Insurance
IRDA bancassurance guidelines put on hold: Will the core issues be addressed?
IRDA guidelines on bancassurance were expected to be released in August 2013, but are now on hold after the Department of Financial Services questioned the rationale of insurers tying up with banks on a geographical basis and asking for wider consultation with stakeholders  
 
The Insurance Regulatory and Development Authority’s (IRDA) guidelines on bancassurance, which were expected to be out by next month have hit a hurdle. The department of financial services (DFS), which works under the finance ministry, has questioned the rationale of insurance companies tying up with banks on a geographical basis. DFS also wants to have a wider consultation with stakeholders. DFS directive has asked for IRDA’s bancassurance guidelines to be put on hold.
 
Bancassurance guidelines specify the rules for insurance companies to appoint banks as their corporate agents to sell policies. Currently, a bank is allowed to sell the products of only one life and non-life insurance company as a corporate agent. The proposed draft divides the country into three zones comprising of 40 regions. A bank could tie up with only one insurer for a minimum of 10 regions and a maximum of 20. It means that banks can tie-up with a minimum of two insurance companies while the maximum can be four. 
 
DFS feels that IRDA’s proposal to have a zone-wise tie-up with banks will be complicated. Several banks and insurance companies have raised concerns about logistical problems if the zone-wise tie-up is implemented. But, banks and insurers have their own reasons for either wanting open architecture or to remain with the existing exclusive one life and non-life insurer tie-up. 
 
The insurance companies who are looking for open architecture are the ones who are not promoted by banks and hence have limited bancassurance alliance. Conversely, bank promoted insurance companies would like to have an exclusive tie-up with their parent bank to keep competitors at bay. What is the incentive to be their exclusive corporate agents, considering that banks get a big premium from insurance companies? Insurance companies would rather keep monopoly of exclusive tie-up with their promoter bank and hope that other banks take up a broking license to sell products of multiple insurance companies.   
 
Moneylife is of the opinion that making banks are not accountable to consumers, and going for an open architecture can further complicate the matter. We have highlighted numerous cases of mis-selling of life insurance policies to bank customers? Even senior citizens are not spared; in-fact they are an easy target and are conned by false promises that insurance products will offer better returns than their existing fixed deposits. Young couples fall for expensive schemes that promise to secure their child’s future and buy the products without understanding different charges that decimate the corpus. It is time the DFS addressed these issues rather than restricting themselves to the logistics of bancassurance alliances for multiple insurers.
 
Currently, bancassurance partners do not own the responsibility of mis-selling as they are mere corporate agents and not brokers. An insurance broker represents customers unlike an agent who represents an insurance company. The Reserve Bank of India (RBI) may not be in favour of allowing banks to set up broking arms as their performance will affect the balance sheet of the bank itself, which will not be in the interest of depositors. RBI had said that banks assuming the role of insurance brokers could lead to a conflict of interests where the bank was also the promoter of an insurance company. 
 
RBI's financial stability report’s Chapter III - Financial Sector Regulation and Infrastructure raises several crucial questions on bancassurance model’s use of unfair and restrictive practices. 
 
Here are some important points raised in the report – 
 
Under the ‘bancassurance’ model, banks in India have been permitted to undertake insurance business as agents of insurance companies subject to certain conditions and without any risk participation since August 2000. As announced in the Union Budget 2013-14, it is proposed to permit banks to act as insurance brokers so that the entire network of bank branches will be utilised to increase the penetration of insurance services in the country. As insurance brokers the banks will be able to sell insurance products of any company, as against the restriction of only one company applicable under the agent-principal model. 
 
While banks are well suited to distribute insurance products because of their wide network, several issues have arisen regarding their conduct in the process, generally pertaining to mis-selling and certain restrictive / unfair practices (such as linking provision of locker facilities to purchase of insurance products, selling of unsuitable and/or multiple policies etc). 
 
It was observed that in some cases, banks did not have clear segregation of duties of marketing personnel from other branch functions and bank employees were directly receiving incentives from third parties such as insurance companies, mutual funds and other entities for selling their products. In some cases direct incentives to the bank staff have created distortions in the sales structure. 
 
According to IRDA’s Annual Report 2011-12 the maximum complaints in life insurance related to mis-selling. They also mainly pertained to the private sector, though LIC leads the business with over 70% share. The type of complaints were mainly in the nature of unfair trade practices and mis-selling of products (e.g. malpractices, actual product sold being different from what was proposed, single premium policy being issued as annual premium policy, surrender value being different from projected, free look refund not paid, misappropriation of premiums etc). 
 
As a significant portion of private life insurance companies use banks as their corporate agents, there seems to be an urgent need to revisit the marketing and sales strategies used by the banks in pushing insurance products, especially since insurance is among the more complex of financial products for the common man to fully comprehend. The limits on commission structure and the operating expenses of insurance companies are laid down in the Insurance Act, 1938 and the Rules framed there under. The compliance with these limits is being monitored by IRDA on an annual basis, and instances of breach are dealt with through penal action. In the recent past, there have been instances of both insurance companies as also the corporate agents (banks) being penalised.
 

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RBI restricts banks from F&O trading in currency

According to the Reserve Bank, any transaction by banks in currency markets will have to be necessarily on behalf of their clients

The Reserve Bank of India (RBI) has imposed restriction on banks with regard to trading in currency futures and options (F&O) with immediate effect, in order to arrest the decline of rupee against the US dollar.

 

In a notification, the central bank said, "On a review of the evolving market conditions, it has been decided that banks should not carry out any proprietary trading in the currency futures/ exchange traded currency options markets."

 

Under the new norms, the banks have been barred from trading in currency futures and exchange traded currency options market on their own. They will, however, be allowed to trade on behalf of their clients.

 

The move is apparently aimed at stemming the declining value of rupee which touched its life-time low of 61.21 to a dollar yesterday.

 

On Monday, market regulator Securities and Exchange Board of India (SEBI) tightened the exposure norms for currency derivatives to check large scale speculations in the market.

 

In a circular, SEBI said that it is reducing the exposure that brokers and their clients can take on currency derivatives and also doubled their margins on dollar-rupee contracts.

 

Currency derivative trading allows investors to take forward views on various currency pairs, including rupee- dollar, and it was being felt that large-scale speculations on their future movements might be adding to the downward pressure on the Indian currency.

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Supreme Court criticises Centre for not framing policy on acid sale

In February, the apex court had directed the Centre to hold discussions for enacting a law to regulate the sale of acids and a policy for treatment, compensation and care and rehabilitation of such victims

The Supreme Court on Tuesday pulled up the union government for not being serious about framing a scheme to curb the sale of acid to prevent acid attack cases.

 

A bench headed by Justice RM Lodha said people are dying every day due to acid attacks but the government has failed to frame a policy despite assurances given by it on the last hearing on 16th April.

 

“People are dying, but you are not worried about it. Think of people who are losing their lives every day. Girls are being attacked every day in different parts of the country,” the bench said.

 

It also said, “With heavy heart this court had passed order in April, but the Government failed to come out with any scheme to curb sale of acid in the market.”

 

“Seriousness is not seen on the part of the Government in handling the issue,” the bench said, while granting one week’s time as a last opportunity to the Centre to frame a policy in consultation with the State Governments.

 

The court was hearing a PIL filed in 2006 by Delhi-based acid attack victim Laxmi, who was then a minor. Her arms, face and other body parts were disfigured in the acid attack.

 

The bench made it clear that if the Centre fails to come out with such a scheme on the next date of hearing, 16th July then it would pass orders.

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