INSURANCE regulator Irda has given its final approval for the life venture that involves Bank of Baroda, Andhra Bank and UK-based Legal and General (LG). BoB will hold 44% stake, Andhra Bank 30% and LG the rest in IndiaFirst Life Insurance, which is being set up with a capital base of Rs 200 crore and expected to come on stream by December.
The so-called R3 approval is a final documentary clearance that an insurance firm has to get from the regulator before commencing operations. The company will initially sell its products—it has filed four products with the regulator for approval, including a ULIP/savings product, child plan, retirement plan and an annuity product—through the 4,500 combined branches of the two PSU banks throughout the country.
The three promoters are expected to infuse Rs 2,500 crore into the JV over the next 10 years. However, prior to their commercial launch, both the bank promoters have to discontinue their existing bancassurance arrangements with their partners as prevailing guidelines do not permit a bank to sell products of more than one life insurance company at a time.
While BoB has terminated its agency arrangement with HDFC Standard Life Insurance from November 1st, according to its chairman M D Mallya, Andhra Bank is still in the process of severing its ties with Life Insurance Corporation, informed R S Reddy, CMD of Andhra Bank. However, BoB will continue servicing customers to whom it has sold policies.
“IndiaFirst Life Insurance will not adopt an agency model but instead leverage on the branch network of the promoter banks. This, in turn, will help it to save costs and break even a little earlier than a normally a life venture,” IndiaFirst Life CEO P Nandagopal said.
The new insurance company is expected to break even in five years as it doesn’t have to significantly invest in the distribution network. In the initial phase, the insurance products will be sold through 1,150 bank branches.
The life insurance company has hired around 500 people who will sit at the bank branches to sell the life products subject to the IRDA approval. In the next 5 years the life insurer is expected to set up some distribution system such that 40% of the business would be sourced from insurance branches and the balance 60% from bank branches.
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