The Legality Of Bancassurance And The Need For Reform
Lyssa Maria Brito, Bhat & Rao, Advocates
In this article, the legality of Bancassurance arrangements is analysed. ‘Insurance’ has been declared by the Government to be is a permissible form of business that could be undertaken by banks under Section 6(1) (o) of the Banking Regulation Act, 1949. On a first glance, it would appear that Bancassurance is a cost-effective measure to promote the penetration of insurance in India which benefits the customers, the insurance companies and the banks and which ultimately promotes economic development. However, there are several legal issues that are involved in the cooperation between banks and insurance companies.
The first issue that is looked at in this paper is whether Bancassurance infringes the rights of banks clients or customers. Customers may be misled by banks into buying insurance products of the insurance company of which the bank is an agent or a partner. Bancassurance may limit the choice of customers to choose an insurer. The sharing of customer information with insurance companies by banks is another legal issue that arises. Furthermore customers of insurance products through banks may and often do face problems in the settlement of claims of insurance. The current group structure makes it difficult and in some cases impossible for the insured or their heirs to bring their claims directly to the insurer.
Secondly in this paper the issue of whether Bancassurance is anti-competitive is examined. It could be argued that there exists a coercive arrangement between banks and the clients financed by the banks in insurance retailing by banks which is in contravention of the Competition Act being an exclusive supply arrangement. The exclusive distribution agreement between various insurance companies and their agent banks restricts the independent agents and insurance brokers from selling insurance products to customers of banks. Furthermore, banks, because of their size, resources, economic power and market share, are dominant market players and are abusing their dominant position in contravention of the provisions of the Competition Act by indulging predatory pricing, restricting the insurance retailing market for other independent insurance agents, denying market access to independent insurance agents and using their dominant position in banking market to charge overly high commissions from insurance companies.
Finally in this paper the existing legal framework to regulate Bancassurance in India is looked at to determine whether there exists any lacuna in the law and whether there is a need to introduce amendments or reforms.