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New bancassurance rules notified by SECO

New bancassurance rules notified by SECO

The Securities and Exchange Commission of Pakistan (SECP), has SECP logonotified the bancassurance regulations 2015.
With the implementation of the regulations, it is envisaged that the long-term interests of three primary stakeholders of life insurance business, i.e. policyholders, insurer, and agent (banks in this case) shall be more aligned. Various new regulatory measures like rationalization of bank’s remuneration structure, restriction on recycling of life insurance policies, commission claw-back provision, minimum cash values, minimum financial underwriting parameters and mandatory after sale call-back requirements have been introduced.
Under the bancassurance business there are quite a few problems of missselling as measured by low renewal persistency. The level of minimum financial protection component of the insurance products was also low. Besides this there was no minimum persistency benchmark for the bancassurance business which was necessary to shift the focus of the bank to servicing the existing policyholders.
The gap between the first year commission rate and second year commission rate was also very high, which is responsible for the short-term view of this business by the bank. The efforts of the bank and the insurance companies to properly educate a potential policyholder were also not up to the desired level. The regulations have addressed all these aspects, including bringing improvement to overall sales process for bancassurance business by bringing various regulatory tools such as introduction of insurance need analysis document, mandatory after sales call and requiring that illustration to be given at point of sale as a stand-alone document to intending policyholders. A minimum financial protection element has also been introduced to stress insurance element of the products sold through this channel. Efforts have been focused on addressing issues such as misselling, renewal persistency and bank’s remuneration structure to ensure protection of policyholders’ interests as well as to provide sustainable growth to this sector. The SECP issued the regulations in September 2013 to obtain public comments after a concept paper on the proposed bancassurance regulatory framework was shared with all the stakeholders, including the State Bank, in March 2013 to take their input.