Sales machine or advisory model? RBI’s reset for bank-led insurance

Subscribe to enjoy similar stories.For many Indians, trust in their bank is built over decades. But when that trust is leveraged to sell insurance products that may not suit a customer’s needs, the line between fiduciary advice and sales blurs.The bancassurance model—where banks act as agents for insurance companies—comes with a structural conflict of interest. Customers often walk away with policies that do not align with their financial goals.The Reserve Bank of India (RBI), in its new draft rules, has called for significant structural changes to curb mis-selling.

While experts Mint spoke to do not expect a sharp dip in sales, they anticipate tighter scrutiny and changes in incentive structures.The problem lies in incentives. Bank relationship managers are often pushed to prioritize insurance targets over customer suitability.According to Manju Dhake, head of insurance advisory practice at 1Finance, a financial planning app, the issue is:“In a distribution-led model, product suitability often takes a back seat to sales incentives. Customers, who place significant trust in their bank, are left holding products that don't serve their financial goals.”Prof.

Manoj K. Pandey, associate professor at BIMTECH, says the conflict is embedded in the model itself. Many banks are promoters of insurance companies, creating a vested interest in pushing group products.A report from 1Finance states:“Banks may earn as much as 65-70% commission on first-year premiums from selling insurance policies, including the policies manufactured by their related-party companies.”“Mis-selling and forced selling are longstanding problems rooted in structural conflicts of interest,” Prof.