With the season for corporate insurance policy renewals starting, Indian insurance brokers are crying foul at banks, which are corporate agents for insurers, for violating the regulatory norms.
The insurance brokers complain that banks are exerting pressure on their borrowers to route all their insurance needs through them even when the sum insured or value of insurance exceeds Rs 5 crore.
The brokers demand the banks to take a broking licence to solicit corporate insurance business.
“As per Insurance Regulatory and Development Authority of India’s (IRDAI) regulations, a corporate agent cannot procure commercial insurance business from industries where the sum insured is Rs 5 crore or more per risk/policy,” Sohanlal Kadel, Managing Director, Kadel Insurance Broker Pvt Ltd, told IANS.
He is also the past President of the Insurance Broker Association of India.
According to him, the issue is in the case of fire and engineering insurance policies where the sum insured for big industries is more than Rs 5 crore.
Insurance brokers told IANS that the banks are now after big industries where the sum insured are in hundreds of crore.
Leveraging their position as lenders, the banks – private and public- will ask their borrowers for a share in their insurance business. In turn, the borrowers will send a letter to the insurer asking to share the credit for the premium paid in a certain ratio between the broker and the bank.
“As per IRDAI regulation, every policy should specify the name of the intermediary. While sharing of credit between two brokers -co-broking- is allowed, it is not allowed between a broker and a corporate agent. Banks are corporate agents. What the insurer would do is to specify the name of the broker and the percentage share and the balance will be stated as direct in the policy,” R. Balasundaram, Secretary General, Insurance Brokers Association of India (IBAI) told IANS.
The insurers compensate the bankers through different means – advertisement in bank premises, furniture and others, he added.
Insurance brokers told IANS that a complaint on this illegal practice has been made to the IRDAI and Reserve Bank of India (RBI).
According to the brokers, IRDAI’s inspection team can easily detect such malpractices.
“If the banks or bancassurance partners of insurers want to do such business they can take an insurance broking licence from IRDAI and do the business legitimately instead of such clandestine manner,” Kadel said.
Adding further Balasundaram said: “The banks who are corporate agents should be allowed to fetch only retail insurance products like health, home and the like. If they want to get into the corporate sector, then they can take a broking licence and do the business.”
Globally, insurance brokers do design insurance risk covers and get an insurer to underwrite the same for a fee called brokerage.
But in India, the brokers do not have the freedom to design a risk cover for individual clients as new risk covers have to get IRDAI’s sanction.
The role of brokers in India is restricted to consulting on risk management/mitigation, insurance cover selection, sourcing better quotes from insurers, getting a policy and rendering claim related services, brokers told IANS.
Given this situation, the playing field for the brokers and corporate agents are not even, they added.
“The startup capital for an insurance broker is Rs 75 lakh and should have qualified staff. A broker should also take a professional indemnity policy to protect against any damages in case of any wrong advice to clients,” Balasundaram said.
In the case of a corporate agent, a net worth of Rs 50 lakh has to be maintained at all times.
The insurers find banks an ideal intermediary as they get bulk business. The banks in turn realising their dominant position exert their pound of flesh in form of corporate agency sign up bonus or additional compensation.
Non-life insurance industry officials told IANS that the major portion of the sector is controlled by banks and vehicle dealers and a reform in this segment is urgent.
There are 547 licensed insurance brokers in India out of which about 400 are active, said Balasundaram.
(Venkatachari Jagannathan can be reached at email@example.com)