insurance sector is a colossal one
and is growing at a speedy rate of 15-20%. Together with banking services, insurance. services add about 7% to the country¶s GDP. A well-developed andevolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.
What is BANCASSURANCE?
With the opening up of the insurance sector and with so many players entering the Indianinsurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. Since the banking services, insurance and fund management are all interrelated activitiesand have inherent synergies, selling of insurance by banks would be mutually beneficial for banks and insurance companies. With these developments and increased pressures in combatingcompetition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide reach, was thoughtof as a potential distribution channel, useful for the insurance companies. This union of the twosectors is what is known as Bancassurance.
Bancassurance is the distribution of insurance products through the bank's distribution channel. Itis a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services.To put it simply, Bancassurance, tries to exploit synergies between both the insurance companiesand banks.Bancassurance can be important source of revenue. With the increased competition andsqueezing of interest rates spread, profits are likely to be under pressure. Fee based income can be increased through hawking of risk products like insurance.Bancassurance if taken in right spirit and implemented properly can be win-win situation for theall the participants' viz., banks, insurers and the customer.
The banks taking over insurance is particularly well-documented with reference to theexperience in Europe. Across Europe in countries like Spain and UK, banks started the processof selling life insurance decades ago and customers found the concept appealing for variousreasons. Germany took the lead and it was called ³ALLFINANZ´. The system of bancassurancewas well received in Europe. France taking the lead, followed by Germany, UK, Spain etc. InUSA the practice was late to start (in 90s). It is also developing in Canada, Mexico, andAustralia.In India, the concept of Bancassurance is very new. With the liberalization and deregulation of the insurance industry, bancassurance evolved in India around 2002.