The Reserve Bank of India (RBI), the country’s central banking institution, has said that it favors banks distributing insurance products, but it warned against mis-selling, especially since these have been linked to lucrative performance-based incentives for bank staff and management.
"Distribution of insurance products by banks is popular the world over. It can provide very useful non-interest income (fee-based income) and positively impact profitability," said the RBI in its Financial Stability Report
"While this may be seen as complementary to core banking business leveraging the banks' relationship with customers by offering a wide spectrum of financial services under one roof, there is a need to check the possibility of mis-selling, especially in the light of reported attractive performance-linked incentives for bank staff and management,” the report also contained.
With regards to reinsurance, the RBI said that a strong reinsurance program protects the balance sheets of primary insurance providers against unforeseen losses. It also improves risk assessment, but there is a need to review the resilience of reinsurers as there has been increased concentration of contingent liabilities in just a few reinsurance entities.
In case of simultaneous major risk events, reinsurance companies may be subject to a huge amount of stress which can affect primary insurers as well, presenting the potential risks such as insolvency.
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