Irda frowns upon bank officials joining insurers' boards

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/irda-frowns-upon-bank-officials-joining-insurers-boards/articleshow/16391120.cms

The insurance regulator does not want bank officials on the boards of insurance companies due to conflict of interest despite them being promoters in most cases. 

"When banks have representatives on insurance companies' boards, they influence commission being paid to them," said a senior Irda official. "This is paid out of policyholders' money. There is a conflict as they are shareholders and bank directors." 

The guideline on directors will be part of the new bancassurance guidelines. While clearing the Metlife-PNB deal, the regulator imposed conditions on appointment of directors on the board of the insurer by Punjab National Bank.

The concern is arising from banks' tendency to look for returns in the short term. The accusation against banks is that they look to gain by pushing sales and, in the process, end up mis-selling. 

Companies like ICICI Prudential Life Insurance, SBI Life Insurance and HDFC Life have bank people on their board. The official said that new rules will not be applicable to the existing bank-led companies. Most companies promoted by banks have a substantial stake of 74%. 

According to a report by Irda, the potential of bancassurance to become a significant distribution network is huge as banks have over 80,000 branches across the country. 

At present, the bancassurance channel contributes around 25% to the total premium of life and non-life insurance companies. Non-bank promoted companies have tied up with banks for a term of one to three years as corporate agents. The premium collected through bancassurance was Rs 21,947 crore in 2009-10, according to the latest data. 

Of late, banks are buying a minority stake in insurance cos for a longer duration. Axis Bank, which bought a stake in Max Life for 10 years, started the trend. Irda has been worried about banks buying into insurance firms. It took more than a year to clear Metlife-PNB deal.