Banks Role in Insurance Distribution Business

Banks role in Insurance Distribution Business

As the financial year 2013-14 is approaching towards its end. People are rushing for tax saving investment options and for tax saving insurance product is very popular among the investors. However, in my personal opinion it becomes very toxic product if you mix your insurance need and investment. Insurance mainly sell by individual agents, brokers, direct selling and banks.  

Banks are the main contributor in the sells figures of private insurance companies products. In India, people have immense faith on banks. They still prefer bank FD even the net inflation adjusted post tax return is very poor. Due to this blind faith on banks, common investors become a victim of mis-selling of these products. I met a lot of cases almost in every investor meet of mis-selling by the banks. The complaints of mis-selling by banks are increasing. Due to this mis-selling complaints, bank regulator RBI has proposed the new guidelines for selling of insurance products. The main RBI proposal as given below:

• ·         A bank’s NPA should be less than 3%
• ·         It should have made profits for last 3 consecutive years
• ·         A bank’s net worth should be at least Rs 500 crore

The government is also planning to mandate multi insurance companies sales for bank. At present banks are selling only one company’s products. The insurance regulator IRDA has also capped a bank’s sale of joint venture partner’s products at 25% of the overall.

In fact the aim of insurance sales by bank is to increase the reach among the maximum people as banks have wider branch network across the country. The above mentioned proposal by RBI, IRDA and govt are not fully implement. We hope that after implementing these guidelines mis-selling would be stop to some extent. However, insurer would not allow implement these guidelines in very smooth manner.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com