Insurance Regulatory and Development Authority (IRDA) has said that it has not issued any guidelines for general insurers to enter referral arrangement with banks. Such arrangement existed for seven years up to 1 July 2010, when IRDA had cancelled this provision.
According to referral arrangement, a bank is allowed to leverage its branch network and refer customers, who want to buy an insurance product to the insurer, for which bank gets a fee from the insurer.
On 30January 2003, IRDA issued guidelines on referral arrangements between banks and insurers, but on 14th February, it issued another circular superseding the earlier one. In this circular, IRDA said that revised circular for general insurers will be issued later, but this circular was never issued.
This irregularity came into the notice of IRDA, hence on 1 July 2010, IRDA issued notification barring insurers (life and non-life) from signing referral agreements with banks and NBFCs. Banks were asked to become corporate agents of insurers before they could sell insurance products.
However,general insurers said that they have regularly submitted copies of their referral agreements with banks. Insurers say that they have referral agreements with banks as per IRDA’s 30 January 2003 circular and they have also informed IRDA about their referral agreement in prescribed format. They also say that they have conducted business in compliance with the laws laid by IRDA.
Six general insurers and all four public sector general insurers had signed such agreements with various banks, in some cases since 2004. IRDA has also admitted that insurers are breaking norms for more than six years as IRDA has not issued any guidelines on referral agreements for general insurers. However, the insurance regulator has not taken any action against this practice of insurers.