Significant change to Indian corporate agency model
Draft regulations have been issued in India which reflect a significant change in the structure of the corporate agency model and suggest a move to a mandatory “open architecture” model from the current, “exclusive” and “tied agency” model. If implemented, this will have a significant impact on existing corporate agency arrangements in India, and bancassurance arrangements in particular, whose commercial terms reflected the “exclusive” model.
Amongst other things, the draft IRDAI (Registration of Corporate Agents) Regulations, 2015 (here) introduce limitations on the amount of insurance a corporate agent can place with a single insurer. This limit will apply on a reducing basis with 90 per cent. permitted in the first year, 75 per cent. in the second year, 60 per cent. in the third year and 50 per cent. from the fourth year onwards. A corporate agent will therefore have to tie up with at least two insurers in the first year itself and exclusive agency relationships will not be possible.
Since exclusive distribution is the premise on which existing corporate agency agreements have been entered into, most corporate agency agreements include an express obligation on the corporate agent to promote and exclusively distribute the products of one insurer. These agreements will all therefore have to be amended to comply with the new requirements. The new regulations will also have a detrimental impact on those bancassurance relationships where significant investments were made to enter into exclusive relationships. These investments could have been in the form of equity granted to banks in the insurance company at a discounted cost or through other arrangements. Banks with equity investments in insurers will have to consider conflict issues as they start selling insurance products of other insurers.
The draft regulations also impose additional obligations on corporate agents with respect to customers and policyholders as well as requiring increased disclosure and obliging corporate agents to procure professional indemnity insurance. However, customers, non bank-promoted insurers and insurers who have not yet entered into bancassurance relationships are likely to benefit from the changes.
Our alert (here), produced in conjunction with TT&A, a “best friend firm” of Linklaters, contains further details.
For further information please contact Savi Hebbur, Partner (tel. +44 20 7456 3388) or Sushil Jacob, Counsel (tel: +44 20 7456 2031) at Linklaters, or Kunal Thakore, Partner (tel. +91 22 6613 6961) or Deepa Christopher, Managing Associate (tel. +91 22 6613 6943) at TT&A, a “best friend firm” of Linklaters.