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BANCASSURANCE
Ads by Google What is Bancassurance? Bancassurance is a French term referring to the selling of insurance through a bank's established distribution channels. In other words, we can say Bancassurance is the provision of insurance (assurance) products by a bank. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry. was repealed after the passage of the Gramm Leach Bililey Act. Bancassurance is the selling of insurance and banking products through the same channel, most commonly through bank branches. Selling insurance.means distribution of insurance and other financial products through Banks. Bancassurance concept originated in France and soon became a success story even in other countries of Europe. In India a number of insurers have already tied up with banks and some banks have already flagged off bancassurance through select products.
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countries, bancassurance is still largely prohibited, but it was recently legalized in countries like USA when the Glass Steagall Act

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Bancassurance has become significant. Banks are now a major distribution channel for insurers, and insurance sales a significant source of profits for banks. The latter partly being because banks can often sell insurance at better prices (i.e., higher premiums) than many other channels, and they have low costs as they use the infrastructure (branches and systems) that they use for banking. Bancassurance primarily rests on the relationship the customer has developed over a period of time with the bank. And pushing risk products through banks is a much more cost-effective affair for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost is more than welcome.

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Advantages of Bancassurance: The following factors have mainly led to success of bancassurance (i) Pressure on banks' profit margins. Bancassurance offers another area of profitability to banks with little or no capital outlay. A small capital outlay in turn means a high return on equity. (ii) A desire to provide one-stop customer service. Today, convenience is a major issue in managing a person's day to day activities. A bank, which is able to market insurance products, has a competitive edge over its competitors. It can provide complete financial planning services to its customers under one roof. (iii) Opportunities for sophisticated product offerings. (iv) Opportunities for greater customer lifecycle management. (v) Diversify and grow revenue base from existing relationships. (vi) Diversify risks by tapping another area of profitability.

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(vii) The realisation that insurance is a necessary consumer need. Banks can use their large base of existing customers to sell insurance products. (viii) Bank aims to increase percentage of non-interest fee income (ix) Cost effective use of premises

Various Models for Bancassurance Various models are used by banks for bancassurance. (a) Strategic Alliance Model : Under this M odel, there is a tie-up between a bank and an insurance company. The bank only markets the products of the insurance company. Except for marketing the products, no other insurance functions are carried out by the bank. (b) Full Integration Model : This model entails a full integration of banking and insurance services. The bank sells the insurance products under its brand acting as a provider of financial solutions matching customer needs. Bank controls sales and insurer service levels including approach to claims. Under such an arrangement the Bank has an additional core activity almost similar to that of an insurance company. (c) Mixed Models: Under this M odel, the marketing is done by the insurer's staff and the bank is responsible for generating leads only. In other words,

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the database of the bank is sold to the insurance company. The approach requires very little technical investment. Status of Bancassurance in India Reserve Bank of India (RBI) has recognized "bancassurance" wherein banks are allowed to provide physical infrastructure within their select branch premises to insurance companies for selling their insurance products to the banks customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premia collected. This would utilize the resources in the banking sector in a more profitable manner. Bancassurance can be important source of revenue. With the increased competition and squeezing of interest rates spreads profit of the are likely to be under pressure. Fee based income can be increased through hawking of risk products like insurance. There is enormous potential for insurance in India and recent experience has shown massive growth pace. A combination of the socio-economic factors are likely to make the insurance business the biggest and the fastest growing segment of the financial services industry in India. However, before taking the plunge in to this new field, banks as insurers need to work hard on chalking out strategies to sell risk products especially in an emerging competitive market. However, future is bright for bancassurance. Banks in India have all the right ingredients to make Bancassurance a success story. They have large branch network, huge customer base, enjoy customer confidence and have experience in selling non-banking products. If properly implemented, India could take leadership position in bancassurance all over the world Government of India Notification dated August 3, 2000, specified Insurance as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of the Banking Regulation Act, 1949. Then onwards, banks are allowed to enter the insurance business as per the guidelines and after obtaining prior approval of Reserve Bank of India. Guidelines for Banks for Entry of banks into Insurance business risk participation. The subsidiaries of banks will also be allowed to undertake distribution of insurance product on agency basis. risk participation, subject to safeguards. The maximum equity contribution such a bank can hold in the joint venture company will normally be promoter bank initially, pending divestment of equity within the prescribed period (see Note 1 below). The eligibility criteria for joint venture participant are as under:(a) The net worth of the bank should not be less than Rs.500 crore; (b) The CRAR of the bank should not be less than 10 per cent;

1.Scheduled commercial bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without a

2. Banks which satisfy the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business

cent of the paid-up capital of the insurance company. On a selective basis the Reserve Bank of India may permit a higher equity contribution b

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(c) The level of non-performing assets should be reasonable; (d) The bank should have net profit for the last three consecutive years; (e) 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 per cent of the equity with the approval of Insurance Regulatory and Development

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