Proposed Changes to Bancassurance Business in India: Impact on Insurance Companies

The recent news regarding the potential Insurance Regulatory and Development Authority of India (IRDAI)‘s move to limit the bancassurance business has sparked widespread speculation about its impact on private insurers. Bancassurance—an agreement between a bank and an insurance company allowing the insurer to sell its products to the bank’s client base—has been a significant growth driver for many private insurance companies.

According to analyst reports, the IRDAI is considering a measure to limit a parent bank’s contribution to its insurance company’s total bancassurance business to 50%. This development has resulted in a downturn in the stocks of insurance companies as private insurers would have to either control sales through parent banks or add more large bank partners to decrease the parent bank mix.

The move by the IRDAI could potentially be detrimental to growth for private insurers and their distribution partners. The bank channel—largely dominated by parent banks—has been a key driver of sales for private life insurers. The proposed cap, if implemented, could see a lot of resistance from insurers, according to Bernstein, a leading brokerage firm.

Furthermore, the proposal has implications for the fee income of banks involved in insurance distribution, signaling a negative impact on their earnings.

If the proposed cap comes to fruition, it is expected that there will be significant resistance from insurers due to the impact it could have on their growth and revenue generation. In fact, Bernstein has noted that the proposal could be challenging to implement due to the potential pushback from insurers and its detrimental effect on growth.