There is no capital requirement for insurance broking business carried out by banks, according to IRDA (Licencing of Banks as Insurance Brokers) Regulations, 2013. (Agencies)
To qualify for the licence, each bank will have to have the principal officer - an officer of general manager or equivalent category, who is appointed exclusively to carry out the functions of an insurance broker.
The licence, once issued, will be valid for three years from the date of issue, it said, adding that the renewal of licence can be applied 30 days before expiry of licence.
Every insurance broker will, before the commencement of the business, deposit and keep deposits with any scheduled bank as sum of Rs 50 lakh, it said.
The business of the insurance broker will have to be carried out in such a manner that not more than 50 percent of the premium emanates from any one client.
"Not more than 25 percent of insurance handled by the insurance broker in any financial year is placed with the insurance company within the promoter group, separately for life and general insurance business," IRDA said.
It also said the calculation of non-Indian interest in the applicant company shall be as per the limits applicable to the banking sector as decided from time to time by the government or the Reserve Bank.
While RBI approval is required for banks to become brokers, IRDA is of the opinion that any in case of any dispute arising out of insurance transactions, its jurisdiction should prevail. It added that the laws applicable to insurance contracts shall be enforced and information in this regard shall be furnished to the RBI.
Finance Minister P Chidambaram had favoured the idea of banks acting as brokers for selling products for penetration of insurance in the country. "At present, the policy on Bancassurance is 'one bank one insurance company (one life and one non-life)'. In this arrangement, the bank acts as the agent of the insurance company," the Finance Minister had said.
"It is desirable that banks may act as 'Brokers' where the fiduciary responsibility of the bank will be to the policy-holder," he had said.
As insurance broker, he had said, banks may sell products of more than one insurance company. This will provide the intended policy-holder a bouquet of products from which he may chose the appropriate product based on his needs and will also prevent mis-selling.
"IRDA will consider notifying banks as 'Brokers' under Regulation 2(j)(v) of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002," he had said.
In the present bancassurance model, banks are allowed to sell products of one life and one non-life insurance companies as an agent. So far, IRDA has sounded positive on the demand, but RBI wants banks to restrict to one single company and continue being an "agent".
RBI in its half-yearly Financial Stability Report had said that the existing regulations did not permit banks to become insurance brokers. RBI had also said that banks assuming the role of insurance brokers may also lead to conflict of interests.
There is no capital requirement for insurance broking business carried out by banks, according to IRDA (Licencing of Banks as Insurance Brokers) Regulations, 2013.