BANCASSURANCE

Executive Summary
The Banking and Insurance industries have changed rapidly in the changing and challenging economic environment throughout the world. In this competitive and liberalized environment everyone is trying to do better than others and consequently survival of the fittest has come into effect. This has given rise to a new form of business wherein two big financial institutions have come together and have integrated all their strength and efforts and have created a new means of marketing and promoting their products and services. On one hand it is the Banking sector which is very competitive and on the other hand is Insurance sector which has a lot of potential for growth. When these two oin together! it gives birth to B"#$"%%&'"#$(. Bancassurance is nothing but the collaboration between a bank and an insurance company wherein the bank promises to sell insurance products to its customers in e)change of fees. It is a mutual relationship between the banks and insurers. " relationship which amazingly complements each other*s strengths and weaknesses. It is a new buzz word in India but it is taking roots slowly and gradually. It has been accepted by banks! insurance companies as well as the customers. It is basically an international concept which is spreading all around the world and is favored by all. Taking all these things into consideration I would like to present my pro ect +B"#$"%%&'"#$( ,an emerging concept in India-. The pro ect flashes some light on Bancassurance and how it is perceived by people in India. It deals with the conceptual part of Bancassurance as well as its practical applications in India. The main focus of this pro ect is on benefits and importance of Bancassurance in India. The regulations governing Bancassurance are also dealt with in this pro ect. %WOT analysis is also done so as to identify the various opportunities and threats for Bancassurance in India.

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The Indian as well as /lobal conte)ts both are taken into account. The pro ect also revolves around data! facts and figures that are necessary to prove the importance of Bancassurance. 0urther the pro ect also includes the case study of %BI 1ife Insurance $ompany! its various products! the growth they have e)perienced since the opening up of a wholly owned subsidiary of %BI Bank that sells insurance products. " survey analysis has also been done so as to know the popularity and the growth perspectives of Bancassurance. The survey tries to identify whether the conditions are favourable for it India or not. "t the end some suggestions are also given to fill the potholes that still e)ist in this system. This pro ect is ust a gist about how the /lobalization! 1iberalization and tough $ompetition have brought the Banking as well as the Insurance Industries together to help each other and to provide e)cellent services to the customers.

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Chapter 1

3istory of Banking in India. .. 4efinition 2. 3istory

3istory of Insurance in India .. 4efinition 2. 3istory

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Introduction to Banking

Banking as per the Banking 'egulation "ct! Banking is defined as6 7

+accepting for the purpose of lending of deposits of money from the public for the purpose of lending or investment! repayable on demand through cheques! drafts or order.8
" sound and effective banking system is necessary for a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other e)ternal and internal factors. 9any new things have come up in the banking sector in the recent years. Banks have adopted the new technology because banking has not remained up to accepting and lending but now it is all about satisfying the needs of the customers. The development of the Indian banking sector has been accompanied by the introduction of new norms. #ew services are the order of the day! in order to stay ahead in the rat race. Banks are now foraying into net banking! securities! and consumer finance! housing finance! treasury market! merchant banking etc.They are trying to provide every kind of service which can satisfy or rather we should say that it can delight the customers. (ntry of private and foreign banks in the segment has provided healthy competition and is likely to bring more operational efficiency into the sector. Banks are also coping and adapting with time and are trying to become one7stop financial supermarkets. The market focus is shifting from mass banking products to class banking with the introduction of value added and customized products.

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Introduction to Insurance Sector

Insurance may be defined as6 7

+It is a contract between two parties where by one party undertakes to compensate the another party for the loss arising due to an uncertain events for which the another party agrees to pay a certain amount regularly.8
In India! insurance has a deep7rooted history. Insurance in India has evolved over time heavily drawing from other countries! (ngland in particular. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. The business of life insurance in India in its e)isting form started in India in the year .;.; with the establishment of the Oriental 1ife Insurance $ompany in $alcutta. The Insurance "ct! .<5; was the first legislation governing all forms of insurance to provide strict state control over insurance business.Today there are .: general insurance companies and .: life insurance companies operating in the country. But today also the insurance companies are trying to capture Indian markets as not many people are aware of it. The insurance sector is a colossal one and is growing at a speedy rate of .=72>?. Together with banking services! insurance services add about @? to the country*s /4A. " well7developed and evolved insurance sector is a boon for economic development as it

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provides long7 term funds for infrastructure development at the same time strengthening the risk taking ability of the country.

Chapter 2 "bout Bancassurance .. 9eaning 2. Origin 5. 9odels of Bancassurance i. ii. %tructural classification Aroduct based classification

iii. Bank 'eferrals

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What is BANCASS !ANCE"

With the opening up of the insurance sector and with so many players entering the Indian insurance 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. %ince the banking services! insurance and fund management are all interrelated activities and have inherent synergies! selling of insurance by banks would be mutually beneficial for banks and insurance companies. With these developments and increased pressures in combating competition! companies are forced to come up with innovative techniques to market their products and services. "t this uncture! banking sector with itCs far and wide reach! was thought of as a potential distribution channel! useful for the insurance companies. This union of the two sectors is what is known as Bancassurance.

#eaning
Bancassurance is the distribution of insurance products through the

bankCs distribution channel. It is 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 e)ploit synergies between both the insurance companies and banks. Bancassurance can be important source of revenue. With the increased competition and squeezing of interest rates spread! profits are likely to be under pressure. 0ee based income can be increased through hawking of risk products like insurance. Bancassurance if taken in right spirit and implemented properly can be win7win situation for the all the participantsC viz.! banks! insurers and the customer.
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$rigin

The banks taking over insurance is particularly well7documented with reference to the e)perience in (urope. "cross (urope in countries like %pain and &D! banks started the process of selling life insurance decades ago and customers found the concept appealing for various reasons. /ermany took the lead and it was called +"110I#"#E8. The system of bancassurance was well received in (urope. 0rance taking the lead! followed by /ermany! &D! %pain etc. In &%" the practice was late to start ,in <>s-. It is also developing in $anada! 9e)ico! and "ustralia. In India! the concept of Bancassurance is very new. With the liberalization and deregulation of the insurance industry! bancassurance evolved in India around 2>>2.

#odels o% Bancassurance
I& Structural Classi%ication

a' !e%erral #odel

Banks intending not to take risk could adopt Freferral model* wherein they merely part with their client data base for business lead of commission. 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 ban>k or elsewhere. 'eferral 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 agentsG sales staff of insurance company for a Freferral 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 ''Bs Gcooperative
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banks and even cooperative societies both in rural and urban. There is greater scope in the medium term for this model. 0or! banks to begin with can resort to this model and then move on to the other models.

(' Corporate Agency

The other form of non7sick participatory distribution channel is that of F$orporate "gency*! wherein the bank staff as an institution acts as corporate agent for the insurance product for a feeGcommission. This seems to be more viable and appropriate for most of the mid7sized 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! packaged with proper incentives in the banks coupled with selling of simple insurance products in the initial stage. This model is best suited for ma ority of banks including some ma or urban cooperative 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 &%! because consumers generally prefer to purchase policies through broker banks that offer a wide range of products from competing insurers.

c' Insurance as )ully Integrated )inancial Service* +oint ventures

"part from the above two! the fully integrated financial service involves much more comprehensive and intricate relationship between insurer and bank! where the bank functions as fully universal in its operation and selling of insurance products is ust one more function within. 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 has better infrastructure. "s per the e)tant regulation of insurance sector the foreign insurance company could enter the Indian insurance market only in the form of oint venture! therefore! this type of bancassurance seems to have emerged out of necessity in India to an e)tent. There is great scope for further growth both in life and non7life insurance segments as /OI is reported have been actively considering to increase the 04I*s participation up to :< per cent.
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II& ,roduct (ased classi%ication

,a- Stand-alone Insurance ,roducts

In this case bancassurance involves marketing of the insurance products through either referral arrangement or corporate agency without mi)ing the insurance products with any of the banks* own productsG services. Insurance is sold as one more item in the menu of products offered to the bank*s customer! however! the products of banks and insurance will have their respective brands too.

,b- Blend o% Insurance .ith Bank ,roducts

This method aims at blending of insurance products as a Fvalue addition* while promoting the bank*s own products. Thus! banks could sell the insurance products without any additional efforts. In most times! giving insurance cover at a nominal premiumG fee or sometimes without e)plicit premium does act as an added attraction to sell the bank*s own products! e.g., credit card! housing loans! education loans! etc. 9any banks in India! in recent years! has been aggressively marketing credit and debit card business! whereas the cardholders get the Finsurance cover* for a nominal fee or ,implicitly included in the annual fee- free from e)plicit chargesG premium. %imilarly the home loans G vehicle loans! etc., have also been packaged with the insurance cover as an additional incentive.

III& Bank !e%errals

There is also another method called CBank 'eferralC. 3ere the banks do not issue the policiesH they only give the database to the insurance companies. The companies issue the policies and pay the commission to them. That is called referral basis. In this method also there is a win7win situation every where as the banks get commission! the insurance companies get databases of the customers and the customers get the benefits.

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Chapter /

&tilities of Bancassurance

.. 0or Banks6 i. "s a source of fee based income ii. iii. Aroduct diversification Building close relations with the customers

2. 0or Insurance $ompanies i. ii. iii. iv. v. %tiff competition 3igh cost of agents 'ural penetration 9ulti7channel distribution Targeting middle income customers

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)or Banks

As a source o% %ee income

Banks* traditional sources of fee income have been the fi)ed charges levied on loans and advances! credit cards! merchant fee on point of sale transactions for debit and credit cards! letter of credits 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. 3owever 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. 0ee income from the distribution of insurance products has opened new horizons for the banks and they seem to love it. 0rom the banks* point of view! opportunities and possibilities to earn fee income via Bancassurance route are endless. " typical commercial bank has the potential of ma)imizing fee income from Bancassurance up to =>? of their total fee income from all sources combined. 0ee Income from Bancassurance also reduces the overall customer acquisition cost from the bank*s point of view. "t the end of the day! it is easy money for the banks as there are no risks and only gains.

,roduct 0iversi%ication In terms of products! there are endless opportunities for the banks. %imple term life insurance! endowment policies! annuities!
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education plans! depositors* insurance and credit shield are the policies conventionally sold through the Bancassurance channels. 9edical insurance! car insurance! home and contents insurance and travel insurance are also the products which are being distributed by the banks. 3owever! quite a lot of innovations have taken place in the insurance market recently to provide more and more Bancassurance7centric products to satisfy the increasing appetite of the banks for such products. Insurers who are generally accused of being infle)ible 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 e)periment and have set up specialized Bancassurance units within their fold. ()amples of some new and innovative Bancassurance products are income builder plan! critical illness cover! return of premium and Takaful products which are doing well in the market. The traditional products that the

Building close relations .ith the customers Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. Aroviding multiple services at one place to the customers means enhanced customer satisfaction. 0or e)ample! through bancassurance a customer gets home loans along with insurance at one single place as a combined product. "nother important advantage that bancassurance brings about in banks is development of sales culture in their employees. "lso! banking in India is mainly done in the Cbrick and mortarC model! which means that most of the customers still walk into the bank branches. This enables the bank staff to have a personal contact with their customers. In a typical Bancassurance model! the consumer will have access to a wider product mi) 7 a rather comprehensive financial services package! encompassing banking and insurance products.

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)or Insurance Companies

Sti%% Competition "t present there are .= life insurance companies and .: general insurance companies in India. Because of the 1iberalization 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. (ven the oldest public insurance companies started facing the tough competition. 3ence in order to compete with each other and to stay a step ahead there was a need for a new strategy in the form of Bancassurance. It would also benefit the customers in terms of wide product diversification.

1igh cost o% agents Insurers have been tuning into different modes of distribution because of the high cost of the agencies services 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. 3ence there was a need felt for a $ost7(ffective 4istribution channel. This gave rise to Bancassurance as a channel for distribution of the insurance products.

!ural ,enetration Insurance industry has not been much successful in rural penetration of insurance so far. Aeople there are still unaware about
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the insurance as a tool to insure their life. 3owever this gap can be bridged with the help of Bancassurance. The branch network of banks can help make the rural people aware about insurance and there is also a wide scope of business for the insurers. In order to fulfill all the needs bancassurance is needed.

#ulti channel 0istri(ution #ow a days the insurance companies are trying to e)ploit each and every way to sell the insurance products. 0or this they are using various distribution channels. The insurance is sold through agents! brokers through 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.

2argeting #iddle income Customers In previous there was lack of awareness about insurance. The agents sold insurance policies to a more upscale client base. The middle income group people got very less attention from the agents. %o through the venture with banks! the insurance companies can recapture much of the under served market. %o in order to utilize the database of the bank*s middle income customers! there was a need felt for Bancassurance.

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Chapter 3 'egulations for Bancassurance in India .. 'BI #orms for banks entering into Insurance sector 2. I'4" #orms for Insurance companies tying up with Banks

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!BI Norms %or (anks

!BI 4uidelines %or the Banks to enter into Insurance Business
0ollowing the issuance of /overnment of India #otification dated "ugust 5! 2>>>! specifying FInsurance* as a permissible form of business that could be undertaken by banks under %ection B,.- ,o- of The Banking 'egulation "ct! .<:<! 'BI issued the guidelines on Insurance business for banks. . "ny scheduled commercial bank would be permitted to undertake insurance business as agent o% insurance companies on %ee (asis . Without any risk participation 2. Banks which satisfy the eligibility criteria given below will be permitted to set up a oint venture company for undertaking insurance business with risk participation! sub ect to safeguards. The ma)imum equity contribution such a bank can hold in the Ioint Jenture $ompany will normally be 50? of the paid up capital of the insurance company. The eligibility criteria for oint venture participant are as under6 i. The net worth of the bank should not be less than !s&566 croreH ii. The $'"' of the bank should not be less than 16 per centH iii. The level of non-per%orming assets should be reasonableH iv. The bank should have net pro%it %or the last three consecutive yearsH
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v. The track record of the performance of the subsidiaries! if any! of the concerned bank should be satis%actory. 5. In cases where a foreign partner contributes 278 of the equity with the approval of Insurance 'egulatory and 4evelopment "uthorityG0oreign Investment Aromotion Board! more than one public sector bank or private sector bank may be allowed to participate in the equity of the insurance oint venture. "s such participants will also assume insurance risk! only those banks which satisfy the criteria given in paragraph 2 above! would be eligible. :. " subsidiary of a bank or of another bank will not normally be allowed to oin the insurance company on risk participation (asis. =. Banks which are not eligible for F oint venture* participant as above! can make investments up to 168 of the net worth of the bank or !s&56 crore! whichever is lower! in the insurance company for providing infrastructure and services support. %uch 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 under6 i. The C!A! of the bank should not be less than 1689 ii. The level of N,As should be reasonableH iii. The bank should have net pro%it for the last three consecutive years. B. "ll banks entering into insurance business will be required to obtain prior approval o% the !eserve Bank. The 'eserve 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 non7performing assets of the applicant bank so as to ensure that non7performing 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 Farms length* relationship between the bank and the insurance outfit. @. 3olding of equity by a promoter bank in an insurance company or participation in any form in insurance business will be sub ect to compliance with any rules and regulations laid down by the I!0A*Central 4overnment. This will include compliance with %ection 7AA of the Insurance "ct as amended by the I!0A Act: 1;;;! for divestment of equity in e)cess of 2B per cent of the paid up capital within a prescribed period of time.
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;. 1atest audited balance sheet will be considered for reckoning the eligibility criteria.

I!0A Norms %or Insurance Companies

The Insurance regulatory development K "uthority has given certain guidelines for the Bancassurance they are as follows6 7
.- Chie% Insurance Executive6 (ach bank that sells insurance must have a chief Insurance ()ecutive to handle all the insurance matters K activities. 2- #andatory 2raining< "ll the people involved in selling the insurance should under7go mandatory training at an institute determined ,authorized- by I'4" K pass the e)amination conducted by the authority. 5- Corporate agents< $ommercial banks! including co7operative banks and ''Bs may become corporate agents for one insurance company. :- Banks cannot become insurance brokers. Issues %or regulation< $ertain regulatory barriers have slowed the development of Bancassurance in India down. Which have only recently been cleared with the passage of the insurance ,amendment- "ct 2>>2. Arior it was clearly an impractical necessity and had held up the

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implementation of Bancassurance in the country. "s the current legislation places the following67 1' 2raining and examination re=uirements< upon the corporate insurance e)ecutive within the corporate agency! this barrier has effectively been removed. "nother regulatory change is published in recent publication of I'4" regulation relating to the ,2- 1icensing of $orporate agents >2' Speci%ied person to satis%y the training ? examination< "ccording to new regulation of I'4" only the specific persons have to satisfy the training K e)amination requirement as insurance agent.

Chapter 5 Benefits of Bancassurance .. To Banks 2. To Insurance companies 5. To $ustomers

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2o Banks

)rom the (anks point o% vie.<

,"-By selling the insurance product by their own channel the banker can increase their income. ,B- Banks have face7to7face contract with their customers. They can directly ask them to take a policy. "nd the banks need not to go any where for customers. ,$- The Bankers have e)tensive e)perience in marketing. They can easily attract customers K non7customers because the customer K non7customers also bank on banks. ,4- Banks are using different value added services life7(. Banking tele banking! direct mail K so on they can also use all the above7 mentioned facility for Bankassurance purpose with customers K non7 customers. ,(- Aroductivity of the employees increases.

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,0- By providing customers with both the services under one roof! they can improve overall customer satisfaction resulting in higher customer retention levels. ,/- Increase in return on assets by building fee income through the sale of insurance products. ,3- $an leverage on face7to7face contacts and awareness about the financial conditions of customers to sell insurance products. ,I- Banks can cross sell insurance products (.g.6 Term insurance products with loans.

2o Insurers
)rom the Insurer ,oint o% vie.<
,"- The Insurance $ompany can increase their business through the banking distribution channels because the banks have so many customers. ,B- By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification. ,$-Insurers can e)ploit the banksC wide network of branches for distribution of products. The penetration of banksC branches into the rural areas can be utilized to sell products in those areas. ,4-$ustomer database like customersC financial standing! spending habits! investment and purchase capability can be used to customize products and sell accordingly. ,(-%ince banks have already established relationship with customers! conversion ratio of leads to sales is likely to be high. 0urther service aspect can also be tackled easily.

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,0-The insurance companies can also get access to "T9*s and other technology being used by the banks. ,/-The selling can be structured properly by selling insurance products through banks. ,3- The product can be customized as per the needs of the customers.

2o Customers
)rom the customers@ point o% vie.6
,"- Aroduct innovation and distribution activities are directed towards the satisfaction of needs of the customer. ,B- Bancassurance model assists customers in terms of reduction price! diversified product quality in time and at their doorstep service by banks. ,$-$omprehensive financial advisory services under one roof. i.e.! insurance services along with other financial services such as banking! mutual funds! personal loans etc. ,4- (asy access for claims! as banks are a regular visiting place for customers. ,(- Innovative and better product ranges and products designed as per the needs of customers. ,0-"ny new insurance product routed through the bancassurance $hannel would be well received by customers.
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. ,/- $ustomers could also get a share in the cost savings in the form of reduced premium rate because of economies of scope! besides getting better financial counseling at single point.

Chapter 7

4istribution $hannels6 .. $areer agents 2. %pecial advisers 5. %alaried agents :. Bank employees =. $orporate agency K Brokerage firm B. 4irect response @. Internet ;. (7 Brokerage

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<. Outside lead generating techniques

0istri(ution Channels
Traditionally! insurance products were promoted and sold principally through agency systems only. The reliance of insurance industry was totally on the agents. 9oreover 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. 'ecently Bancassurers have been making use of various distribution channels! they are6 Career Agents6 $areer "gents are full7time commissioned sales personnel holding an agency contract. They are generally considered to be independent contractors. $onsequently an insurance company can e)ercise control only over the activities of the agent which are specified
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in the contract. 9any bancassurers! however avoid this channel! believing that agents might oversell out of their interest in quantity and not quality. %uch 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.

Special Advisers6 %pecial "dvisers are highly trained employees usually belonging to the insurance partner! who distribute insurance products to the bankCs corporate clients. The $lients mostly include affluent population who require personalised and high quality service. &sually %pecial advisors are paid on a salary basis and they receive incentive compensation based on their sales.

Salaried Agents6 %alaried "gents are an advantage for the bancassurers because they are under the control and supervision of bancassurers. These agents share the mission and ob ectives 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 * ,lat%orm Banking6 Alatform 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. " 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.

Corporate Agencies and Brokerage )irms6

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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 comple) insurance matters and through these arrangements the customers get good quality of services.

0irect !esponse6 In this channel no salesperson visits the customer to induce a sale and no face7to7face contact between consumer and seller occurs. The consumer purchases products directly from the bancassurer by responding to the companyCs advertisement! mailing or telephone offers. This channel can be used for simple packaged products which can be easily understood by the consumer without e)planation.

Internet6

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. 0unctions requiring user input ,check ordering! what7if calculations! credit and account applications- should be immediately added with links to the insurer. %uch an arrangement can also provide a vehicle for insurance sales! service and leads.

E-Brokerage6 Banks can open or acquire an e7Brokerage arm and sell insurance products from multiple insurers. The changed legislative
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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 e)cellent synergy with the internet capabilities.

$utside Aead 4enerating 2echni=ues6 One last method for developing bancassurance eyes involves LoutsideL lead generating techniques! such as seminars! direct mail and statement inserts. /reat 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.

Chapter B

%BI 1ife Insurance ,profile-

Aroducts offered

%BI 1ife Insurance ,perspective-

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State (ank o% India Ai%e Insurance

%BI 1ife Insurance is a oint venture between the %tate Bank of India and $ardif %" of 0rance. %BI 1ife Insurance is registered with an authorized capital of 's .>>> crore and a paid up capital of 's =>> crores. %BI owns @:? of the total capital and $ardif the remaining 2B?. %tate Bank of India en oys the largest banking franchise in India. "long with its @ "ssociate Banks! %BI /roup has the unrivalled strength of over .:!=>> branches across the country! arguably the largest in the world. $ardif is a wholly owned subsidiary of B#A Aaribas! which is the (uro Eone*s leading Bank. B#A Aaribas is one of the oldest foreign banks with a presence in India dating back to .;B>. $ardif is ranked 2nd worldwide in creditor*s insurance offering protection to over 5= million policyholders and net income in e)cess of (uro . billion. $ardif has also been a pioneer in the art of selling insurance products through commercial banks in 0rance and in 5= more countries.
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%BI 1ife Insurance*s mission is to emerge as the leading company offering a comprehensive range of 1ife Insurance and pension products at competitive prices! ensuring high standards of customer service and world class operating efficiency.%BI 1ife has a unique multi7distribution model encompassing Bancassurance! "gency and /roup $orporate. %BI 1ife e)tensively leverages the %BI /roup as a platform for cross7selling insurance products along with its numerous banking product packages such as housing loans and personal loans. %BI*s access to over .>> million accounts across the country provides a vibrant base for insurance penetration across every region and economic strata in the country ensuring true financial inclusion. "gency $hannel! comprising of the most productive force of more than 2=!>>> Insurance "dvisors! offers door to door insurance solutions to customers.

,roducts $%%ered (y SBI

Individual ,roducts
A.

nit Ainked products<

.- SBI Life - Horizon II6

%BI 1ife73orizon II is a unique! non participating &nit 1inked Insurance Alan in Indian Insurance Industry! where you need to be a financial market e)pert. This plan offers the fle)ibility of &nit 1inked Alan along with "utomatic "sset "llocation which provides relatively higher returns on your money where as increasing death benefits provide higher security to your family

2- SBI Life - Unit Plus II6

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This is a non participating individual unit linked product. It provides unmatched fle)ibility to match the changing requirements. It provides choice of = investments funds in a single policy

5- SBI life- unit plus child plan6

%BI 1I0( understand you better and hence have developed %BI 1ife 7 &nit Alus $hild Alan to suit you and your needs best. This Alan is meant for parents in the age group of .;7=@ having a child between the age group of >7.= years.

:- SBI Life Unit Plus Elite<

In this policy the customer can choose the type of cover! type of fund to be invested in and the term the customer wants to pay premium for.

B& ,ension ,roducts

SBI Life - Horizon II Pension6

" unique &nit 1inked Aension Alan that will enable the customers to build a kitty good enough to enable them to spend a peaceful and financially sound! retired life. %BI 1ife 7 3orizon II Aension is a safe and hassle free way to get high returns. It comes with the unique feature of "utomatic "sset "llocation by means of which you truly! don*t need to be an e)pert to grow your money.

.- SBI Life - Unit Plus II Pension6

5.

BANCASSURANCE
%BI 1ife understands the basic needs for pension plan and give the customers financial strength to maintain the life style even after the retirement. This is a unit linked pension plan wherein the policyholder chooses an investment period from = to =2 years for a vesting age between => to @> years. They can choose to pay either single premium or pay regular premium for the entire policy term. Their contributions are invested into : fund options as per their choice.

2- SBI Life - Lifelong Pensions6

It is a pension plan wherein the policyholder gets the fle)ibility to meet the post retirement financial needs. It also provides ta) benefits. The policyholder also has the option of withdrawing a lump sum amount up to particular limit.

5- SBI Life - Immediate nnuity6

%BI 1ife 7 Immediate "nnuity Alan is introduced for Aension Aolicyholders. This product provides annuity payments immediately from payment of purchase price. It has been specially designed to cater to the annuity needs of e)isting policyholders ,%BI 1ife 7 1ifelong Aensions! %BI 1ife 7 3orizon II Aension! %BI 1ife 7 &nit Alus II Aension- at the vesting age.

C& ,ure ,rotection ,roducts

.-

SBI Life - S!adhan6

This is a Traditional Term "ssurance Aolicy with guaranteed refund of basic premium .1ife cover is provided at no cost. Ta) benefit is also provided. There is also a rebate on high sum assured. There is also fle)ible benefit premium paying mode.

2- SBI Life - Shield6

52

BANCASSURANCE
It offers the customers with the life insurance cover at the lowest cost for a selected term. Ta) benefit is also provided. There is also rebate on modes of premium payment.

5- SBI Life Shield as a "eyman Insurance Policy6

" Deyman insurance policy is taken to protect the organization against the reduction in profit resulting from the death of the Deyman. "s per I'4" circular only Aure Term "ssurance Aroducts may be used as a Deyman Insurance. The %BI 1ife Insurance provides +%BI 1ife M %hield8 as a Deyman Insurance Aolicy.

D. ,rotection cum Savings ,roducts

.- SBI Life Sudarshan6

%BI 1ife 7 %udarshan is an (ndowment Aolicy designed to provide savings and protection to the policyholder and their family. They can save regularly for the future. Thus at the end of the plan! he will receive a substantial amount of savings along with the accumulated bonuses declared. "t the same time! his family will be protected for death risk for the full %um "ssured.

2- SBI Life - Scholar II6

Twin benefit of saving for the childCs education and securing a bright future despite the uncertainties of life. Option to receive the installments in lump sum at the due date of first installment of %urvival benefit.

55

BANCASSURANCE

E. #oney (ack scheme products

.- SBI Life - #oney Bac$6
It is a Traditional %aving Alan with added advantage of life cover and guaranteed cash inflow at regular intervals. The plan has a number of money back options specially suited to the customers needs. The cover is available at competitive premium rates.

2- SBI Life - San%ee&an Supreme6

It is a Traditional %aving Alan which offers a life cover for the term of the customer*s choice at the same time does not burden him with liability to pay premiums for the entire term and also provides cash flows at regular intervals.

F. )or Brokers6
.- SBI Life - S ' L ULIP6

It is a simple &nit 1inked #on7Aarticipating Insurance

Alan. The sum assured is based on Term and Aremium amount. There is also fle)ibility to increase or decrease regular premium and it also provides ta) benefits.

4roup ,roducts

A& 4roup Employee Bene%it ,roducts

I. !etirement Solutions<
5:

BANCASSURANCE

.- SBI Life - (ap ssure )ratuity Scheme*

It is a #on7Aarticipating yearly renewable traditional /roup /ratuity %cheme. &nder this scheme! the contributions paid continue to accumulate on traditional platform of investments and at the end of the financial yearH an investment income earned on your contributions is credited to your gratuity fund account.

2- SBI Life - (ap ssure Superannuation Scheme6

It is a #on7Aarticipating yearly renewable traditional group superannuation scheme. The ob ect of this scheme is to ensure that the underlying fund is accumulated in such a manner so that the fund will be sufficient to purchase an e)pected amount of annuity to an employee upon his retirement G to the legal heir in the event of an unfortunate death during service. The scheme would also entitle the employee for some benefit! defined as per the scheme rules! on his resignation! retirement! permanent total disability whilst in service! death whilst in service.

5- SBI Life - (ap ssure Lea&e Encashment Scheme6

It is a #on7Aarticipating yearly renewable traditional group leave encashment scheme. &nder this scheme! the contributions paid continue to accumulate on traditional platform of investments and at the end of the financial yearH an investment income earned on your contributions is credited to your $"71( fund account.

:- SBI Life - )roup Immediate nnuity*

It is a scheme wherein life annuity is payable at a constant rate through out the life time. (mployees can choose the periodicity of the annuity depending upon the needs.

=- %BI 1ife 7 /olden /ratuity6

5=

BANCASSURANCE It is a yearly renewable unit linked group gratuity plan. "long

with managing the gratuity fund a life cover on the employee*s life protect their family financially in case of unfortunate event.

B- SBI Life - +hanrashi6 It is a traditional non participating /roup %avings 1inked

Insurance scheme. This scheme is applicable for both employer7employee and non7employer employee groups. It has attractive returns on savings with twin benefits. It also provides protection at low cost with no medical e)amination and also hassle free oining process with no entry charges.

@- SBI Life - S!arna ,ee&an6 It is a /roup Immediate "nnuity Alan for $orporate $lients
,ie.(mployer7(mployee groups- and other /roup "dministrators. It provides "ttractive "nnuity rates due to group effect. It also gives customized annuity options to customers. It gives the option to choose the periodicity of annuity payment.

;- SBI Life - )roup )ratuity cum Life (o&er Scheme6

It is a Aarticipating yearly renewable traditional /roup /ratuity %cheme. &nder this scheme! the contributions paid continue to accumulate on traditional platform of investments. It also provides ta) benefits.

<- SBI Life - )roup Superannuation Scheme6

%BI 1ife provides two types of %uperannuation schemes6 .. 4efined Benefit %cheme6 It defines the amount of benefit that an employee receives at retirement. 2. 4efined $ontribution %cheme6 It defines the annual contribution that the employer will deposit into the scheme for each employee.

5B

BANCASSURANCE .>- SBI Life pro&ides SBI Life - )roup Lea&e Encashment cum Life (o&er Scheme6
It is a #on7Aarticipating yearly renewable traditional group leave encashment scheme. &nder this scheme! the contributions paid continue to accumulate on traditional platform of investments.

..- SBI Life - S. '/ ) /) 6

It is a unique product that offers life cover! with an advantage of accumulating savings at attractive rates! to group of persons who share a common identity or affinity

II. 4roup ,rotection ,lans

.- SBI Life - Sampoorn Sura$sha6
%BI 1ife 7 %ampoorn %uraksha is a yearly renewable group term insurance plan which provides life cover at comparatively lower premium than individual insurance to the groups who are engaged in the similar kind of activities. It is available for both 0ormal and Informal /roups.

2- SBI Life Super Sura$sha6 It is group term assurance non7participating plan. The Aroduct
provides cover at an affordable premium due to the benefits of coverage of a wide section! and the administered savings achieved. There is a possibility of profit sharing based on the mortality e)perience of the group.

5@

BANCASSURANCE 5- SBI Life - Super Sura$sha in Lieu of E+LI6

1ife cover available to employees irrespective of their Arovident 0und Balance. 1ower premium rates are also available. #o medical evidence is required and also there accident death benefit.

:- SBI Life - (redit )uard6

It is a #on Aarticipating /roup Term Insurance Alan. It is a simple and easy solution to cover the cardholders of a bankGother 0inancing entity! through a /roup 9aster Aolicy.

III. SpecialiCed 2erm Insurance

.- SBI Life - Shield used as "eyman6

It is a pure term life cover to protect the organization from adverse financial consequences arising due to death of a key employee. The aim is to indemnify the company for these losses and to allow for business continuity.

B. 4roup 2erm .ith !$,6

.' SBI Life - S!adhan 0)roup-6

It is a #on Aarticipating /roup Term Insurance Alan with 'eturn of Aremium. It is a simple and easy solution which offers dual

5;

BANCASSURANCE
benefits of life cover protection in the event of death and refund of premium in case of survival up to the end of the cover term.

$. 4roup Aoan ,rotection ,roducts

.- SBI Life - +hanara$sha Plus SP6

It provides decreasing term cover at a very low cost. "vailable for various types of individual loans for borrowers of a lending institution through a /roup 9aster Aolicy. There is only one time payment of premium.

2- SBI Life - +hanara$sha Plus LPP16

It provides decreasing term cover at a very low cost. "vailable for various types of individual loan for borrowers of a lending institution through a /roup 9aster Aolicy. There is 1imited Aremium Aayment Term.

5- SBI Life - +hanara$sha Plus 'P6

It provides decreasing term cover at a very low cost. "vailable for various types of individual loan for borrowers of a lending institution through a /roup 9aster Aolicy. There are two options for premium payment i.e. throughout the cover term or 2G5rd of the cover term.

4. 4roup Savings ,rotection

.- SBI Life - /idhi 'a$sha 'P6

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BANCASSURANCE
It is a unique Alan which will help protect and grow the customers* savings. It is offered to deposit holders of the master policyholder ,bankGfinancial institution-. It is a transparent plan! where the benefit available at any point of time is clearly defined in the $ertificate of Insurance ,$OI- issued to the insured group member.

(& 4roup #icro Insurance

.- SBI Life - )rameen Sha$ti6

The purpose of this product is to provide life insurance protection to the weaker sections of the society. It is a /roup 9icro insurance product with refund of premiums at maturity.

2- SBI Life - )rameen Super Sura$sha6

The purpose of this Aroduct is to provide life cover at low costs to groups of economically weaker sections of %ociety. It is a low cost /roup term assurance plan for rural people who can seek life insurance protection without maturity benefit.

SBI Ai%e Insurance Company >perspective'

%BI 1ife insurance! a oint venture between %tate Bank of India! the largest bank in the country and bancassurance ma or $ardiff of 0rance. %BI*s stake in the venture is @:? whereas $ardiff has 2B? share. They have launched many products so far incorporating certain features that are introduced for the first time in the country. %BI 71ife is banking
:>

BANCASSURANCE
on the bancassurance model on the strength of the %BI /roups .>>>> plus bank branches and its vast customer base. In addition it is also tapping other. banks corporate agents and the traditional agency route to penetrate the insurance market %BI 1ife is planning to introduce more novel and user friendly products to cater to the requirements of the consumers in different segments. %BI has the largest banking network in the county. The bank is looking for business from every customer segment of the bank rural and urban segments! upper! middle and lower income segments Ggroups and corporate segment. Besides their own channels they are planning to distribute products through other interested banking channels also. It is e)pected that 2G5 rd of the premium income in e)pected to come by way of bancassurance and the rest from the traditional agency channel as well as ties up with corporate agents ,%undaram 0inance-. %BI has also introduced group insurance to some well managed corporate staffs. Technology is an integral part of this operation. $ardiff provided the technology required. The pro ect was initiated in "pril 2>>:! and the initial roll7out was completed by "ugust 2>>:. %BI 1ife has implemented an Internet7centric IT system with browser7based front7 office and back7office systems! channel management! policy product details! online premium calculator and facility for group insurance customers to view their individual savings status on the Web. The organization has the facility to pay premiums through credit cards! #et banking! standing instructions! etc. This is fully integrated with the core systems through industry standards such as N91! (4I! etc.

(ven as it plans to scale up operations shortly! %BI 1ife Insurance $ompany 1td is looking at tripling its gross premium income in the new financial year. In 2>>@7>;! %BI 1ife earned a total premium income of 's =!B22 crore! of which income from new policy sales was 's :!;>> crore. 0or the current financial year! their target is to achieve a total premium income of 's .>!=>> crore and a first year premium income of 's ;!=>> crore8. The %BI 1ife ranks second in terms of market share among private life insurers in the country.

:.

BANCASSURANCE
%BI 1ife Insurance $ompany is the first among the .: life insurance companies in the private sector to post a net profit in 2>>=7>B. There are life insurance players much more aggressive than %BI and they have still not been able to break the record of %BI. Their success is largely on the channel strategy and product strategy. The another aspect is their superior investment performance. They have consistently! over the last two years! generated ..7.2 per cent earnings from the investments.

%BI 1ife Insurance is uniquely placed as a pioneer to usher bancassurance into India. The company hopes to e)tensively utilize the %BI /roup as a platform for cross7selling insurance products along with its numerous banking product packages such as housing loans! personal loans and credit cards. %BI*s access to over .>> million accounts provides a vibrant base to build insurance selling across every region and economic strata in the country.

Chapter D

Jarious Trends
:2

BANCASSURANCE

$hallenges

2rends
:5

BANCASSURANCE

Though bancassurance has traditionally targeted the mass market! but bancassurers have begun to finely segment the market! which has resulted in tailor7made products for each segment.
%ome bancassurers are also beginning to focus e)clusively on

distribution. In some markets! face7to7face contact is preferred! which tends to favour bancassurance development. #evertheless! banks are starting to embrace direct marketing and Internet banking as tools to distribute insurance products. #ew and emerging channels are becoming increasingly competitive! due to the tangible cost benefits embedded in product pricing or through the appeal of convenience and innovation. Bancassurance proper is still evolving in "sia and this is still in infancy in India and it is too early to assess the e)act position. 3owever! a quick survey revealed that a large number of banks cutting across public and private and including foreign banks have made use of the bancassurance channel in one form or the other in India. Banks by and large are resorting to either Freferral models* or F$orporate agency model* to begin with. Banks even offer space in their own premises to accommodate the insurance staff for selling the insurance products or giving access to their client*s database for the use of the insurance companies. "s number of banks in India have begun to act as Fcorporate agents* to one or the other insurance company! it is a common sight that banks canvassing and marketing the insurance products across the counters.

::

BANCASSURANCE

Challenges
Increasing sales of non7life products! to the e)tent those risks are

retained by the banks! require sophisticated products and risk management. The sale of non7life products should be weighted against the higher cost of servicing those policies. Bank employees are traditionally low on motivation. 1ack of sales culture itself is bigger roadblock than the lack of sales skills in the employees. Banks are generally used to only product packaged selling and hence selling insurance products do not seem to fit naturally in their system. 3uman 'esource 9anagement has e)perienced some difficulty due to such alliances in financial industry. Aoaching for employees! increased work7load! additional training! maintaining the motivation level are some issues that has cropped up quite occasionally. %o! before entering into a bancassurance alliance! ust like any merger! cultural due diligence should be done and human resource issues should be adequately prioritized. Arivate sector insurance firms are finding Fchange management* in the public sector! a ma or challenge. %tate7owned banks get a new chairman! often from another bank! almost every two years! resulting in the distribution strategy undergoing a complete change. %o because of this there is distinction created between public and private sector banks. The banks also have fear that at some point of time the insurance partner may end up cross7selling banking products to their policyholders. If the insurer is selling the products by agents as well as banks! there is a possibility of conflict if both the banks and the agent target the same customers.

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BANCASSURANCE

Chapter ;

%WOT "nalysis .. %trengths 2. Weaknesses 5. Opportunities :. Threats

:B

BANCASSURANCE

SW$2 Analysis<
Banking and Insurance are very different businesses. Banks have less risk but the insurance has a greater risk. (ven though! banks and insurance companies in India are yet to e)change their wedding rings! Bancassurance as a means of distribution of insurance products is already in force in some form or the other. Banks are selling Aersonal "ccident and Baggage Insurance directly to their $redit $ard members as a value addition to their products. Banks can straightaway leverage their e)isting capabilities in terms of database and face7to face contact to market insurance products to generate some income for themselves! which previously was not thought of. The sale of insurance products can earn banks very significant commissions ,particularly for regular premium products-. In addition! one of the ma or strategic gains from implementing bancassurance successfully is the development of a sales culture within the bank. This can be used by the bank to promote traditional banking products and other financial services as well. Bancassurance enables banks and insurance companies to complement each other*s strengths as well. It is therefore essential to have a %WOT analysis done in the conte)t of bancassurance e)periment in India. " %WOT analysis of Bancassurance is given below6

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BANCASSURANCE

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 en oy pride of place in the hearts of people because of their long presence and sustained image. Banks also en oy 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 with the psychology of the customers because of their interaction with the customers on regular basis. Because of this the bankers can guess the attitude and diverse needs of the customers and could change the face of insurance distribution to personal line insurance. Aeople rely more upon 1I$ and /I$ for taking insurance. If the products of 1I$ and /I$ are provided through bancassurance it would be an added advantage to the insurance companies. With the help of banks trained staff! its brand name and the confidence and reliability of people on the banks! the selling of insurance products can be done in a more proper way. Other than all these things there is a huge potential for insurance sector! as the population of India is high and a large part of it has remained untapped till now. %o this can create an added advantage for both banks and insurers.

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BANCASSURANCE

Weaknesses<

In spite of growing emphasis on total branch mechanism and full computerization of bank branches! the rural and semi7urban 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 themselves licensed. 9oreover the standards of the e)amination have been raised in the recent past making it difficult for many e)aminees 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. 3owever that may not be the case in regards to a bank employee. There are many differences in the way of thinking and business approaches of bankers and the managers of insurance companies. Banks are traditionally +demand7driven8 organizations with a reactive selling philosophy. Insurance organizations are usually +need7driven8 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 long7term durable purchase like insurance across the counter. "lso! the visits in urban or metro branches are going to be fewer because of "T9*s and e7banking. "nother drawback is the infle)ibility of the products i.e. it cannot be tailor made to the requirements of the customer. 0or a bancassurance venture to succeed it is e)tremely essential to have

:<

BANCASSURANCE
in7built fle)ibility so as to make the product attractive to the customers.

$pportunities<

There is a vast untapped potential waiting to be mined particularly for life insurance products. There are more than <>> million lives waiting to be given a life cover ,total number of individual life policies sold in .<<;7<< was ust <..@5 million-. There are many people in many areas that are still unaware about the insurance and its various products and are waiting that somebody should come and give them the information about it. In urban and metro areas! where the customers are willing to get many services like lockers and safe deposit systems and other products and services from banks! there is a good opportunity to market many property related general insurance policies like fire insurance! burglary insurance and medi7claim insurance etc.
BanksC 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.

Banks in their normal course of functions lend finance in the form

of loans for cars! or for buying a house to clients etc. They can take advantage of this by cross7selling the insurance products and combine it as a package.

"nother area that could be of interest to bankers to sell insurance is e)ploiting the corporate customers and tying up for insurance of the employees of corporate clients! which would be an avenue with

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BANCASSURANCE
easy access. In most cases banks provide salary disbursement and loan facilities but here they can provide insurance cover as well.

2hreats<
%uccess of a Bancassurance venture requires change in approach! thinking and work culture on the part of everybody involved. The work force at every level are so well entrenched in their classical way of working that there is a definite threat of resistance to any change that Bancassurance may set in. "ny relocation to a new company or subsidiary or change from one work to a different kind of work will not be easily acceptable by the employees. "nother possible threat may come from non7response from the targeted customers. If many oint ventures took place between banks and insurance companies then it may happen that the customers may not respond to such ventures as happened in &.%. Insurance in India is perceived more as a saving option than providing risk cover. %o this may create an adverse feeling in the minds of the bankers that such products may lessen the sales of regular bank saving products. "lso selling of investment and good return products may affect the 04 Aortfolio of the banks. There would be a problem of +'eputational $ontagion8 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. If no strict norms are there for such ventures then many unholy ventures may take place which may give rise to tough competition between bancassurers resulting in lower prices and the Bancassurance venture may never break because of such situations. 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 e)pertise! poor sales channel linkages! inadequate incentives!

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BANCASSURANCE
resistance to change! negative attitudes toward insurance and unwieldy marketing strategy.

Chapter 16

Indian scenario /lobal scenario 0uture scope of Bancassurance Other tie ups %urvey "nalysis 0indings 'ecommendations $onclusion Bibliography

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BANCASSURANCE

Indian Scenario
The business of banking around the globe is changing due to integration of global financial markets! development of new technologies! universalization of banking operations and diversification in non7banking activities. 4ue 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 is a new buzzword in India. It originated in India in the year 2>>> when the /overnment issued notification under Banking 'egulation "ct which allowed Indian Banks to do insurance distribution. It started picking up after Insurance 'egulatory and 4evelopment "uthority ,I'4"- passed a notification in October 2>>2 on C$orporate "gencyC regulations. "s per the concept of $orporate "gency! banks can act as an agent of one life and one non7life insurer. $urrently bancassurance accounts for a share of almost 2=75>? of the premium income amongst the private players in India. Bancassurance provides various advantages to banks! insurers and the customers. 0or the banks! income from bancassurance is the only non interest based income. Interest is market driven and fluctuating and quite narrowing these days. Banks do not get great margins because of the competition This is why more and more banks are getting into bancassurance so as to improve their incomes. Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. Aroviding multiple services at one place to the customers means enhanced customer satisfaction. "s for the insurance company the advantage that
=5

BANCASSURANCE
bancassurance provides is evident. The insurance company gets improved geographical reach without additional costs. In India around B@!>>> branches are there for A%& banks alone. If all B@!>>> branches sell the insurance products one can see the reach. This is one method of penetrating the market.

IndiaCs rural market has huge potential that is still untapped by the insurance companies. %etting up their own networks entails such a huge cost! that no company would be interested in doing so. Bancassurance again comes as an answer. It helps the insurance companies to tap the market at a much lower cost. "s for the customer the competitive nature of the Indian market ensures that the reduction in costs would result in benefits in terms of lower premium rates being passed on to him. The penetration level of life insurance in the Indian market is considerably low at 2.5? of /4A with only ;? of the total population currently insured. Thus! bancassurance provide an apparently viable model for product diversification by banks and a cost7effective distribution channel for insurers. The success of the partnership between the two entities depends on the Fright model* partnership. /iven these changes! bancassurance and collaboration between banks and insurers has a long way to go in India. With almost half of the population likely to be in the Cwage earnerC bracket by 2>.>! there is every reason to be optimistic that bancassurance in India will play a long inning.

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BANCASSURANCE

4lo(al Scenario
Bancassurance has grown at different pace and taken different shapes and forms in different countries depending on the demography! economic and legislations in that country. 4uring the last two decades! bancassurance has taken deep roots in various countries! especially in (urope. Bnacassurance! so far! has been basically (uropean. Bancassurance has seen tremendous acceptance and growth across nations. "lthough it en oys a penetration rate in e)cess of =>? in 0rance! %pain! Italy and Belgium! other countries have opted for more traditional networks. The 1ife insurance market in the &D is largely in the hands of the brokers. With advent of bancassurance! their market share has increased from :>? in .<<2 to =:? in .<<<. %ales agents also play an important role on a market entirely regulated by the 0inancial %ervices K 9arkets "ct ,0%9"- which imposes very strict marketing conditions. In /ermany! the market continues to be dominated by general sales agents! even if their market share has declined from ;=? in .<<2 to =:? in .<<<. Bancassurance recorded huge growth in (urope but not in &%" and $anada. In the &%! there were hurdles till recently banks were not allowed to do insurance business and vice versa. In several countries in 1atin"merica! banks have benefited from recent reforms M financial deregulation! among others M by selling insurance products across the counter. In $hina! banks are limited to playing the role of tide agents to insurance companies! which can still provide a good platform for bancassurance to develop. In 3ong Dong! when a %wiss bank introduced bancassurance! the life insurance sales went up by 2:>?. Iapan has to make a remarkable headway in bancassurance. In the Ahilippines! banks are permitted to own .>>? of the insurance company. Bancassurance is yet to be e)ploited in %ingapore. There is a huge market potential out there in many countries and especially in India when compared to the global benchmark. It is a
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BANCASSURANCE
good news to bancassurers that only about 2=? of the global insurable population is insured! and even among them most are underinsured.

)uture scope %or Bancassurance

By now! it has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates to provide with more sophisticated and variety of financial and banking products and services. The outlook for bancassurance remains positive. While development in individual markets will continue to depend heavily on each country*s regulatory and business environment! bancassurers could profit from the tendency of governments to privatize health care and pension liabilities. India has already more than 2>> million middle class population coupled with vast banking network with largest depositors base! there is greater scope for use of bancassurance. In emerging markets! new entrants have successfully employed bancassurance to compete with incumbent companies. /iven the current relatively low bancassurance penetration in emerging markets! bancassurance will likely see further significant development in the coming years. In India the bancassurance model is still in its nascent stages! but the tremendous growth and acceptability in the last three years reflects green pasture in future. The deregulation of the insurance sector in India has resulted in a phase where innovative distribution channels are being e)plored. In this phase! bancassurance has simply outshined other alternate channels of distribution with a share of almost 2=75>? of the premium income amongst the private players. To be fruitful! it is vital for bancassurance to ensure that banks remain fully committed to promoting and distributing insurance products. This commitment has to come from both senior management in terms of strategic inputs and the operations staff who would provide the front7end for these products. In India! the signs of initial success are already there
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BANCASSURANCE
despite the fact that it is a completely new phenomenon. There is no doubt that banks are set to become a significant distributor of insurance related products and services in the years to come.

$ther tie-ups
Ai%e Insurance tie-ups<
Arivate %ector $ompanies<
.. Ba a "llianz 1ife Insurance $o. 1td. 2. Birla %un 1ife Insurance $o. 1td. 5. 340$ %tandard 1ife Insurance $o. 1td. :. I$I$I Arudential 1ife Insurance $o. 1td. =. I#/ Jysya 1ife Insurance $o. Avt. 1td. B. %BI 1ife Insurance $ompany 1imited @. T"T"7"I/ 1ife Insurance $ompany 1td. ;. %ahara India 1ife Insurance $o. 1td. <. "viva 1ife Insurance $o India Avt. 1td. .>. Dotak 9ahindra O& 9utual 1ife Insurance $o. 1td. ... 9a) #ew Oork 1ife Insurance $o. 1td. .2. 9et1ife India Insurance $o. Avt. 1td. .5. 'eliance 1ife Insurance $o. 1td. .:. %hriram 1ife Insurance $o. 1td. .=. Bharti ")a 1ife Insurance $o. 1td.

Aublic %ector $ompany6

.B. 1ife Insurance $orporation of India

Non-Ai%e Insurance tie-ups< Arivate %ector $ompanies6

.. 'oyal %undaram "llianz Insurance $o. 1td. 2. T"T"7"I/ /eneral Insurance $o. 1td. 5. 'eliance /eneral Insurance $o. 1td.
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:. I00$O7TODIO /eneral Insurance $o. 1td. =. I$I$I 1ombard /eneral Insurance $o. 1td. B. Ba a "llianz /eneral Insurance $o. 1td. @. 340$ $hubb /eneral Insurance $o. 1td. ;. $holamandalam 9% /eneral Insurance $o. 1td. <. %tar 3ealth and "lhed Insurance $o. 1td.

Aublic %ector $ompanies6

.>. The #ew India "ssurance $o. 1td. ... #ational Insurance $o. 1td. .2. &nited India Insurance $o. 1td. .5. The Oriental Insurance $o. 1td. .:. ()port $redit /uarantee $orporation 1td. .=. "griculture Insurance $ompany 1td.

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Survey analysis >=uestionnaire'

" survey was conducted of about => 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 conducted6

Are you a.are o% Bancassurance"

No 20%
Yes No

Yes 80%

Interpretation6 7 "mong those who surveyed! D68 of respondents were aware that their bank provided bancaasurance.They knew with which Insurance $ompany their bank has tie up withH also they were aware about various policies provided by their banks. 3owever! 268 of the respondents were amused with the term bancassurance and didn*t know anything about it and the services provided by their banks.

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1ave Eou 2aken An Insurance ,olicy )rom Eour Bank"

Yes 34%

No
No 66%

Yes

Interpretation6 "mong the people who were surveyed! there were only /38 people who had taken insurance policy from their respective banks. 'emaining 778 respondents didn*t opt to take a policy from their banks.

2he Find $% Insurance ,olicy 2aken )rom 2he Bank67

70 60 50 40 30 23% 20 10 0
18% 42% 63%

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4eposit Based 1oan Based 1ife Insurance Others

Interpretation6 9a)imum number of insurance taken was related to loan. It was either car insurance or a home insurance. Out of the people surveyed B5? said that they have taken a loan based insurance. There were 25? who have taken insurance which are deposit based because it is a part of the deposit scheme. Only .;? have taken life insurance cover from the bank and :2? belong to others category.

!easons )or 2aking An Insurance ,olicy67

90 80 70 60 50 40 30 20 10 0 Security Savings Brand Image o% Bank Bank Image o% Insurance 28% 65%

80%

40%

Interpretation6 There was a mi)ed response from the customers. ;>? said that they took the insurance policy because of security benefits. B=? said that since! they trusted their bank! they took the policy. There were :o? who said that the brand image of the company also mattered. Only 2;? said that savings was a reason that encouraged them to buy insurance policy.

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$n Eour Choice Which #ode $% Insurance 0istri(ution Channel Would Eou ,re%er 2o Buy 2he ,olicy )rom"

Insurance companies 20%

Banks 23%

Brokers 7% Agents 50%

Interpretation6 =>? people preferred agents because they provide personalized services. 2>? took insurance from companies because of their trust on the company. 25? said they would buy insurance from banks because of the brand name and their trust on banks. Only @? said that they would buy insurance from brokers. Which Bank 0o Eou )eel Would Excel In Bancaasurance" !ate 2hem Accordingly
100 0 80 70 60 50 40 30 20 10 0

90% 70%

38%

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Aublic %ector Banks Arivate %ector Banks 0oreign Banks

Interpretation6 <>? people said that private sector banks would e)cel in this because of their aggressive selling policies and they provide quality services to the customers. @>? votes were given to foreign banks. Because 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. 0o Eou 2hink Bancassurance 1as A 4ood )uture"

No,5%

Yes No

Yes,95%

Interpretation< <=? 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 @? believe that because of the emergence of the new technology such as "T9*s! Internet banking etc the banks will soon go virtual so there is not much scope for it.

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)indings
"lthough the concept is simple enough in theory! but in practice it has been found to be far from straightforward. "lmost many people have a fair idea about Bancassurance and that their banks sell various insurance products. 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. "s the brand name of the banks is important so is the brand image of the insurance companies. %o the banks and the insurance companies must tie7up 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. But the public sector banks are also trying to give them a tough competition e.g. %BI 1ife Insurance $o. The insurance business can go a long way because there is a large population who is still unaware about insurance. %o the insurance companies have a huge potential market in the years to come. The banks fail to provide personalized services as are provided by the agents. %o banks will have to improve in that area. They should provide after sales services to the customers.

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Banks now7a7days are trying to provide each and every service to its customers. %o by providing insurance! banks can add one more service to their list.

!ecommendations
The Insurance companies need to design products specifically for distributing through banks. Trying to sell traditional products may not work so effectively. The employees of the banks who are selling insurance products must be given proper training so that they can answer to any queries of the customers and can provide them products according to their needs. Banks should also provide after sales services and they should be more aggressive in selling the insurance products. Banks should also do the settlement of claims which will increase the trust and reliability of the customers on the banks. In India! since the ma ority of the banking sector is in public sector which has been widely responsible for the lethargic attitude and poor quality of customer service! it needs to rebuild the blemished image. (lse! the bancassurance would be difficult to succeed in these banks. " formal and standard agreement between these banks and the insurance companies should be taken up and drafted by a national regulatory body. These agreements must have necessary clauses of revenue sharing. In case of possible conflicts! the bank management and the management of the insurance company should be able to resolve conflicts arising in future. 0or bancassurance to succeed! products and processes will need to be tailored to bank markets! rather than ad usted to insurer*s specifications.

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Banks and Insurance companies should apply all the skills and potential in this area and take advantage of the same and they should improve the products from time to time according to the needs of the customers.

Conclusion
The life Insurance Industry in India has been progressing at a rapid growth since opening up of the sector. The size of country! a diverse set of people combined with problems of connectivity in rural areas! makes insurance selling in India a very difficult task. 1ife Insurance $ompanies require good distribution strength and tremendous man power to reach out such a huge customer base. The concept of Bancassurance in India is still in its nascent stage! but the tremendous growth and the potential reflects a very bright future for bancassurance in India. With the coming up of various products and services tailored as per the customers needs there is every reason to be optimistic that bancassurance in India will play a long inning. But the proper implementation of bancassurance is still facing so many hurdles because of poor manpower management! lack of call centers! no personal contact with customers! inadequate incentives to agents and unfullfilment of other essential requirements. I have e)perienced a lot during the preparation of the pro ect. I had ust a simple idea about Bancassurance. But after a detailed research in this topic I have found how important bancassurance can be for bankers! insurers as well as the customers. I am contented that all my ob ectives have been met to its fullest. I have also e)perienced that though Bancassurance is not being utilized to its fullest but it surely has a bright future ahead. India is at the threshold of a significant change in the way insurance is perceived in the country. Bancassurance will definitely play a defining role as an alternative distribution channel and will change the way insurance is sold in India.

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The bridge has been reached and many are beginning to walk those cautious steps across it. Bancassurance in India has ust taken a flying start. It has a long way to go PPP.. after all The %DO I% T3( 1I9ITQ

Bi(liography

Insurance watch. Business world. Business today. Theories and Aractices in Insurance.

We(liography

www.insuremagic.com www.google.com

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www.sbilife.com

www.india infoline.com

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