Life insurers including state-owned LIC are finding themselves in a tricky situation over a new regulatory requirement of mandatorily seeking customer bank account details at the time of new policy sales, as premium collection also happens in cash in many cases.
The new norms, prescribed by insurance sector regulator IRDA, came into affect from April 1, 2014, and make it mandatory for insurers to seek bank details of customers buying new policies.
Top officials at various insurers, including Life Insurance Corporation of India (LIC), said they will make representations before IRDA and the government for easing of these norms, or at least giving more time for compliance.
Insurers also collect a significant amount of insurance premiums in cash in smaller towns where banking channels are either not widely available or used.
“This is especially true for smaller ticket businesses and rural locations as the cash economy is large in these places,” a senior LIC official said.
“Around 40 per cent of insurance premiums come in cash and expecting all of them to have a bank account, as of today, is still premature.
“It would still be acceptable to the industry if the regulator makes it mandatory for payments may be made only into customers bank accounts but keeping that as a pre-requisite acts as a deterrent,” he added.
A top IRDA official said they have been informed by some insurers about their apprehensions about the new norms.
He, however, said that there are bank-promoted insurers also in the industry, whose 70 per cent business come from bank customers and they face little problem on this front.
The official, however, admitted that market share and reach of such insurers are limited compared to behemoth like LIC and some other private insurers.
“Companies like LIC that have a huge footprint, and are present in areas where banking has not reached, would face a larger problem,” an official at the state-run insurer said.
As per the new norms, insurers have been asked to remit proceeds of all claims, maturity payments and any other sum due to policyholders or nominees only through electronic transfer of funds to their bank accounts.
For existing customers, the life insurers have been asked to intimate their existing customers for providing bank account details by August 2014. The non-life insurers have been directed to collect bank account details of existing customers at the time of claim payments, refund or renewal.
For new customers, insurers have been asked to collect bank account details at the time of sale of new policies, so that all payments can be made through electronic transfer.
For life insurance, payments up to Rs 10,000 have been exempted so far from such clauses, while exemption has been granted so far to non-life insurance policies having sum assured up to Rs 25,000.
