Life Insurance Under Bancassurance Channel – Need for a Better Regulatory Framework?

Abstract

Retail Banking or consumer banking, as it is more commonly referred to, as a subset of the banking industry has attained amazing proportions in the overall performance of the banking sector in India in recent years. With a population size of around 140 crores, it would be a disastrous business decision for any bank to ignore this side of the industry. When the Government of India allowed “Insurance” as a form of business that a banking company can undertake (both Life and Non-Life), it opened up a new dimension to the banks to add on to the “Other Income” kitty as reflecting in their P&L accounts. It is not just the mathematics behind selling life insurance under the Bancassurance Channel – both the commission and the trail commission included – that pushes the banks to lay the kind of emphasis that they do upon this sales channel. There are aspects like relationship management and relationship deepening that make the Bancassurance channel all the more important. However, an unwarranted natural fall out of this over emphasis by the banks in maximizing the generation of income from this channel – well, in some cases if not all – is the problem associated with transparency and mis-selling of life insurance products. Considering the fact that the banker, as a result of the very nature of his relationship with the customer, has a direct access to the financial standing of the customer, it is imperative that he be placed on a footing that is different from that of a non-banker broker selling life insurance. A lot of studies have been carried out dealing with the economic aspect of the Bancassurance Channel and its scope, but very few have been undertaken exploring the regulatory aspect governing it. This paper looks forward to bring to forth the regulatory issues and challenges governing the sale of life insurance products through bancassurance channel in India and the need to address them. The paper also suggests measures to plug in the gaps, in the best interest of all the functionaries involved there-in.