IRDA plans to limit insurers' bank tie-ups

In what would affect the businesses of bank-led insurance companies like ICICI Prudential and SBI Life, the insurance regulator is proposing to limit the insurers' bank tie-ups in big cities. The IRDA has suggested state-wise regulatory changes, dividing the country into three zones.

The draft norms have proposed to limit insurers to tie up with not more than nine states or union territories in Zone A and six states or union territories in Zone B. Zone A has 13 states and cities, including Maharashtra, Gujarat, Kerala, Andhra Pradesh, Mumbai, Delhi, Chennai and Hyderabad. IRDA has asked for comments by December 12, 2011. This means that companies with pan-India presence will have to shut down their businesses in four out of 13 places.

The idea behind opening up state-wise channel is to ensure better use of bank's infrastructure. This is expected to increase insurance outreach in the number of bank branches. As per an IRDA study, 7,000 bank branches out of 80,000 sell any kind of insurance product.

According to the exposure draft, IRDA said that one bancassurance agent should not tie up with more than one life, one non-life and one standalone health insurance Company in any of the states, in addition to one each specialised insurance company.

Also IRDA has proposed a limit on insurers to tie up with any bancassurance agent to only nine states or union territories in Zone A and six states or union territories in Zone B.

If the general insurer does not have any health product to distribute, the bancassurance agent may tie up with one more general insurance company, carrying on exclusively business of health insurance. Any licence would be in force for three years and thereafter renewed.

"Due to recent changes in charge structure in unit-linked products, a number of insurers have exited semi-urban and rural areas as direct agency channels have become increasingly unviable. Allowing banks to enter in to multiple tie-ups will facilitate insurance companies to reduce the cost of distribution," said Aviva Life MD and CEO T R Ramachandran.