While buying insurance from banks is convenient, due diligence is essential to avoid products that don't align with long-term financial goals.
The 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.
Why Banks Sell Insurance
Banks contribute to about 55 per cent of life insurance premiums and approximately six per cent of health insurance premiums, making them a dominant distribution channel. Their trusted relationships with customers and vast networks provide a natural advantage for selling insurance. For customers, the convenience of addressing multiple financial needs under one roof is appealing.
Buying Insurance from banks offers accessibility, trust, and integrated financial services, making them a convenient channel for purchasing insurance. “Insurers benefit from cost efficiencies, as banks leverage existing infrastructure and earn hefty commissions based on volume. Customers are also drawn to bundled offers and perceived reliability,” says Sumit Bohra, president, Insurance Brokers Association of India (IBAI).
Customers also stand to benefit. Banks can negotiate better rates with insurers because they have a large customer base. This could lead to potentially lower premiums. Also, it lets customers manage multiple needs in one place.
The Flipside
However, risks abound. High sales targets for bank employees often lead to mis-selling, with policies being presented as fixed deposits, creating dissatisfaction when returns fall short. Policies may be oversold without adequately assessing customer needs, leading to poor persistence rates. Additionally, banks are typically tied to specific insurers, restricting customer choice.
“While buying insurance from banks is convenient, due diligence is essential to avoid products that don't align with long-term financial goals,” says Bohra.
Regulatory measures aimed at curbing mis-selling must prioritize transparency and advisory-driven sales, ensuring policies serve customer interests rather than meeting institutional quotas.
Should You Buy Insurance From A Bank
“While buying insurance from banks is convenient, due diligence is essential to avoid products that don't align with long-term financial goals,” says Bohra.
Buying insurance separately might cost you a bit more, but you can get a policy that is more suited to your needs. You also have the flexibility to choose your insurer, after doing proper research and comparing premiums and features.
There have been instances when a partnership with a bank and an insurance company for a health insurance policy has been over and the new policy offered was either more expensive or coming with deductibles and co-pays. In such a situation, the policyholder is at a disadvantage. So, when buying insurance from a bank, it is important to do your research and ensure that you are taking a policy that is in line with your needs.
