MUMBAI: The insurance regulator’s chief on Tuesday cautioned banks against mis-selling of insurance products, stating that a lot of ills have crept into the bancassurance system.
Irdai chief Debasish Panda said that banks have relationships with customers for generations because of which there is a trust that the branch would sell them right product at the right price. “We all need to sit together and thrash out the matter so that we restore the confidence and this becomes a low-cost distribution model. You do not have to run after customers, you have to give them an option. I believe there is merit in the system, but we have to do it with caution so that you don’t forget your activity and start selling only insurance. It should be incidental,” said Panda. He was speaking at the SBI Conclave here.
Panda’s comments come close on the heels of FM Nirmala Sitharaman’s caution against mis-selling and echoes her stance that banks should stick to their primary activity. In the past, there have been instances of banks asking even senior citizen customers to park their savings in schemes of insurance companies. Shares of life insurance companies fell sharply on Tuesday after Sitharaman’s comments as banks are the biggest distributors for private life companies and any curbs could lead to a drop in sales.
Last year the Irdai’s amended product regulations placed the onus on insurance companies to ensure that companies take reasonable care to ensure suitability of the policy to the prospects/policyholders. This shifted the onus to the insurer to ensure that the policy is suitable to the needs of the customer and ensure that they have the wherewithal to pay renewal premium.
Panda said that the number of regulations in the sector has been significantly reduced from over 100 to just 20, of which only 15 apply to the industry, as the remaining five are internal to organizations. These regulations are principle-based, offering more flexibility. Morever, over 375 circulars have been repealed, and more than 80 returns have been simplified, aiming to encourage innovation, ease business operations, and lower compliance burdens.
Boards now have greater autonomy to make business and operational decisions independently, as many redundant prior approvals from the regulator have been eliminated. Processes have been streamlined across various areas, including entering the insurance sector, launching products, managing expenses, raising capital, and investing assets. This provides more opportunities and flexibility, especially for new entrants, he said. Earlier in his speech, Panda said that the Indian insurance sector is the 10th largest globally and is projected to become the sixth biggest within 7-8 years.
