Banks to Insurance Brokers: RBI issues draft guidelines

RBI today issued a set of draft guidelines that would enable banks to act as insurance brokers. Consequent to the announcement by the Finance Minister in the budget speech 2013-14 that banks will be permitted to act as insurance brokers, the Insurance Regulatory and Development Authority (IRDA) has formulated and notified the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 to enable banks to take up the business of insurance broking.

In order to enable banks to leverage their branch network for increasing insurance penetration, it has been decided to permit banks to undertake insurance broking business departmentally.

However, those eyeing the pie will have to meet the minimum eligibility criteria. For instance, banks must have a minimum net worth of Rs 500 crore and net non-performing asset (NPA) of less than 3 percent.

Banks must also ensure capital adequacy of atleast 10 percent and should have been profitable for the last three consecutive years. RBI guidelines also state that the bank staff acting as brokers cannot accept cash or non-cash incentives from the bank or the insurance company. Banks offering insurance broking services shall not enter into any arrangement for corporate agency or insurance referral business.

In order to ensure transparency, banks ought to disclose to the customers the details of remuneration received from various insurance companies for the broking business. The details of fees or brokerage received in respect of insurance broking business undertaken by them should also be disclosed. RBI states there should be a standardized system of assessing the needs of the customer across all branches offering insurance broking services.

The idea to allow allowed banks to act as brokers and sell products of more than one insurer was to increase the penetration of the sector across the country.