RBI has issued guidelines on Banks entering into insurance business. These guidelines can be viewed at
Gist of the guidelines are given below:
Guidelines for Banks undertaking Insurance Broking and Agency Business Banks may undertake insurance agency or broking business departmentally and/or through subsidiary, subject to the following stipulations:
1. Board Approved Policy
A comprehensive Board approved policy regarding undertaking insurance distribution, whether under the agency or the broking model should be formulated and services should be offered to customers in accordance with this policy. The
policy will also encompass issues of customer appropriateness and suitability as well as grievance redressal. It may be noted that as IRDA Guidelines do not permit group entities to take up both corporate agency and broking in the same group even through separate entities, banks or their group entities may undertake either insurance broking or corporate agency business.
2. Compliance with IRDA guidelines
a) The IRDA (Licensing of Corporate Agents) Regulations, 2002/ IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 and the code of conduct prescribed by IRDA, as amended from time to time, as applicable, should be complied with by banks undertaking these activities.
b) The deposit to be maintained by an insurance broker as per the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013, as amended from time to time, should be maintained with a scheduled commercial bank other than itself.
3. Ensuring Customer Appropriateness and Suitability While undertaking insurance distribution business, either under the corporate agency or broking model under the relevant IRDA Regulations, banks must keep the following in view:
a) All employees dealing with insurance agency/ broking business should possess the requisite qualification prescribed by IRDA.
b) There should be a system of assessment of the suitability of products for customers. Pure risk term products with no investment or growth components that are simple and easy for the customer to understand will be deemed universally
suitable products. More complex products with investment components will require the bank to necessarily undertake a customer need assessment prior to sale. It should be ensured that there is a standardized system of assessing the needs of the customer and that initiation/transactional and approval processes are segregated.
c) Banks should treat their customers fairly, honestly and transparently, with regard to suitability and appropriateness of the insurance product sold.
4. Prohibition on Payment of Commission/Incentive directly to Bank Staff
There should be no violation either of Section 10(1)(ii) of the BR Act, 1949 or the guidelines issued by IRDA in payment of commissions/brokerage/incentives. This may be factored in while formulating a suitable performance assessment and
incentive structure for staff. Further, it must be ensured that no incentive (cash or non-cash) should be paid to the staff engaged in insurance broking/corporate agency services by the insurance company.
5. Adherence to KYC Guidelines
The instructions/ guidelines on KYC/AML/CFT applicable to banks, issued by RBI from time to time, may be adhered to, in respect of customers (both existing and walk-in) to whom the services of insurance broking/agency are being provided.
6. Transparency and Disclosures
a) The bank should not follow any restrictive practices of forcing a customer to either opt for products of a specific insurance company or link sale of such products to any banking product. It should be prominently stated in all publicity material distributed by the bank that the purchase by a bank’s customer of any insurance products is purely voluntary, and is not linked to availment of any other facility from the bank.
b) Further, the details of fees/ brokerage received in respect of insurance broking/agency business undertaken by them should be disclosed in the ‘Notes to Accounts’ to their Balance Sheet.
7. Customer Grievance Redressal Mechanism
A robust internal grievance redressal mechanism should be put in place along with a Board approved customer compensation policy for resolving issues related to services offered. It must also ensure that the insurance companies whose products are being sold have robust customer grievance redressal arrangements in place. Further, the bank must facilitate the redressal of grievances.
8. Penal Action for Violation of Guidelines
Violation of the above instructions will be viewed seriously and will invite deterrent penal action against the banks.