In 2009, an IRDA Committee had recommended opening up bancassurance to two insurers. But IRDA chairman J Hari Narayan does not seem convinced. IRDA may also allow brokers to offer consultancy services, even for insurance products that they have not sold themselves

The Insurance Regulatory and Development Authority (IRDA) had set up a committee in 2009 to examine whether banks could be allowed to sell policies of more than one life and one general insurer. The report of the committee suggested allowing two life and two general insurers to tie up with a bank. But at the recent ASSOCHAM global insurance summit, IRDA chairman J Hari Narayan told Moneylife that he was not convinced if the solution to the problems identified by the 2009 study lie in opening up bancassurance to two insurers.

Mr Narayan told Moneylife, "We need to enable insurance outreach by increase in number of bank branches to sell insurance products. As of today, a small percentage of bank branches are pursuing the same. If the number of branches selling insurance does not increase, there is less value with the same branch selling two insurers' policies. IRDA has not finalised its decision."He suggested the possibility of looking at state-wise or segment-wise regulatory changes to open up bancassurance.

Media reports have quoted the IRDA chairman as saying, "Banks have a problem in understanding insurance products. There are issues to deal with before banks can sell insurance correctly with proper advice to customers." Some insurance company heads seem to be in agreement. (See: Bancassurance: The more the merrier?).

 But the subject is still open for debate. We found varying replies from the insurance industry, based on the insurance companies' dependency on bancassurance. Insurers who have little business from bancassurance have less to lose and, hence, don't mind allowing banks to sell products from more than one life and one general insurance company. On the other hand, some insurance companies with significant support from bancassurance even refused to talk about the issue.

The jury is still out on this important debate. We have to wait to see what IRDA finally comes up with.

IRDA is also considering permitting broking consultancy. It will allow brokers to provide consultancy services for claims processing for anyone, and not just when the policy is sold by them. Obviously, there is keen interest from the broking community as it will allow brokers to expand and offer additional services without an increase in infrastructure and they can piggyback on the contacts developed in the industry for further business.

A recent McKinsey study states that an agency force is "all pervasive", but least productive. Having a persistency ratio of less than 75% is unhealthy for the industry. There are few insurers with greater than 75% persistency ratio and an equal number with less than 50% persistency ratio. The IRDA chairman touched upon the possibility of improving persistency ratio with a proper business model and an effective communication channel. He told Moneylife that 75% persistency ratio was too a high number to ask for.

According to an IRDA circular, "The average agent persistency rate is uniformly set as 50% which is to be reckoned only on number of policies. The persistency rate requirements will be effective for all agency renewals that are due from 1st July, 2014." In February, IRDA had pegged the persistency ratio at 50% with a rider that it should go up to 75% by 2015-16. Now the watchdog has relaxed these persistency norms for insurance agents, by removing the rider that the ratio should go beyond 50%.