Banks violate Irdai norms, sell insurance policies above Rs 5 crore, claim brokers

Insurance brokers are expressing opposition to the practice of banks soliciting insurance policies with sums assured exceeding Rs 5 crore, a clear violation of guidelines set by the insurance regulator. Despite regulations from the Insurance Regulatory and Development Authority of India (Irdai), which permits banks, acting as corporate agents of insurance companies, to solicit insurance coverage only for policies with a sum assured not exceeding Rs 5 crore, numerous instances reveal banks selling policies for Rs 100 crore, Rs 1,000 crore, and even Rs 2,000 crore.

Sohanlal Kadel, Managing Director of Kadel Insurance Brokers, highlighted the non-compliance of banks with Irdai regulations, emphasizing the clandestine sale of high-value policies without obtaining the required broking license. The Insurance Brokers Association of India (IBAI) advocates for maintaining an arm’s length relationship between banks as lenders and sellers of insurance. This separation is deemed essential to ensure that assets hypothecated to the bank are adequately insured with optimal coverage, guided by the advice of full-time insurance professionals.

The IBAI has communicated its concerns to the Reserve Bank of India (RBI) and Irdai, citing potential conflicts of interest and compromised risk management arising from the amalgamation of banking and insurance functions. The association warns against under-insurance scenarios where banks arrange insurance only for their loan exposure, leaving customers inadequately protected in the event of a calamity.

Critics argue that banks lack the in-house expertise to comprehend various coverage options under commercial policies and are unable to effectively communicate policy terms and conditions to customers. This deficiency may result in customers obtaining incorrect coverage, leading to non-payment or under-payment of claims.

Despite these concerns raised by insurance brokers, the RBI and Irdai have not responded to queries. Former Irdai member K K Srinivasan acknowledges the need for regulatory examination and potential modifications to safeguard policyholders’ interests. However, he stresses the importance of allowing policyholders the freedom to choose their intermediaries and insurance providers. Observations also suggest that some banks engage in non-participative and opaque insurance buying practices, where policies are purchased without customer involvement, premiums are debited without clear communication, and policy details are not shared with customers.

The insurance brokers allege that such practices, aimed at mutual benefit for banks and insurers, raise questions about compliance with Irdai guidelines and the potential adoption of inappropriate measures to bypass regulations.


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