Any steps taken by the IRDAI to limit the business share of life insurance companies from the parent bank channel or bancassurance channel will be misdirected and stifle the growth of the sector, while not addressing the actual underlying problem of rampant mis-selling, said an Emkay Research report.
Reports emerged last week that suggested that IRDAI is likely to introduce regulations to limit the degree of dependence of life insurance companies on their parent banks for business sources through bank channels.
IRDAI is also reportedly planning to encourage diversification across multiple distribution channels to ensure balanced growth across the industry, according to Business Standard.
In October 2023, IRDAI formed a task force to review the existing bancassurance framework and improve its efficiency amid complaints of mis-selling or forced selling of policies.
Concerns
Recently, both the finance minister and the IRDAI chairman expressed concerns about mis-selling or forced selling of insurance products via banks and stressed the need to restore customer confidence in the system while urging lenders to focus on their core banking services.
The Emkay report said, “The government and regulator may be duly concerned about the mis-selling of insurance products, but the prescriptive nature of a solution is far from addressing it. Neither is insurance the only financial product being mis-sold, nor does data support that it is the banca channel that is leading the mis-selling. Using the 13th-month persistency (lapses) as the wider measure of mis-selling, data suggests a relatively better position of banca-driven private life insurers.
According to the report, poor products and misaligned incentives for distributors are the underlying causes of mis-selling.
“In actuality, once the commissions in ULIPs (unit-linked insurance plans) were rationalised, the agency distribution collapsed, and it was banca that helped in the distribution of low-cost ULIP products. Hence, there is a need to focus on continuously improving the product proposition for customers, which the regulator has been doing,” the report said.