Insurers>> Referral Arrangement

IRDA /Cir/003/2003                                                                                                                                   30th January, 2003

                                                                                                RE: Referral Arrangement

To All the CEOs of Insurance Companies

Arising out of the notification of the Monetary and Credit Policy by Reserve Bank of India on October, 2002 permitting banks to undertake referral business through their network of branches for selling insurance products with prior permission of IRDA and RBI the Authority has been receiving enquiries from insurance companies about IRDA's guidelines on the subject.

All insurers entering into agreements/ arrangements with banks under the referral fee model or renewing such agreements/ arrangements may take note that the following points form part of any agreement/ arrangement :-

I. The referral fee shall be for access to bank's customer database and it should not exceed the ceilings on agency commission prescribed under the Insurance Act, 1938 and the IRDA Regulations and shall form part of acquisition cost of business and shall not form part of management expenses. This will include arrangements where bank branches operating outside India are sharing customers' base of NRI account holders.

II. The participation by bank's customers shall be purely on voluntary basis and this should be stated prominently in all publicity materials distributed by the bank and the insurance company. It should also be clearly mentioned that the contract of insurance is between insurance company and the insured and not between bank and insured.

III. There should be no linkage either direct or indirect between the provision of banking services by the bank to its customers and use of the insurance products.

IV. They should be no interest surcharge, concession dependent upon non use / use of the insurance service by the customer.

V. Any administrative / management expenses to be incurred for distributing literature and other information on insurance should be brought out in the agreement. Information exchanged should be exclusively for the promotion of the business and not for any other purposes during the validity of the agreement.

VI. The bank will not be paid any referral fee for promotional campaigns.

VII. The insurance company shall not provide any details of its customers to the bank on account of confidentiality obligations.

VIII. The insurance company and the bank shall enter into a referral fee arrangement based on a Memorandum of understanding or an Agreement which needs to be filed with the Authority.

IX. The bank which enters into referral fee arrangements should not be permitted to enter into any similar arrangements with more than one life insurance company or more than one general insurance company. This is important to ensure that a bank does not act defacto as an insurance agent or as an insurance broker without any license.

X. The insurance company should enter into a separate agreement with the bank for allowing the use of premises and use of existing infrastructure of the bank and a copy of the same should be filed with the Authority. In no case the fee for such services rendered / offered by the bank should be linked to premium and it should be on a flat basis. Such fee shall not form part of acquisition cost of business.

XI. All agreements should be for fixed period and should be with the prior approval of the boards of both the insurance company and the bank.

XII. The bank should comply with IRDA Regulations for acting under the referral fee arrangement and IRDA shall have the discretion to apply its own criteria to reject or discontinue such arrangements.

If insurers have already entered into such agreements/ arrangements they must ensure that copies of the same stand filed with the Authority

Yours sincerely

(N. Rangachary)


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