Finance Minister Nirmala Sitharaman urged bankers to avoid mis-selling insurance, noting it can indirectly raise borrowing costs for customers
Insurance Regulatory and Development Authority of India (Irdai) Chairman, Debasis Panda, has urged banks to focus on their primary responsibilities instead of prioritizing insurance sales. Speaking at the annual banking and economy conclave organized by SBI on Tuesday, Panda emphasized the importance of the bancassurance channel while cautioning against its misuse.
“There is merit in the system, but it must be approached with care and caution. Selling insurance should remain incidental to a bank's core activities, not overshadow them,” Panda remarked. His comments come shortly after Finance Minister Nirmala Sitharaman also called on bankers to avoid mis-selling insurance products, highlighting how such practices can indirectly increase borrowing costs for customers.
The Role Of Bancassurance
The bancassurance model, where banks distribute insurance products, has proven effective in expanding the reach of insurance across the country. Banks, with their vast networks that span even the most remote areas, provide a low-cost distribution solution for insurers.
While recognizing its potential, Panda pointed out issues within the system, including a rise in mis-selling. “The banca channel is very useful, but lately, several ills have crept in. We need to address these issues collectively to restore confidence in the system,” he said.
The Financial Stakes
Banks earn significant commissions from selling insurance products, making it a lucrative side business. Many major banks have promoted their own insurance ventures, further incentivizing such sales. However, Panda stressed the need for balance, ensuring that banking operations remain the priority.
Toward A Fully Insured India
Panda reiterated the vision of a “Viksit Bharat,” where comprehensive insurance coverage is available to all. He highlighted Irdai's role in creating a forward-looking regulatory framework that offers operational flexibility to insurers while safeguarding policyholders' interests.
Irdai's responsibilities include maintaining financial stability, protecting policyholder funds, and ensuring insurers fulfill their commitments. The regulator is also shifting towards a more comprehensive risk management framework, moving beyond liability-focused models to include capital buffers. This approach aims to ensure insurers remain solvent under all circumstances, Panda explained.
A Call For Ethical Practices
Both Panda and Sitharaman's remarks underline the need for ethical practices in the bancassurance space. As banks and insurers collaborate to enhance financial inclusion, maintaining trust and avoiding practices like mis-selling will be crucial to achieving long-term growth and customer confidence in the industry.