In a bid to increase the penetration of insurance products in semi-urban and rural areas, the finance minister announced various measures, such as allowing banks to act as brokers for the products of insurance companies, and permitting banking correspondents to sell micro-insurance products.
“Banks will be permitted to act as insurance brokers so that the entire network of bank branches will be utilised to increase penetration,” finance minister P Chidambaram said in his budget speech. “Banking correspondents will be allowed to sell micro-insurance products.”
Under the banking correspondent system, a person authorised by banks goes to rural areas with handheld device and provides basic banking services.
“With banks being allowed to act as brokers, the proven distribution model has widened to the advantage of all constituents,” said Anish Amin, partner, PWC. “However, it is to be seen how the regulators converge towards this goal. This means banks, as brokers can associate themselves with multiple insurance firms and vice-versa, thereby channelising a wider range of products.”
The finance minister also proposed that people with bank accounts would not need to fill Know Your Customer (KYC) forms to buy insurance products.
In order to help the branch expansion of insurance companies, finance minster proposed that the companies will be empowered to open branches in tier II cities and below without prior approval of the insurance regulator - IRDA.