Govt Allows Life Insurers To Expand Bancassurance Under Certain Conditions

In a recent meeting between the CEOs of major life insurance companies and the Department of Financial Services (DFS), the government offered a conditional green light to insurers to expand their bancassurance network. But the message was loud and clear, life insurers must keep mis-selling in check or risk tighter scrutiny.

Held last week, the meeting saw CEOs present detailed reports on key industry issues, such as persistency rates, the extent of mis-selling, and their growing investments in Government securities (G-secs). According to a report by CNBC-TV18, DFS Secretary M Nagaraju assured industry leaders that the government was not looking to clamp down on bancassurance as a distribution model.

This comes at a time when the Insurance Regulatory and Development Authority of India (Irdai) has been exploring ways to reduce the industry’s dependence on any one sales channel, especially bancassurance, which has come under fire in recent months over complaints of aggressive sales tactics and mis-selling.

What is Bancassurance and What are its Perils?

This is a practice where insurance products are sold through banks. It has grown rapidly over the past decade, becoming an important distribution channel for life insurers. Since banks have a large customer base and branch networks, it offers insurers a quick access to potential policyholders.

But this convenience has also come with its pitfalls. Bank relationship managers, often, in a rush to meet sales targets, often blur the lines between fact and fake, pushing unsuitable or complex products onto unsuspecting customers. (Mis-selling Saga)

An Ajmer-based retired individual told Outlook Money that he was persuaded to invest in a “special Fixed Deposit (FD)” that came along with an insurance coverage. The RM convinced him that the product will give guaranteed returns higher than that offered on regular FDs with proof of past returns. It was only later that the individual realised that he was mis-sold a unit-linked insurance plan (Ulip) under the guise of a special FD.

His case is one among many that have led to rising concerns about accountability in the bancassurance channel.

In this context, the government’s message is calibrated. The report notes that the DFS Secretary conveyed that while insurers are free to grow their bancassurance partnerships, they must ensure that this does not result in higher instances of mis-selling. One proposed safeguard is a mandatory post-sale video recording, where the policy is explained on camera to the customer by the bank or agent. This could act as proof of informed consent and help prevent disputes later.

Industry leaders see the move as a positive signal. “The government recognises the role bancassurance can play in improving insurance penetration in India. There’s also an increasing push for responsible selling, and rightly so,” one senior insurance executive told CNBC-TV18.

As life insurers plan their expansion through banks, the message from policymakers is clear, growth is welcome, but not at the cost of consumer trust. The burden now lies on insurers and their banking partners to clean up their act, strengthen post-sale engagement, and ensure that insurance is sold, and not mis-sold.