EXECUTIVE SUMMARY

The life insurance industry in India has been progressing at a rapid pace
since opening up of the sector in 2000. The size of the country, a diverse set of
people combined with problems of connectivity in rural areas, makes insurance
selling in India a very difficult proposition. Life insurance companies require
immense distribution strength and tremendous manpower to reach out to such a
huge customer base.
This distribution will undergo a sea change as various insurance
companies are proposing to bring insurance products into the lives of the
common man by making them available at the most basic financial point, the
local bank branch, through bancassurance. BANCASSURANCE: TWIN
THRUST is the process through which insurance products are sold to
customers at their local banks. With a banking network of 65,000 branches
serving more than 300 million retail banking customers, insurance can be
available at affordable prices to people even in remote corners of the
country. Twin here signifies the combination of a Bank and an Insurance
company the two being the largest institutions of financial services and
revenue earners in the domain of finance. Thrust (force that drives
something forward) ...thrust in this case is symbiotic n mutual(ly beneficial)
helping in the upward/northward growth of both businesses and the
economy as a whole.

The relationship is symbiotic; but there are challenges. The most common
challenges to success are poor manpower management, lack of a sales culture
within the bank, no involvement by the branch manager, insufficient product
promotions, failure to integrate marketing plans, marginal database expertise,
1|P a g e
poor sales channel linkages, inadequate incentives, resistance to change, negative
attitudes toward insurance and unwieldy marketing strategy. Even insurers and
banks that seem ideally suited for a bancassurance partnership can run into
problems during implementation. Before targeting the market, it is essential to do
a SWOT analysis.
One more important obstacle in development of bancassurance in India has
been a set of regulatory barriers. Some of these have recently been cleared with
the passage of the Insurance (Amendment) Act, 2002. Looking at the west where
sales through the banking network have been a roaring success, the Indian
banking sector has far to go. But one thing stands obvious. If insurance in India is
to succeed, it can only be through the bancassurance channel.

Thus the scope of this project is limited to the following parameters :-

♣ Emergence of bancassurance in India
♣ Relevance of bancassurance in the Indian Financial Sector,
♣ Utilities and Advantages to Banks, Insurance Companies and the
Customers;
♣ Regulatory Norms ( RBI and IRDA),
♣ Models of bancassurance and
♣ SWOT Analysis.

To be able to understand to what extent bancassurance has reserved a place in the

lives of the people in the country a survey analysis has been conducted.

2|P a g e
 INTRODUCTION

The business of banking around the globe is changing due to integration of

the global financial markets, development of new technologies, universalization
of banking operations and diversification in non-banking financial activities. Due
to all these movements, the boundaries that have kept various financial services
separate from each other have vanished. The coming together of different
financial services has provided synergies in operations and development of new
concepts. One of these is Bancassurance.

Bancassurance simply means selling of insurance products by banks.

Bancassurance, which is also called Allfinanz -. a one-stop financial service to
meet the requirements of banking services and also to provide reliable
protection to customers. Bancassurance is identified as an alternative
distribution channel, the key issue which is closely linked to the regulatory
climate of the country to improve the non-interest income of banks.

In this arrangement, insurance companies and banks undergo a tie-up, a

system in which a bank has a corporate agency with an insurance company to sell
its products. By selling insurance policies the bank earns revenue apart from
interest. It is called as fee-based income. This income is purely risk free for
the bank since the bank simply plays the role of an intermediary for
sourcing business to the insurance company.

The distribution of insurance products through banks is beneficial not only

to the insurance and banking companies, but also to the customers. The growth of
3|P a g e
bancassurance depends on how well the banks and the insurance companies are
able to overcome the operational challenges that are being constantly thrown at
them. The need of the hour for the bancassurance venture is to inculcate new
ideas, new approach and work culture.

Financial Services

Banking Insurance

Bancassurance
Bancassurance

But it is a controversial issue as many experts feels that this gives the
banking sector too great a control over financial services market in the
respective country. Therefore it has also been restricted in many countries
too.

But, still the countries have permitted Bancassurance in their market has
seen a tremendous boom in that sector. The share of premium collected by them
has increased in a constant manner. This success coincided with a favorable
taxation for life insurance products as well as with the consumers' growing needs,
in terms of middle and long term savings, which is due to an inadequacy of the
pension schemes in India.
4|P a g e
 DEFINITION

The term first appeared in France in 1980, to define ‘the sale of

insurance products through banks’ distribution channels (SCOR 2003)

The Life Insurance Marketing and Research Association’s (LIMRA’s)

insurance dictionary defines bancassurance as “the provision of Life insurance
services by banks and building societies”.

According to IRDA, ‘bancassurance’ refers to banks acting as

corporate agents for insurers to distribute insurance products.” Literature on
bancassurance does not differentiate if the bancassurance refers to selling of life
insurance products or non-life insurance products. Accordingly, ‘bancassurance’
is defined to mean banks dealing in insurance products of both life and non-
life type in any forms. But in this research the focus is entirely concentrated
towards life insurance. It is also important to clarify that the term bancassurance
does not just refer specifically to distribution alone. Other features, such as legal,
fiscal, cultural and/or behavioral aspects also form an integral part of the concept
of bancassurance (SCOR 2003).

5|P a g e
 BANCASSURANCE - GLOBAL CONTEXT

`Bancassurance' has a French origin — which refers to a bank selling

insurance products through its own insurance subsidiary/allied company or any
other insurer. The bank taking over insurance is particularly well-documented
with reference to the experience in Europe. According to Michael White-
Symetra's Bank Fee Income Report (Bank-FIR) of 2007, banks increased their
insurance brokerage fee income from $3.93 bn to a record of $4.08 bn at a hike
of 3.7% in 2006. Today, Europe leads the world in bancassurance. In the US,
hardly 20% of the banks were selling insurance in 1998 against almost 70 to
90% in many European countries. Bancassurance has blossomed across
Europe with penetration of pensions and life premium rates ranging from 20% in
Germany to 73% in Spain, according to DataMonitor. In the UK, around 10% of
life insurance premium income is generated regularly through bancassurance
channel. In France, almost 100% banks are selling insurance products. The
largest independent insurance company in France, the CNP has developed
its product distribution through post offices. It is a relatively new concept in
Australia and Asia. In the Asian markets, bancassurance has become a favorite
choice of bankers and insurers and as a result governments have been
offering legislative support. In Asia, Singapore, Taiwan and Hong Kong have
surged ahead in bancassurance, with India and China taking tentative steps
towards it. But it was recently legalized in countries such as the United States,
when the Glass-Steagall Act was repealed after the passage of the Gramm-Leach-
Bliley Act.

6|P a g e
 BANCASSURANCE - INDIAN SCENARIO

In India, ever since espousing of financial reforms following the

recommendations of First Narasimhan Committee, the contemporary
financial landscape has been reshaped. Banks, in particular, stride into several
new areas and offer innovative products, viz., merchant banking, lease and term
finance, capital market / equity market related activities, hire purchase, real estate
finance and so on. Thus, present-day banks have become far more diversified
than ever before. Therefore, their entering into insurance business is only a
natural corollary and is fully justified too, as ‘insurance’ is another financial
service required and desired by the bank’s customers.

Bancassurance as a concept first began in India, when the insurance

industry opened up to private participation in December 1999. With the
liberalization and deregulation of the insurance industry, bancassurance evolved
in India around 2002 and competition is now tougher than ever before where
everyone is trying to come out with better innovations to stay that one-step
ahead. Both banks and insurance companies are looking at each other to
generate new sources of income using 18 crore customer accounts. India has
a population of 1,054 million out of which only 77.7 million Indians have a life
insurance policy as per the survey conducted by Federation of Indian Chamber
and Commerce of Industry (FICCI). The Indian insurance market accounts
only for 0.59% of $2,627 bn global insurance market. According to Swiss-Re

7|P a g e
report, life insurance premium is expected to increase from $188 bn in 2003 to
$450 bn by 2014 and non-life premium from $123 bn to $250 bn over the same
period. The study also revealed that India and China are the fastest growing
markets for insurance business. Almost 300 million people in the country
can afford to buy life insurance. So, there is a huge chunk of population yet
to be tapped. In India, 27 public sector banks account for approximately
92% of the total network. Among other things, the network involves 33,000
rural branches and 14,000 semi-urban branches where insurance
penetration is largely untapped. In India, the concept of bancassurance is
relatively new.

Table: Per Capita Premium in Select Countries

Region/Country Per Capita Premium(in $)
USA 3,266
Europeaa(Average) 919
Switzerland 4,343
UK 3,394
GulfaCountriesaa(Average) 155
UAE 302
Bahrain 220
Kuwait 259
Oman 77
Saudi Arabia 47
Source: Sigma Report, Swiss Re

The Indian middle-class segment is the second largest in the world

after China. It is estimated that through bancassurance banks and insurance
can collectively receive a fee-based income of Rs. 13,500 cr and Rs. 22,000
cr, over the next five years. Many banks and financial institutions have set up
joint ventures with foreign insurance companies like SBI Life (with Cardiff of

8|P a g e
France), MetLife India (MetLife and J&K Bank amongst others) ICICI
Prudential (with ICICI), HDFC Standard Life (with HDFC), etc. The companies
like Aviva, MetLife, Birla Sun Life, SBI Life, etc., have taken bancassurance as
an important channel for distribution. SBI Life Insurance Company is a
predominant player in bancassurance. The company aimed at acquiring 75%
of the total business through bancassurance and the balance through the other
channels by 2007. Allianz Group is a business entity engaged in worldwide
insurance business embracing more than 70 countries of five continents to serve
60 million customers through its international subsidiary network.

Banks have got a wide retail network proving to be a vital distribution

channel of insurance products. To ensure that only financially sound banks
enter into this stream, the IRDA has laid down certain prerequisites. To
operate as a distribution channel, banks must possess a net worth of at least
Rs. 500 cr and a capital adequacy ratio of a minimum 10%. The increasing
number of tie-ups between banks and insurance companies is confirming the
growing importance of this distribution channel. In the financial year 2003-04,
the bancassurance channel contributed 70% towards the total sales of Aviva
India. It also contributed 6% of non-life premiums and 13% in life in 2006. There
is huge market potential in India when compared to the global benchmark.

The winds of liberalization has brought the necessary competition and

better pricing into the industry with the help of financial engineering
techniques and models, significant advances in information technology and
consumer demands. As a result, banks began exploiting convergence of the
financial industry and financial liberalization. Banking institutions and

9|P a g e
insurance companies have found bancassurance as an attractive and
profitable complement to their existing activities in India.

RELEVANCE OF BANCASSURANCE IN THE

INDIAN FINANCIAL SECTOR
a

1. Integration of the financial service industry in terms of banking, securities

business and insurance is a growing worldwide phenomenon. The Universal
Banking concept is evolving on these lines in India.

2. Banks are the key pillars of India’s financial system. The public has
immense faith in banks.

3. Share of bank deposits in the total financial assets of households has been
steadily rising.

4. Indian Banks have immense outreach to the households. Total of 66000

branches (as of 2007) of commercial banks, each branch serving an average
of 15,000 people.

5. Banks enjoy considerable goodwill and access in the rural regions.There are
more than 33000 branches in rural India (about 50% of total), and
approximately 14,500 semi-urban branches, where insurance growth has
been most buoyant. 200 exclusive Regional Rural Banks in deep hinterland.

6. Banks have enormous retail customer base.Share of ‘individuals’ as a category

in bank accounts is steadily increasing.Rural and semi urban bank accounts
constitiute close to 60% in terms of number of accounts,indicating the

10|P a g e
number of potential lives that could be covered by insurance with the
upfront involvement of banks.

7. Banks world over have realized that offering value-added services such as
insurance, helps to meet client expectations. Competition in the Personal
Financial Services area is getting `hot’ in India and that Banks can retain
customer loyalty by offering them a vastly expanded and more sophisticated
range of products. Insurance distribution can also help the bank to increase
the fee-based earnings to a large extent.

8. Fee-based selling helps to enhance the levels of staff productivity in banks.

This is vitally important to bring higher motivation levels in banks in India.

9. Banks can put their energies into the small-commission customers that
insurance agents would tend to avoid. Banks’ entry in distribution can help to
enlarge the insurance customer base rapidly. This helps to popularize
insurance as an important financial protection product.

10. Bancassurance helps to lower the distribution costs of insurers. Acquisition

cost of insurance customer through bank is low. Selling insurance to existing
mass market banking customers is far less expensive than selling to a group of
unknown customers. Experience in Europe has shown that bancassurance firms
have a lower expense ratio. This benefit could go to the insured public by way
of lower premiums.

11. Banks have an important role to play in the pension sector when
deregulated. Low cost of collecting pension contributions is the key element
in the success of developing the pension sector. Money transfer costs in

11|P a g e
 Indian banking is low by international standards. Portability of pension
accounts is a vital requirement which banks can fulfill, in a credible
framework.

WHY IS BANCASSURANCE MORE SUITED FOR

LIFE INSURANCE PRODUCTS?

Traditionally, much fewer non-life insurance products are distributed

through bancassurance than life insurance products. There are several reasons for
this:

♣ The main reason may be the complementary nature of life insurance and banking
products. Bank employees are already familiar with financial products and
quickly adapt to selling insurance - based savings or pension products.
a

♣ On the other hand, the non-life market requires special management and
selling skills, which are not necessarily prevalent in bancassurance. In
addition, such competencies require significant investment in training and
motivation, and therefore additional costs.
a

♣ Life insurance products are generally long-term products, which require

customers to have complete confidence in the institution that invests their
money. And we now know that, in many countries, banks have a better
image and are more trusted than insurance companies.
a

12|P a g e
♣ Bank advisers can use their knowledge of their customers’ finances to target
their advice towards specific needs. This is a major advantage in life insurance
and less important in personal injury insurance.

UTILITIES FOR BANKS

♣ AS A SOURCE OF FEE INCOME

Banks’ traditional sources of fee income have been the fixed charges
levied on loans and advances, credit cards, merchant fee on point of sale
transactions for debit and credit cards, letters of credit and other
operations. This kind of revenue stream has been more or less steady over a
period of time and growth has been fairly predictable. However shrinking
interest rate, growing competition and increased horizontal mobility of
customers have forced bankers to look elsewhere to compensate for the
declining profit margins and bancassurance has come in handy for them. A
typical commercial bank has the potential of maximizing fee income from
Bancassurance up to 50% of their total fee income from all sources
combined. Fee Income from bancassurance also reduces the overall customer
acquisition cost from the bank’s point of view. At the end of the day, it is easy
money for the banks as there are no risks and only gains.

♣ PRODUCT DIVERSIFICATION
13|P a g e
 In terms of products, there are endless opportunities for the banks.
Simple term life insurance, endowment policies, annuities, education plans,
depositors’ insurance and credit shield are the policies conventionally sold
through the Bancassurance channels. Medical insurance, car insurance,
home and contents insurance and travel insurance are also the products
which are being distributed by the banks. However, quite a lot of innovations
have taken place in the insurance market recently to provide more and more
Bancassurance-centric products.

Insurers who are generally accused of being inflexible in the pricing and
structuring of the products have been responding too well to the challenges (say
opportunities) thrown open by the spread of Bancassurance. They are ready to
innovate and have set up specialized Bancassurance units within their fold.
Examples of some new and innovative bancassurance products are Income
Builder Plan, Critical Illness Cover and Return of Premium products which
are doing well in the market.

♣ BUILDING CLOSE RELATIONS WITH CUSTOMERS

Increased competition also makes it difficult for banks to retain their

customers. Bancassurance comes as a help in this direction also. Providing
multiple services at one place to the customers means enhanced customer
satisfaction. For example, through bancassurance a customer gets home
loans along with home insurance (fire and theft insurance) at one single
place as a combined product. Another important advantage is the development
of sales culture in their employees. Also, banking in India is largely done in
the 'brick and mortar' model, which means that most of the customers still

14|P a g e
walk into the bank branches. This enables the bank staff to have a personal
contact with their customers. In a typical Bancassurance model, the customer
will have access to a wider product mix - a rather comprehensive financial
services package, encompassing banking and insurance products.

UTILITIES FOR INSURANCE COMPANIES

♣ CONQUERING STIFF COMPETITION

Because of the liberalization of the economy it became easy for the private
insurance companies to enter into the battle field which resulted in an urgent
need to outwit one another. Even the oldest public sector insurance companies
started facing tough competition. Hence in order to compete with each other
and to stay a step ahead there was a need for a re-strategizing in the form of
bancassurance. It would also benefit the customers in terms of wide product
diversification.

♣ COMBATTING HIGH COST OF AGENTS’ COMMISSION

Insurers have been tuning into different modes of distribution because

of the high cost of the agents’ commission provided by the insurance companies.
These costs became too much of a burden for many insurers compared to the
returns they generate from the business. Hence there was a need felt for a Cost-
Effective Distribution channel. This gave rise to Bancassurance as a channel
for distribution of the insurance products.

15|P a g e
 ♣ RURAL PENETRATION

Insurance industry has not been very successful in rural penetration of

so far. People there are still unaware about the insurance as a tool to insure their
risks. The branch network of banks can help spread awareness regarding the
same among the rural people opening up a new vista of business for the
insurers. In order to fulfill all the needs bancassurance is needed.

♣ MULTI CHANNEL DISTRIBUTION

Now-a-days the insurance companies are trying to exploit each and every
distribution channel to sell their growing basket of insurance products. The
insurance products are sold through agents, brokers, banks, subsidiaries etc. In
order to make the most out of India’s large population base and reach out to a
worthwhile number of customers there was a need for bancassurance as a
distribution model.

♣ TARGETING MIDDLE INCOME CUSTOMERS

Previously there was a lack of awareness about insurance. Formerly, the

agents sold insurance policies to a more upscale client base. The middle
income group people got little attention from the agents. So through the tie-up
with banks, the insurance companies get a strong foothold to recapture much
of the under served market. So in order to utilize the database of the bank’s
middle income customers, there was a need felt for bancassurance.

16|P a g e
SOME OF THE BANCASSURANCE TIE-UPS IN
INDIA ARE :

17|P a g e
 Insurance Regulatory and Development Authority (IRDA) is
contemplating the idea of permitting banks to have multiple tie-ups with
insurance companies. If this change takes place, an individual will have more
options to choose from. As per the present norms, a bank cannot have more
than one tie-up with an insurance company each in life and non-life segment.

Tables 1 and 2 depicts that one insurance company has tied up with
many banks in order to increase their revenues, but a bank is not allowed to
tie-up with more than one insurance company. The question that comes to the
fore is who will be more benefited with this move, whether banks or insurance
companies. The positive benefits would be:

♣ Banks can provide multiple options to their customers in terms of insurance

products. Customers will be benefited, as they will get the insurance
products of more companies under one roof. They will get an opportunity to
compare different products and make the best choice.

18|P a g e
♣ It will be a boon for the banks since they can earn huge commissions without
making any financial investment. They will be providing the products of
other companies with the same infrastructure and same employees.
♣ It will also help them establish bonds with different insurance companies and
negotiate the best prices with them.
♣ From the sales point of view, the benefits for the banks will be:
♣ Selling of more than one product will give the sellers (banks) a better
exposure to compare the plus and minus of each single product, and this will
make it easier for them to pitch the right product to the right customer based
on their needs (need-based selling happens only when you have more products
in your basket, as is in the case of mutual funds).

Third party product selling is one powerful avenue. Among the third
party products, life insurance policies are the highest income generators.
With more insurance companies tying up with a single bank, Banks'
focusing more on this dilutes their focus on core banking services and
commitment to any particular insurance company will also dwindle.

Clashes are not ruled out if all insurance companies are providing same
amount of commission to banks, and expect equal sale of their products. If
customers are buying products of one company then, other co-partners can
blame the bank for favoring the other insurance company. This in turn can
hamper customer service.

On the Indian front, SBI Life has reaped the maximum benefits from
bancassurance. Taking advantage of its branch network, it generated almost
39% of its total premium in 2006-07 through bancassurance route.

19|P a g e
 LIFE INSURANCE MARKET SHARE

FY 2009 Market Share-Private Players

INDIA’S POSITION IN INSURANCE MARKET

AMONG OTHER COUNTRIES

20|P a g e
 Source-Scribd

MODELS OF BANCASSURANCE

I. STRUCTURAL CLASSIFICATION

a) REFERRAL MODEL

Banks intending not to take risk could adopt ‘referral model’. The
actual transaction with the prospective client in referral model is done by the staff
of the insurance company either at the premises of the bank or elsewhere.
Referral model is nothing but a simple arrangement, wherein the bank,
while controlling access to the clients data base, parts with only the business
leads to the agents/ sales staff of insurance company for a ‘referral fee’ or
commission for every business lead that was passed on. In fact a number of
banks in India have already resorted to this strategy to begin with. This model
would be suitable for almost all types of banks including the RRBs / Co-
Operative banks and even Co-Operative societies both in rural and urban. There

21|P a g e
is greater scope in the medium term for this model. Banks to begin with can start
with this model and then move on to the other models.

b) CORPORATE AGENCY
The other form of non-risk participatory distribution channel is that of
‘Corporate Agency’, wherein the bank staff as an institution acts as a
corporate agent for the insurance product for a fee/commission. This seems
to be more viable and appropriate for most of the mid-sized banks in India
as also the rate of commission would be relatively higher than the referral
arrangement. This, however, is prone to reputational risk of the marketing
bank. There are also practical difficulties in the form of professional knowledge
about the insurance products. This could, however, be overcome by intensive
training to chosen staff, and packaged with proper incentives in the banks
coupled with selling of simple insurance products in the initial stage. This model
is best suited for majority of banks including some major urban Co-
Operative banks because neither there is sharing of risk nor does it require
huge investment in the form of infrastructure and yet could be a good source
of income. This model of bancassurance worked well in the US, because
consumers generally prefer to purchase policies through broker banks that offer a
wide range of products from competing insurers.

c) INSURANCE AS FULLY INTEGRATED FINANCIAL

SERVICE/ JOINT VENTURES

Apart from the above two, the fully integrated financial service involves
much more comprehensive and intricate relationship between insurer and
22|P a g e
 bank, where the bank functions as fully universal in its operation and selling
of insurance products. This includes banks having wholly owned insurance
subsidiaries with or without foreign participation. The great advantage of this
strategy being that the bank could make use of its full potential to reap the benefit
of synergy and therefore the economies of scope. This may be suitable to
relatively larger banks with sound financials and better infrastructure. As
per the regulation of insurance sector, the foreign insurance company can enter
the Indian insurance market only in the form of joint venture; therefore, this
type of bancassurance seems to have emerged out of necessity in India to an
extent. ICICI Bank and HDFC Bank in private sector and State Bank of
India in the public sector, have already taken a lead in resorting to this type
of bancassurance model and have acquired sizeable share in the insurance
market, which is a big stride within a short span of time.

II. PRODUCT BASED CLASSIFICATION

(a) STAND-ALONE INSURANCE PRODUCTS

This involves marketing of the insurance products through either referral

arrangement or corporate agency without mixing the insurance products with
any of the banks’ own products/ services. Insurance is sold as one more item
in the list of products offered to the bank’s customer, however, the products
of banks and insurance will have their respective brands too.

(b) BLEND OF INSURANCE WITH BANK PRODUCTS

23|P a g e
 This method aims at blending of insurance products as a ‘value
addition’ while promoting the bank’s own products. In most times, giving
insurance cover at a nominal premium/ fee or sometimes without explicit
premium does act as an added attraction to sell the bank’s own products,
e.g., credit card, housing loans, education loans, etc. Many banks in India, in
recent years, have been aggressively marketing credit and debit card business,
whereas the cardholders get the ‘insurance cover’ for a nominal fee or (implicitly
included in the annual fee) free from explicit charges/ premium. Similarly the
home loans / vehicle loans, etc., have also been packaged with the insurance
cover as an additional incentive

RBI NORMS ON BANCASSURANCE FOR

BANKS

Following the issuance of Government of India Notification dated August

3, 2000, specifying ‘Insurance’ as a permissible form of business that could be
undertaken by banks under Section 6(1)(o) of The Banking Regulation Act,
1949, RBI issued the guidelines on Insurance business for banks.

1. Any scheduled commercial bank would be permitted to undertake

insurance business as an agent of insurance companies on fee basis without any
risk participation

24|P a g e
2. Banks which satisfy the eligibility criteria given below will be permitted to
set up a Joint Venture Company for undertaking insurance business with risk
participation, subject to safeguards. The maximum equity contribution such a
bank can hold in the Joint Venture Company will normally be 50% of the paid up
capital of the insurance company.

The eligibility criteria for joint venture participant is as under:

i. The net worth of the bank should not be less than Rs. 500 crore;
ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level of Non-Performing Assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if any, of the
concerned bank should be satisfactory.

3. In cases where a foreign partner contributes 26% of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign
Investment Promotion Board, more than one public sector bank or private sector
bank may be allowed to participate in the equity of the insurance joint venture.
As such participants will also assume insurance risk, only those banks which
satisfy the criteria given in paragraph 2 above, would be eligible.

4. A subsidiary of a bank or of another bank will not normally be allowed to

join the insurance company on risk participation basis.

5. Banks which are not eligible for ‘joint venture’ participant as above, can
make investments up to 10% of the net worth of the bank or Rs.50 crore,

25|P a g e
whichever is lower, in the insurance company for providing infrastructure and
services support. Such participation shall be treated as an investment and should
be without any contingent liability for the bank.

The eligibility criteria for these banks will be as under:

i. The CRAR of the bank should not be less than 10%;
ii. The level of NPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive years.

6. All banks entering into insurance business will be required to obtain prior
approval of the Reserve Bank Of India. The Reserve Bank will give permission
to banks on case to case basis keeping in view all relevant factors including the
position in regard to the level of Non-Performing Assets of the applicant bank so
as to ensure that Non-Performing Assets do not pose any future threat to the bank
in its present or the proposed line of activity, viz., insurance business. It should
be ensured that risks involved in insurance business do not get transferred to the
bank. There should be ‘arms length’ relationship between the bank and the
insurance outfit.

7. Holding of equity by a promoter bank in an insurance company or

participation in any form in insurance business will be subject to compliance
with any rules and regulations laid down by the IRDA/Central Government. This
will include compliance with Section 6AA of the Insurance Act as amended by
the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid
up capital within a prescribed period of time.

26|P a g e
8. Latest audited balance sheet will be considered for reckoning the eligibility
criteria.

IRDA NORMS FOR INSURANCE COMPANIES

The Insurance Regulatory & Development Authority has given certain

guidelines for Bancassurance. They are as follows:-

1. Chief Insurance Executive: Each bank that sells insurance must have a Chief
Insurance Executive to handle all the insurance matters & activities.

2. Mandatory Training: All the people involved in selling the insurance should
under-go mandatory training at an institute determined (authorized) by IRDA &
pass the examination conducted by the authority.

3. Corporate agents: Commercial banks, including co-operative banks and

RRBs may become corporate agents for one insurance company.

4. Banks cannot become insurance brokers.

27|P a g e
♣ ISSUES FOR REGULATION: Certain regulatory barriers have slowed the
development of bancassurance in India which have only recently been cleared
with the passage of the Insurance (Amendment) Act 2002. Prior to this, it was
clearly an impractical necessity and had held up the implementation of
bancassurance in the country.

As the current legislation places the following:-

i. Training And Examination Requirements: Upon the Corporate

Insurance Executive within the corporate agency, this barrier has effectively
been removed.
ii. Another regulatory change is published in the recent publication of IRDA
regulation relating to the Licensing of Corporate agents
iii. Specified Person To Satisfy The Training & Examination: According
to new regulation of IRDA only the specific persons have to satisfy the
training & examination requirement as Insurance Agent.

28|P a g e
 REASONS FOR GROWING PHENOMENA OF
BANCASSURANCE

♣ Life insurance premium represents 55% of the world insurance premium

and life insurance is basically a saving market. So it is one of the methods to
increase deposits of banks.

♣ In Non life insurance business banks are looking to provide additional flow of
revenues from the same customers through the same channel of distribution and
with the same people.

♣ Insurers have been turning in ever greater numbers to alternative modes of

distribution because of the high costs they have paid for agent services.
These costs became too much of a burden for many insurers compared to the
returns they generated.

♣ Insurers operating through bancassurance hone and control relationships with

customers. Insurers found that direct relationships with customers gave
them greater control of their business at a lower cost. Insurers who operate
through the agency relationships hardly have any control on their relationship
with their clients.

♣ The ratio of expenses to premiums, as an important efficiency factor, is noticed

very well that expenses ratio in insurance activities through bancassurance

29|P a g e
 is extensively low as the bank and the insurance company is benefiting from the
same distribution channels and people.

♣ The prospects for increased consolidation between banking and insurance is

more likely dominated and derived by the marketing innovations that are likely
to follow from financial service modernization. Such innovations would
include cross selling of banking, insurance and brokerage products and
services; the increased use of the Internet by consumers and a blending of
insurance and banking corporate cultures.

The degree to which banks devote themselves to the sale and servicing of
insurance varies from country to country and among individual banks.
bancassurance, so far, has been principally a European concept.

30|P a g e
 GROWTH IN SOME OF THE KEY ELEMENTS
1999 TILL 2003
UP TO 1999
2002 ONWARDS

LIC Monopoly Private Players 12 Private Players

NO. OF No Private Players allowed LIC loses 12%
PLAYERS 12 new insurers share
allowed

Confidence in BA
Agency model
Agency only BA takes 20% + share
DISTRIBUTION replicated
800K LIC Little confidence in among Private Players,
FOCUS
agents BA Alignment of most Banks
for exclusive arrangements

BA regulations become
REGULATOR IRDA Act 1999
LIC of India Act clearer, multiple models
ENVIRONMENT Primarily Agency
Insurance Act 1938 allowed - CA, Referral,
driven regulations
Broking

Source-Google

ADVANTAGES
TO BANKS

♣ By selling the insurance products through their own channel the banker can
increase their income.

♣ Bancassurance helps banks collect non-fund income which can supplement

the interest income and increase their profitability.
a

♣ Banks’ funds may be utilized for credit and investment, as done earlier, as no
funds are involved in bancassurance.
a

31|P a g e
♣ With intense competition in the banking sector today, customer retention is
becoming a major problem for banks, but when banks start cross-selling bank
products and insurance products to the same customer, they are able to retain
their old customers and also attract new customers.
a

♣ Cross-selling, if followed by good marketing practices and customer services,

enhances loyalty of a customer, who can then become the brand ambassador
of the bank and offer free of cost advertisement for the bank. This word-of-
mouth publicity for the bank is the most effective and positive advertisement for
the bank.
♣ It also gives an opportunity to mobilize deposits because when deposit
products of banks are clubbed with low-cost insurance products, they
become more attractive to the customer.
a

♣ The concept of cross-selling also gives the advantage of improved efficiency for
the banks, because more productive use is made of interactions with the
client leading to more overall sales.
a

♣ Increase in Return On Assets (ROA) by building fee income through the sale
of insurance products.
a

♣ Banks have extensive experience in marketing their products to existing

customers and non-customers. Technology has made marketing of products
easier for the banks. They have number of communication channels like
Automated Teller Machines (ATM), Telebanking, SMS Banking, etc.

32|P a g e
 ADVANTAGES : TO INSURERS

♣ The Insurance Company can increase their business through the banking
distribution channels because the banks have so many customers.

♣ By cutting cost Insurers can serve better to customers in terms lower

premium rate and better risk coverage through product diversification.
a

♣ Insurers can exploit the banks' wide network of branches for distribution of
products. The penetration of banks' branches into the rural areas can be
utilized to sell products in those areas.
a

♣ Customer database like customers' financial standing, spending habits,

investment and purchase capability can be used to customize products and
sell accordingly.
a

♣ Customers have more faith in banks and would readily take the advise of a
banker whom they have been visiting in the past, rather than trusting a new
insurance agent. As ICICI Prudential Life CEO and Managing Director Shikha
Sharma has said, "Maximum contribution from alternate distribution channels
comes from the bancassurance route followed by corporate agents and then direct
marketing."
a

♣ The insurance companies can also get access to ATM’s and other technology
being used by the banks.

33|P a g e
 ADVANTAGES : TO CUSTOMERS

♣ With this system of insurance, maximum customers can avail insurance

services because for an insurance company it may not be a viable proposal
to set up office in the remote corners of the country but public sector banks
already have a vast network in the country.
a

♣ The system of payment of premium is simplified for the customer. He can

simply give a standing instruction to his banker for such a transaction.
a

♣ Bancassurance offers a convenient one-stop financial supermarket to the

customer, as he is getting all his comprehensive financial advisory services
under one roof. i.e., insurance services along with other financial services
such as banking, mutual funds, personal loans etc.
a

♣ Easy accesses for claims, as banks are a regular visiting place for customers.
a

♣ Innovative and better product ranges designed as per the needs of

customers.
a

♣ Any new insurance product routed through the bancassurance

Channel would be well received by customers.
a

♣ Bancassurance products can give better value for money and offer cheaper
premiums to the customer due to the lower distribution costs.

34|P a g e
 DISTRIBUTION CHANNELS

Traditionally, insurance products were promoted and sold

principally through agency systems only. The reliance of insurance industry
was totally on the agents. Moreover with the monopoly of public sector
insurance companies there was very slow growth in the insurance sector
because of lack of competition. The need for innovative distribution channels
was not felt because all the companies relied only upon the agents and
aggressive marketing of the products was also not done. But with new
developments in consumers’ behaviours, evolution of technology and
deregulation, new distribution channels have been developed successfully
and rapidly in recent years.

Recently Bancassurers have been making use of various distribution

channels, they are:

♣ CAREER AGENTS:
Career Agents are full-time commissioned sales personnel holding an
agency contract. They are generally considered to be independent
contractors. Consequently an insurance company can exercise control only over
the activities of the agent which are specified in the contract. Many
bancassurers, however avoid this channel, believing that agents might
oversell out of their interest in quantity and not quality. Such problems with
career agents usually arise, not due to the nature of this channel, but rather due to
the use of improperly designed remuneration and incentive packages.

35|P a g e
 ♣ SPECIAL ADVISERS:

Special Advisers are highly trained employees usually belonging to the

insurance partner, who distribute insurance products to the bank's
corporate clients. The Clients mostly include affluent population who
require personalised and high quality service. Usually Special advisors are
paid on a salary basis and they receive incentive compensation based on
their sales.

♣ SALARIED AGENTS:

Salaried Agents are an advantage for the bancassurers because they are
under the control and supervision of bancassurers. These agents share the
mission and objectives of the bancassurers. These are similar to career
agents, the only difference is in terms of their remuneration is that they are
paid on a salary basis and career agents receive incentive compensation based
on their sales.

♣ BANK EMPLOYEES / PLATFORM BANKING:

Platform Bankers are bank employees who spot the leads in the banks
and gently suggest the customer to walk over and speak with appropriate
representative within the bank. The platform banker may be a teller or a
personal loan assistant. A restriction on the effectiveness of bank employees in
generating insurance business is that they have a limited target market, i.e. those
customers who actually visit the branch during the opening hours.

36|P a g e
♣ CORPORATE AGENCIES AND BROKERAGE FIRMS:

There are a number of banks who cooperate with independent agencies or

brokerage firms while some other banks have found corporate agencies. The
advantage of such arrangements is the availability of specialists needed for
complex insurance matters and through these arrangements the customers
get good quality of services.

♣ DIRECT RESPONSE:

In this channel no salesperson visits the customer to induce a sale and

no face-to-face contact between consumer and seller occurs. The consumer
purchases products directly from the bancassurer by responding to the
company's advertisement, mailing or telephone offers. This channel can be
used for simple packaged products which can be easily understood by the
consumer without explanation.

♣ INTERNET:

Internet banking is already securely established as an effective and

profitable basis for conducting banking operations. Bancassurers can feel
confident that Internet banking will also prove an efficient vehicle for cross
selling of insurance savings and protection products. Functions requiring
user input (check ordering, what-if calculations, credit and account

37|P a g e
 applications) should be immediately added with links to the insurer. Such an
arrangement can also provide a vehicle for insurance sales, service and leads.

♣ E-BROKERAGE:

Banks can open or acquire an e-Brokerage arm and sell insurance products
from multiple insurers. The changed legislative climate across the world
should help migration of bancassurance in this direction. The advantage of
this medium is scale of operation, strong brands, easy distribution and
excellent synergy with the internet capabilities.

♣ OUTSIDE LEAD GENERATING TECHNIQUES:

One last method for developing bancassurance involves "outside" lead

generating techniques, such as seminars, direct mail and statement inserts.
Great opportunities await bancassurance partners today and, in most cases,
success or failure depends on precisely how the process is developed and
managed inside each financial institution.

38|P a g e
 CRITICAL SUCCESS FACTORS

Choice of sales model

and process

Sales structures
Product fitment
and resources
Value to from Bank and
and
Value to
Insurance Insurer
differentiation
Bank
Co.
Leverage of the Bank’s
Staff Motivation
brand

Management Focus and

Successful integration of
Commitment to shared
insurance in Banking activity
objectives

Value to
Customer

39|P a g e
 BANCASSURANCE IN INDIA – SOME ISSUES

The difference in working style and culture of the banks and insurance
sector needs greater appreciation. Insurance is a ‘business of solicitation’
unlike a typical banking service, it requires great drive to ‘sell/market the
insurance products. It should, however, be recognized that ‘bancassurance’ is
not simply about selling insurance but about changing the mindset of a bank.
Moreover, in India since the majority of the banking sector is in public sector
and which has been widely disparaged for the lethargic attitude and poor
quality of customer service, it needs to refurbish the blemished image. Else,
the bancassurance would be difficult to succeed in these banks.

Studies have revealed that the basic attitudinal incompatibility on the

part of employees of banks and insurance companies and the perception of
customers about the poor quality of banks had led to failures of
bancassurance even in some of the Latin American countries.

There are also glitches in the system of bancassurance strategy in the form
of ‘conflict of interests’, as some of the products offered by the banks, viz.,
‘term deposits’ and other products which are mainly aimed at long term
savings/ investments can be very similar to that of the insurance products.
Banks could as well feel apprehension about the possibility of substitution
effect between its own products and insurance products and more so, as a

40|P a g e
number of insurance products in India comes with an added attraction of tax
incentives.

In case the Bancassurance is fully integrated with that of the banking

institution, it is suitable only for larger banks; however, it has other allied issues
such as putting in place ‘proper risk management techniques’ relating to the
insurance business, etc.

As there is a great deal of difference in the approaches of ‘selling of

insurance products’ and the usual banking services- thorough understanding of
the insurance products by the bank staff coupled with extra devotion of time on
each customer explaining in detail of each product’s intricacies is a prerequisite.
Moreover, insurance products have become increasingly complex over a
period of time, due to improvisation over the existing products as well as due
to constant innovation of new products, emanating from the excessive
competition adding to even more difficulties in comprehension of the
products and marketing by the bank staff. These can result in resistance to
change and leading to problems relating to industrial relations.

Unlike, the banking service, there is no guarantee for insurance products

that all efforts that a bank staff spends in explaining to a customer would
clinch the deal due to the very nature of the insurance products. This frustration
of the bank staff has the danger of spill over effect even on their regular banking
business.

41|P a g e
 Bankers in India are extremely naïve in insurance products as there
were no occasions in the past for the bankers to deal in insurance products;
therefore they require strong motivation of both monetary and non
monetary incentives. This would be more so in the emerging scenario due to
complex innovations in the field of insurance / pension products at a rapid pace
with the entry of a number of foreign insurance companies with vast experience
in the developed countries’ framework.

Reorientation of staff in the public sector banks in particular, to be less

bureaucratic and more customer friendly would indeed be a challenging
task, albeit it is a prerequisite for the success of bancassurance.
The above outlined problems need not, however, deter the banking sector to
embark on bancassurance as any form of resistance from the bank employees
could be tackled by devising an appropriate incentive system.

The following should be kept in mind while embarking on the path to

bancassurance:

♣ Long-term agreement (minimum 3 to 5 years) should be signed between the

two parties.
♣ Deciding factors for reaching an agreement should be the brand equity and
service standards of the partner rather than price.
♣ Total Customer Relationship Management (CRM) should form the basis of
relationship in order to achieve cross-selling.
♣ Huge investment in Information Technology (IT) systems, training,
retraining, call-center and product development will be required.

42|P a g e
♣ The objective should be the creation of the one-stop shop with banks in the
role of financial advisors to their clients.

BANCASSURANCE IN INDIA - A SWOT

ANALYSIS

STRENGTHS:

♣ In a country like India of one billion people where sky is the limit there is
a vast untapped potential waiting for life insurance products. Our other
strength lies in a huge pool of skilled professionals whether it is banks or
insurance companies who may be easily relocated for any bancassurance venture.

♣ Banks have the credibility established with their constituents because of

a variety of services and schemes provided by them. They also enjoy place of
pride in the hearts of people because of their long presence and sustained
image.

♣ Banks also enjoy a wide network of branches, even in the remotest

areas that can facilitate taking up the task on a large and massive scale,
simultaneously.

♣ Banks are very well aware of the psychology of the customers because
of their interaction with the customers on regular basis. Because of this the

43|P a g e
bankers can guess the attitude and diverse needs of the customers and could
change the face of insurance distribution to personal line insurance.

WEAKNESSES:

♣ In spite of growing emphasis on total branch mechanism and full

computerization of bank branches, the rural and semi-urban banks have still
to see information technology as an enabler. The IT culture is unfortunately
missing completely in all of the future collaborations. The internet connections
are also not properly provided to the staff.

♣ To undertake the distribution of the insurance products, the bank

employees have to undergo certain minimum period of training, followed by a
test and then get them licensed. Moreover the standards of the examination
have been raised in the recent past making it difficult for many examinees to
clear the same.

♣ There is lack of personalized services because the traditional insurance

agent is considered a member of the family and hence is able to render a
personalized service during and after the sales process. However that may not
be the case in regard to a bank employee.

44|P a g e
♣ There are many differences in the way of thinking and business
approaches of bankers and the managers of insurance companies. Banks are
traditionally “demand-driven” organizations with a reactive selling
philosophy. Insurance organizations are usually “need-driven” and have an
aggressive selling philosophy.

♣ The visit of a customer to the bank is to have a simple transaction like

deposit or withdrawal. Busy customers will have no time to have a discussion on
a long-term durable purchase like insurance across the counter. Also, the visits in
urban or metro branches are going to be fewer because of ATM’s and e-banking.

♣ Another drawback is the inflexibility of the products i.e. it cannot be

tailor made to the requirements of the customer. For a bancassurance venture
to succeed it is extremely essential to have in-built flexibility so as to make the
product customer centric and appealing.

OPPORTUNITIES:

♣ There is a vast untapped potential waiting to be mined particularly for life

insurance products. There are more than 900 million lives waiting to be given
a life cover (total number of individual life policies sold in 1998-99 was just
91.73 million).

♣ There are many people in many areas that are still unaware about the
risks covered by insurance and its various products and are waiting that
somebody should come and give them the information about it.
45|P a g e
♣ There is a good opportunity to market many property related general
insurance policies like fire insurance, burglary insurance and medi-claim
insurance and can take advantage of this by cross-selling the insurance products
and combine it as a package as value addition to the bank’s core products like
credit cards and debit cards etc.

♣ Banks' database is enormous even though the goodwill may not be the
same. This database has to be dissected and various homogeneous groups are
to be churned out in order to position the bancassurance products. With a
good IT infrastructure, this can really do wonders
a

♣ Another area that could be of interest to bankers is to exploit the

corporate customers and tie up for insurance of the employees of corporate
clients, which would be an avenue with easy access. In most cases banks
provide salary disbursement and loan facilities but here they can provide
insurance cover as well.

BANCASSURANCE - INDIAN OPPORTUNITY

Currency
PF/Retirem ent 6% Bank deposits
funds 39%
21%

Insurance
13%
Co

Governm ent
NB
Sh
M

op
ut

bonds/Sm all
F C Deb
ar

ba
ua

es

's

Savings
nk
lF

&

3% nt u

s
un

13%
2%
ds

e
2%

r..

46|P a g e
 Source-ICICI Direct

THREATS:

♣ Success in bancassurance requires change in approach, thinking and work

culture on the part of everybody involved. The work force at every level is so
well entrenched in their classical way of working that there is a definite
threat of resistance to any change that bancassurance may bring with it. Any
relocation to a new company or subsidiary or change from one work to a
different kind of work will not be easily accepted.

♣ Insurance in India is perceived more as a saving option than providing

risk cover. So this may create an adverse feeling in the minds of the bankers
that such products may lessen the sales of regular bank saving products like
investment and good return products (eg: Fixed Deposit).

♣ There would be a problem of “Reputational Contagion” i.e. loss of market

confidence towards one in a venture leading to loss of confidence on the other
because of identical brand recognition, similar management and
consolidated financial reporting etc.

47|P a g e
♣ The most common obstacles to success of Bancassurance are poor
manpower management, lack of a sales culture within the bank, no
involvement by the branch manager, insufficient product promotions,
failure to integrate marketing plans, marginal database expertise, poor sales
channel linkages, inadequate incentives, resistance to change, negative
attitudes toward insurance and unwieldy marketing strategy.

FUTURE TRENDS IN BANCASSURANCE

Stage of
Polarization:
Emergence of
winners,
Most Banks Strong
alignments with
have short-
Banks with
Some Banks yet Change in term cross
to firm up regulations agreements; a investments and
partnerships. could impact stage of re- exclusive
Insurers current alignments Broking
partnered with arrangements may occur arrangements
Select Banks
under Corp
Agency or Mergers and Acquisitions could impact the industry
Referral

Initial Short Term Medium Term Long Term

Phase 2004-05 2005-08 2010 Onwards

Source: Compiled from from Business Line

48|P a g e
POTENTIAL FOR BANCASSURANCE IN INDIA

In a country with a population of over 100 crores, the insurable population

has been estimated to be over 30 crores. The population covered with some form
of insurance has been estimated only at 8 crores (Exhibit I).

Exhibit I: Life Insurance Coverage Levels

Indian population 100 crores
Insurable population 30 crores
Insured population 8 crores
% of population covered under insurance 27%

Compiled from various sources

With only 27% of the insured population covered under insurance,

there is immense potential for further coverage. Many rural pockets are yet to
be tapped. The per capita premium of $13 in India is also believed to be
among the lowest in the world.

49|P a g e
 SURVEY ANALYSIS (QUESTIONNAIRE)

A survey was conducted of about 50 people who did regular banking

transactions and also had an insurance policy. These included several
housewives, businessmen, professionals, students, etc. The following analysis
was done on the basis of the survey conducted:
♣ ARE YOU AWARE OF BANCASSURANCE ?

No 20%

Yes
Yes 80% No

INTERPRETATION: - Among those who were surveyed, 80% of the

respondents were aware that their bank provided bancassurance services.
They knew with which Insurance Company their bank has tied up with; also

50|P a g e
they were aware about various policies provided by their banks. However,
20% of the respondents were amused with the term bancassurance and didn’t
know anything about it and the services provided by their banks.

♣ HAVE YOU TAKEN AN INSURANCE POLICY

FROM YOUR BANK ?

Yes
34%
No

No Yes
66%

INTERPRETATION: Among the people who were surveyed, there were only
34% people who had taken insurance policy from their respective banks.
Remaining 66% respondents didn’t opt to take a policy from their banks.

51|P a g e
 ♣ THE KIND OF INSURANCE POLICY TAKEN
FROM THE BANK:-

70 63%

60

50 42%

40

30 23%
18%
20

10

Deposit Based Loan Based Life Insurance Others

INTERPRETATION: Maximum number of insurance taken was related to

loan. It was either car insurance or a home insurance. Out of the people surveyed
63% said that they have taken a loan based insurance. There were 23% who
have taken insurance which are deposit based because it is a part of the
deposit scheme. Only 18% have taken life insurance cover from the bank
and 42% belong to others category.

52|P a g e
♣ REASONS FOR TAKING AN INSURANCE POLICY:-

90 80% 28% 65% 40%

80
70
60
50
40
30
20
10
0

Security Savings Brand Image of bank Brand Image of Insurance

Company

INTERPRETATION:
There was a mixed response from the customers. 80% said that they took
the insurance policy because of security benefits. 65% said that since, they
trusted their bank so they took the policy. There were 40% who said that the
brand image of the company also mattered. Only 28% said that savings was
a reason that encouraged them to buy insurance policy.

53|P a g e
♣ ON YOUR CHOICE WHICH MODE OF INSURANCE
DISTRIBUTION CHANNEL WOULD YOU PREFER
TO BUY THE POLICY FROM?

Ins uran ce
com pan ies Banks
20% 23 %

Brokers
7%

Age nts
50%

INTERPRETATION:

50% people preferred agents because they provide personalized

services. 20% took insurance from companies because of their trust on the
company. 23% said they would buy insurance from banks because of the
brand name and their trust on banks. Only 7% said that they would buy
insurance from brokers.

54|P a g e
♣ WHICH BANK DO YOU FEEL WOULD EXCEL IN
BANCASSURANCE ? RATE THEM
ACCORDINGLY.

100
90%
90
80
70%
70
60
50 38%
40
30
20
10
0

Public Sector Private Sector Foreign Banks

Banks Banks

INTERPRETATION:

90% people said that private sector banks would excel in this because
of their aggressive selling policies and they provide quality services to the
customers. 70% votes were given to foreign banks because the respondents
felt that foreign banks have proper management and aggressive selling strategies.
The public sector banks were given the least votes because of their lazy approach
to work.

55|P a g e
♣ DO YOU THINK BANCASSURANCE HAS A GOOD
FUTURE?

5%
No

Yes
No

Yes
95%

INTERPRETATION:

95% people said that they believe that Bancassurance has a very bright
future because there is an immense potential for the insurance industry in India.
But 7% believe that because of the emergence of the new technology such as
ATM’s, Internet banking etc the banks will soon go virtual so there is not much
scope for it.

FINDINGS
56|P a g e
♣ Almost many people have a fair idea about bancassurance and that the
various insurance products their banks sell. But still few people don’t know
about bancassurance as a concept.

♣ It has been also found out that the banks have various opportunities to
cross sell insurance products. The insurance companies also have the
opportunity to take advantage of the bank’s network and other avenues.

♣ It is also seen that customers have a lot of trust on the banks, and
because of that trust the customers will take the insurance products from
banks.

♣ As the brand name of the banks is important so is the brand image of

the insurance companies. So the banks and the insurance companies must
tie-up with the right partners. This will help them to create a better image in
the minds of the customers.

♣ It has also clear from the study that the private sector and the foreign
banks have better future in bancassurance than marketing their products
separately in several media amongst the plethora of other companies’
products already existent. But the public sector banks are also trying to give
them a tough competition e.g. SBI Life Insurance Co.

♣ The banks fail to provide personalized services as are provided by the

agents. So banks will have to improve in that area. They should provide after
sales services to the customers.

57|P a g e
 WHAT LIES AHEAD?

The concept is still has now moved forward from its embryonic stage and
is rapidly developing and growing but the client preference for this channel
has been encouraging and the future looks to be rosy for bancassurance.
Predominantly, the new insurance companies have opted for this channel in a
bigger way. The future will decide the models which would emerge as
favorites and the ones which will not make it. The success of the model to a
considerable extent will also be decided by the integration of the human
resources in terms of mindset, IT and supportive systems.

From the client's point of view bancassurance is a value-added

proposition as they would be advised by better trained and more
trustworthy bank officials rather than advisors/agents (with exceptions)
whose primary consideration, it is often said would be their own monetary
benefit.

The cost synergies of integrating banking and insurance operations apart,

the issue of bancassurance is laden with several potential risks. To name a
few - lack of focus in areas of insufficient managerial experience,
supervisory oversight and enhanced potential for regulatory arbitrage, re-
engineering, inappropriate capital allocation within the group and the
distinct possibility of both the partners to aggregate risk exposures rather
than acting as a hedge.

Bancassurance is set to grow at a scorching pace soon becoming a

norm and eventually capture equal share of the insurance business as their
agency channel.
58|P a g e
 CONCLUDING REMARKS

The success of bancassurance greatly hinges on banks ensuring

excellent customer relationship; therefore banks need to strive towards that
direction. The changing mindset is cascading through the banking sector in India,
especially in the context of proactive policy environment of regulatory
authorities and the Government. The fact that the banking operations in
India, unlike in other developed countries, are still branch oriented and
manually operated vis-à-vis highly mechanized and automated banking
channels, viz., internet banking, ATMs, etc. are all the more conducive for
flourishing of bancassurance. Regulators could explore the possibility of
allowing banks having tie-up arrangements with more than one insurance
company, giving wider choice for the customers. In addition to acting as
distributors, banks have recognized the potential of bancassurance in India
and will take equity stakes in insurance companies, in the long run. This is
somewhat similar a trend observed in the United Kingdom and elsewhere where
banks started off as distributors of insurance but then moved on to the fully
owned insurance subsidiaries. Going by the present pace, bancassurance would
turn out to be a norm. Supervisory concerns as pointed out earlier could
best be tackled by way of closer and systematized coordination between the
respective supervisory authorities. There needs to be a clear cut
identification of activities between banking and insurance at the institution’s
level as also at the level of regulators. Adequate training coupled with
sufficient incentive system could avert the banks’ staff resistance if any. In sum,
bancassurance strategy would be a ‘win-win situation’ for all the parties
involved - the customer, the insurance companies and the banks.

59|P a g e