PSU banks to become insurance brokers

With a view to intensify insurance penetration and stop mis-selling of insurance products, the union finance ministry has urged all state-run banks to act as insurance brokers starting from January 15 next year by floating a subsidiary to increase their distribution networks. In a letter, the ministry has asked them to act as insurance broker so that the entire network of banks will be utilised to take insurance reach also to the faraway villages.

Following the FinMin diktat, public sector banks (PSBs) will soon be offering customers a choice of insurance products from different companies as against products from one company. Currently, banks are acting as corporate agents; and are allowed to sell products of one life, one non-life and one health insurance company.

One of the gainers of this move would be the Life Insurance Corporation (LIC) of India, the country's largest insurer, since it has the highest brand recall and most banks are likely to include LIC policies in their suit of insurance plans.

“Although we are the promoters of First Life Insurance, we support the move allowing banks to become brokers as this will give customers choice," said Andhra Bank Chairman Mr. C V R Rajendra.

Reacting on the finance ministry's move, Mr. Sam Ghosh, CEO of Reliance Capital, the promoter of Reliance Life and Reliance General Insurance, said, “By becoming brokers, banks would now be directly responsible for mis-selling as against earlier when they were seen to be acting as agents of insurance companies.
The insurance industry was split over the issue of banks distributing products of multiple companies. The bank-promoted companies favored banks being tied to one company, while the non-bank promoted insurers wanted an open architecture.

Source: http://www.insuringindia.com