Max Bupa, Apollo Munich and Star Health and other standalone insurance companies may benefit from IRDA’s bancassurance exposure draft while bank-promoted insurance companies like ICICI Pru Life, ICICI Lombard, SBI Life and HDFC Life will be adversely impacted

The bancassurance exposure draft of the Insurance Regulatory and Development Authority (IRDA) brings cheer to standalone insurance companies like Max Bupa, Apollo Munich and Star Health. It will also open the doors for life and non-life insurers like Bharti AXA Life and General, Aviva Life, Aegon Religare and so on, who don’t have many bancassurance tie-ups. Adversely impacted will be bank-promoted insurers like ICICI Pru Life, SBI Life, HDFC Life, IDBI Federal, Star Union Dai-ichi, Kotak Life, IndiaFirst and others. The key points in the exposure draft are as follows:  

• One bancassurance agent should not tie up with more than one life, one non-life and one standalone health insurance company in any state, in addition to one each specialised insurance company.

• IRDA has divided the country into three zones. The draft norms have proposed to limit insurers, other than the specialised insurers, to tie up with not more than nine out of 13 states/cities and six out of nine states/cities in Zone B. Zone C, which comprises 17 states/union territories, has no restriction.

• The draft guidelines have also suggested capping the commission to 85% of the commission payable under the Insurance Act, 1938.

According to GV Nageswara Rao, chief executive office and managing director, IDBI Federal Life, “We welcome allowing banks to work with multiple insurance companies with exclusivity in a given state. However, we believe that the choice should be left to the bank. If a bank wishes to tie up with a single insurer across the whole country, it should have the freedom to do so as tie-up with multiple insurers creates all sorts of complexities in training, sales support and systems integration.”

Bank-led insures will have to limit their tie-up to nine states/cities and vacate the remaining four to other insurance companies, which will be a harsh choice for them. Zone A has lucrative options like Kerala, Gujarat, Andhra Pradesh (excluding Hyderabad), Tamil Nadu (excluding Chennai), West Bengal (excluding Kolkata), Karnataka (excluding Bangalore), Maharashtra (excluding Mumbai), Chandigarh, Hyderabad, Bangalore, Chennai, Delhi, and Mumbai.
Similarly, they can choose only six out following in Zone B—Rajasthan, Assam, Jharkhand, Haryana (excluding Chandigarh), Orissa, Bihar, Punjab (excluding Chandigarh), Madhya Pradesh and Uttar Pradesh.

According to Dr Amarnath Ananthanarayanan, chief executive officer and managing director, Bharti AXA General Insurance, "It is a step in the right direction as it gives more flexibility to banks as well as bank customers. From a Bharti AXA perspective we appreciate this decision of IRDA and look forward to growing our bancassurance business."

At present, one bank can sell products of any one insurer in the life and non-life segments. The draft allows one life, one non-life and one standalone health insurance company. This is a paradigm shift for standalone health insurers like Max Bupa, Apollo Munich and Star Health.

According to Dr Damien Marmion, chief executive officer, Max Bupa Health Insurance, “It is a very complex area and I think it will take time to properly digest and understand the intentions of the proposed guidance. However what I would say is that India needs wider distribution of health insurance. Building awareness of health insurance is critical to growth of an equitable funding mechanism for hospitalisation costs across India. Banks have a wide and a deep relationship with customers and are seen as trusted brands. So to tie up with banks is a great benefit for the growth of health insurance in India.”

Antony Jacob, CEO, Apollo Munich Health Insurance Company says, “We welcome any initiative that promotes access to better health care for the people.  Today, it is estimated that the gap between the total cost of healthcare incurred by Indians and the amount covered by health insurance is as high as $57 billion.  The government, regulator and insurers have to work closely to ensure that the existing gap between health care spends and the portion covered by insurance reduces over time.”

Specialised insurance companies like ECGC (Export Credit Guarantee Corporation), ESIC (Employees’ State Insurance Corporation) and AIC (Agriculture Insurance Company) won’t have tie-up restrictions in any zones. IRDA has asked for comments by 12 December 2011.