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Banks may not sell products of multiple insurers: Reports

Bancassurance allows the insurance company to maintain smaller direct sales teams

October 04, 2012 5:23 IST | India Infoline News Service
Banks may not be allowed to sell policies of multiple insurers immediately as the Reserve Bank of India doesn’t want them to take additional risks, according to media reports.

In case of corporate agency, the life insurer is responsible for mis-selling of the product and not the agent, while in a broking model it is the broker who is responsible for mis-selling.

The bank insurance model (BIM), also known as bancassurance, is the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.

Bancassurance allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well.

According to an ex-member, IRDA, banks are corporate agents as they applied for corporate agency licenses and got them. Banks cannot be term as brokers and they have to apply for a broker's license and obtain it, the reports added.

The ex-member of IRDA further said that agents represent insurers. They act on behalf of insurance companies. Brokers are independent and legally represent the customer. Brokers are responsible for mis-selling. It is up to the banks to decide whether they are willing to take the responsibility of a broker, the reports further mentioned.

On Monday, the finance ministry said that the present bancassurance model—one bank, one insurance company—where the bank acts as an agent of the insurer would be replaced by a broking model. As insurance broker, the bank may sell the products of multiple insurers. IRDA norms require the broking firm to be a legal entity under its jurisdiction. This means that banks would need to float a subsidiary to acquire a broking licence, the reports concluded.

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