent multiple insurance and give the best option to the customer rather than seek to sell a particular company’s product(s).
- As an insurance broker, a bank is liable to consumers, with respect to an insurance policy, unlike a corporate agent. The liability could be high as a bank will sell the products of multiple insurers.
Note: On the subject of broking model for banks, in November 2013, the RBI had decided to permit banks to undertake insurance broking business departmentally through draft guidelines. And then in December 2013, the Finance Ministry in a circular asked public sector banks to take up insurance broking by January-end in view of the meager insurance penetration levels in the country, especially in rural areas.