Chennai: Bank mergers in India not only have their echo in the banking sector but also increasingly in the insurance sector.

With the board of directors of Centurion Bank of Punjab having today accorded in principle approval to the proposed merger of their bank with the larger HDFC Bank (See: Centurion Bank of Punjab and HDFC Bank merger plans afoot), is certainly to affect Centurion's bancassurance deal with Aviva Life Insurance Company Limited.

This is because the acquiring bank, HDFC Bank, has a similar deal to sell the life insurance policies of its sibling HDFC Standard Life Insurance Company Limited and can hardly be expected to vend policies from Aviva, a rival of HDFC Standard Life.

That he merger would affect Aviva is because private insurers, particularly life insurers, are finding it difficult to sign up with banks to sell their policies as early entrants have already tied up bancassurance deals with all major banks. Most of the bancassurance deals are for 3 or 5 years.

For life insurers the bancassurance channel is a major source of business.

Morevover, insurance regulator Insurance Regulatory and Development Authority prohibits a bank from selling policies for more than one life insurer.

Realising their importance in life insurer's plan for topline growth banks have been striking a hard bargain for higher commissions. In some cases the commission and incentives go as high as 70 per cent of the first year's premium even though the statutory limit is around 40 per cent.

Recently N S Kannan, executive director, ICICI Prudential Life Insurance Company attributed the reason for his company's relatively lower average premium per policy (APPP) to the company getting the bulk of its business from its individual agency force.

Even Asia's largest life insurer Life Insurance Corporation of India's (LIC) APPP is low as it gets most of its fresh business from its highly productive agency force.
However, Aviva Life had signed a bancassurance deal last month with the Bank of Rajasthan, which has been switching its life insurance partners at  regular intervals.
Initially it sold Birla Sun Life Insurance policies, switching over to Life Insurance Corporation of India (LIC) and then to Aviva Life.

Interestingly, Centurion Bank of Punjab signed up with Aviva Life recently after earlier having sold policies for Bajaj Allianz Life Insurance.

While many domestic life insurers claim having developed the bancassurance route to marketing their products, it was P. Nandagopal of Birla Sun Life Insurance who pioneered this distribution channel in the country.

Now CEO Reliance Life Insurance Company, Nandgopal is finding it difficult to find a banking partner for selling Reliance Life's policies.