Insurance Regulatory and Development Authority (IRDA) has denied that it has issued any guidelines for general insurers to enter referral arrangement with banks. Such arrangement was existed for seven years up to first July 2010, when IRDA scrapped this provision.
Referral arrangement allows a bank to leverage its branch network and refer customers who want to buy an insurance product to the insurer, for which bank gets a fee from the insurer.
On 30 January 2003, IRDA issued guidelines on Referral arrangements between banks and insurers, but later on 14 February it issued another circular superseding and substituting the earlier one elaborating on guidelines on such agreements for life insurers. In this circular IRDA said that revised circular for general insurers will be issued later, but this circular was never issued.
This irregularity came into the notice of IRDA, hence on first July 2010 IRDA issued notification barring both life and non-life insurers from entering referral agreements with deposit-accepting companies in the business of loans and advances or in other words banks and Non-Banking Financial Companies (NBFCs). Banks were asked to become corporate agents of insurers before they could sell insurance products.
However, at least six general insurers including ICICI Lombard, HDFC Ergo and all four public sector general insurers –New India Assurance, Oriental Insurance, National Insurance and United India Insurance had entered such agreements with different banks, in some cases since 2004-05.
IRDA has also admitted that insurers are flouting norms for more than six years as IRDA has not issued any guidelines on referral agreements for general insurers. But IRDA is not interested in taking any action against this practice of insurers because as per IRDA it will be regulatorily unwise as it might have deep impact on the industry.
However, general insurers claim that they have regularly submitted copies of their referral agreements with banks. Insurers say that they have referral agreements with banks as per IRDA’s January 30 2003 circular and they have also informed IRDA about their referral agreement in prescribed format. They also say that they have conducted business in compliance to all the applicable laws laid by IRDA.