Professional Documents
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Executive Summary: Bancassurance
Executive Summary: Bancassurance
Executive Summary: 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 join together, it
gives birth to BANCASSURANCE.
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 exchange of fees. It is a mutual relationship
between the banks and insurers. A relationship which amazingly
complements each others 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 project BANCASSURANCE (an emerging concept in
India). The project 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 project is on benefits and importance of
Bancassurance in India. The regulations governing Bancassurance are
also dealt with in this project. SWOT analysis is also done so as to
identify the various opportunities and threats for Bancassurance in India.
BANCASSURANCE
The Indian as well as Global contexts both are taken into
account. The project also revolves around data, facts and figures that are
necessary to prove the importance of Bancassurance.
Further the project also includes the case study of SBI Life
Insurance Company, its various products, the growth they have
experienced since the opening up of a wholly owned subsidiary of SBI
Bank that sells insurance products.
A 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.
At the end some suggestions are also given to fill the potholes that still
exist in this system.
This project is just a gist about how the Globalization,
Liberalization and tough Competition have brought the Banking as well
as the Insurance Industries together to help each other and to provide
excellent services to the customers.
BANCASSURANCE
Chapter 1
BANCASSURANCE
Introduction to Banking
BANCASSURANCE
from mass banking products to class banking with the introduction of
value added and customized products.
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evolved 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.
Chapter 2
About Bancassurance
1. Meaning
2. Origin
3. Models of Bancassurance
i.
Structural classification
ii.
BANCASSURANCE
What is BANCASSURANCE?
Meaning
Bancassurance is the distribution of insurance products through the
BANCASSURANCE
Bancassurance if taken in right spirit and implemented properly can be
win-win situation for the all the participants' viz., banks, insurers and the
customer.
Origin
Models of Bancassurance
I.
Structural Classification
a) Referral Model
Banks intending not to take risk could adopt referral 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 ban0k or elsewhere. Referral model is nothing but a
simple arrangement, wherein the bank, while controlling access to the
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clients data base, parts with only the business leads to the agents/ sales
staff of insurance company for a referral fee or commission for every
business lead that was passed on. In fact a number of banks in India have
already resorted to this strategy to begin with. This model would be
suitable for almost all types of banks including the RRBs /cooperative
banks and even cooperative societies both in rural and urban. There is
greater scope in the medium term for this model. For, banks to begin with
can resort to this model and then move on to the other models.
b) Corporate Agency
The other form of non-sick participatory distribution
channel is that of Corporate Agency, wherein the bank staff as an
institution acts as corporate agent for the insurance product for a
fee/commission. This seems to be more viable and appropriate for most
of the mid-sized banks in India as also the rate of commission would be
relatively higher than the referral arrangement. This, however, is prone to
reputational risk of the marketing bank. There are also practical
difficulties in the form of professional knowledge about the insurance
products. This could, however, be overcome by intensive training to
chosen staff, packaged with proper incentives in the banks coupled with
selling of simple insurance products in the initial stage. This model is best
suited for majority of banks including some major urban 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 US, because
consumers generally prefer to purchase policies through broker banks that
offer a wide range of products from competing insurers.
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As per the extant regulation of insurance sector the foreign insurance
company could enter the Indian insurance market only in the form of joint
venture, therefore, this type of bancassurance seems to have emerged out
of necessity in India to an extent. There is great scope for further growth
both in life and non-life insurance segments as GOI is reported have been
actively considering to increase the FDIs participation up to 49 per cent.
(b)
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There is also another method called 'Bank Referral'. Here the
banks do not issue the policies; 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 win-win situation every where as the banks get commission, the
insurance companies get databases of the customers and the customers
get the benefits.
Chapter 3
Utilities of Bancassurance
1. For Banks:
i. As a source of fee based income
ii.
Product diversification
iii.
Stiff competition
ii.
iii.
Rural penetration
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For Banks
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Bancassurance up to 50% of their total fee income from all sources
combined. Fee Income from Bancassurance also reduces the overall
customer acquisition cost from the banks point of view. At the end of the
day, it is easy money for the banks as there are no risks and only gains.
Product Diversification
In terms of products, there are endless opportunities for the
banks. Simple term life insurance, endowment policies, annuities,
education plans, depositors insurance and credit shield are the policies
conventionally sold through the Bancassurance channels. Medical
insurance, car insurance, home and contents insurance and travel
insurance are also the products which are being distributed by the banks.
However, quite a lot of innovations have taken place in the insurance
market recently to provide more and more Bancassurance-centric
products to satisfy the increasing appetite of the banks for such products.
Insurers who are generally accused of being inflexible in
the pricing and structuring of the products have been responding too well
to the challenges (say opportunities) thrown open by the spread of
Bancassurance. They are ready to innovate and experiment and have set
up specialized Bancassurance units within their fold. Examples of some
new and innovative Bancassurance products are income builder plan,
critical illness cover, return of premium and Takaful products which are
doing well in the market. The traditional products that the
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customers. In a typical Bancassurance model, the consumer will have
access to a wider product mix - a rather comprehensive financial services
package, encompassing banking and insurance products.
Stiff Competition
At present there are 15 life insurance companies and 14
general insurance companies in India. Because of the Liberalization of
the economy it became easy for the private insurance companies to enter
into the battle field which resulted in an urgent need to outwit one
another. Even the oldest public insurance companies started facing the
tough competition. Hence 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.
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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. Hence
there was a need felt for a Cost-Effective Distribution channel. This gave
rise to Bancassurance as a channel for distribution of the insurance
products.
Rural Penetration
Insurance industry has not been much successful in rural
penetration of insurance so far. People there are still unaware about
the insurance as a tool to insure their life. However 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.
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database of the banks middle income customers, there was a need felt
for Bancassurance.
Chapter 4
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1 Any scheduled commercial bank would be permitted to undertake
insurance business as agent of insurance companies on fee basis.
Without any risk participation
2. Banks which satisfy the eligibility criteria given below will be
permitted to set up a joint venture company for undertaking insurance
business with risk participation, subject to safeguards. The maximum
equity contribution such a bank can hold in the Joint Venture Company
will normally be 50% of the paid up capital of the insurance company.
The eligibility criteria for joint venture participant are as under:
i. The net worth of the bank should not be less than Rs.500 crore;
ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level of non-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if
any, of the concerned bank should be satisfactory.
3. In cases where a foreign partner contributes 26% of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign
Investment Promotion Board, more than one public sector bank or private
sector bank may be allowed to participate in the equity of the insurance
joint venture. As such participants will also assume insurance risk, only
those banks which satisfy the criteria given in paragraph 2 above, would
be eligible.
4. A subsidiary of a bank or of another bank will not normally be allowed
to join the insurance company on risk participation basis.
5. Banks which are not eligible for joint venture participant as above,
can make investments up to 10% of the net worth of the bank or Rs.50
crore, whichever is lower, in the insurance company for providing
infrastructure and services support. Such participation shall be treated as
an investment and should be without any contingent liability for the bank.
The eligibility criteria for these banks will be as under:
i. The CRAR of the bank should not be less than 10%;
ii. The level of NPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive
years.
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6. All banks entering into insurance business will be required to obtain
prior approval of the Reserve Bank. The Reserve Bank will give
permission to banks on case to case basis keeping in view all relevant
factors including the position in regard to the level of non-performing
assets of the applicant bank so as to ensure that non-performing assets do
not pose any future threat to the bank in its present or the proposed line of
activity, viz., insurance business. It should be ensured that risks involved
in insurance business do not get transferred to the bank. There should be
arms length relationship between the bank and the insurance outfit.
7. Holding of equity by a promoter bank in an insurance company or
participation in any form in insurance business will be subject to
compliance with any rules and regulations laid down by the
IRDA/Central Government. This will include compliance with Section
6AA of the Insurance Act as amended by the IRDA Act, 1999, for
divestment of equity in excess of 26 per cent of the paid up capital within
a prescribed period of time.
8. Latest audited balance sheet will be considered for reckoning the
eligibility criteria.
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2) Mandatory Training: All the people involved in selling the insurance
should under-go mandatory training at an institute determined
(authorized) by IRDA & pass the examination conducted by the authority.
3) Corporate agents: Commercial banks, including co-operative banks
and RRBs may become corporate agents for one insurance company.
4) Banks cannot become insurance brokers.
Issues for regulation: Certain regulatory barriers have slowed the
development of Bancassurance in India down. Which have only recently
been cleared with the passage of the insurance (amendment) Act 2002.
Prior it was clearly an impractical necessity and had held up the
implementation of Bancassurance in the country. As the current
legislation places the following:1) Training and examination requirements: upon the corporate
insurance executive within the corporate agency, this barrier has
effectively been removed.
Another regulatory change is published in recent publication of IRDA
regulation relating to the (2) Licensing of Corporate agents
(2) Specified person to satisfy the training & examination: According
to new regulation of IRDA only the specific persons have to satisfy the
training & examination requirement as insurance agent.
Chapter 5
Benefits of Bancassurance
1. To Banks
2. To Insurance companies
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3. To Customers
To Banks
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(B) Banks have face-to-face contract with their customers. They can
directly ask them to take a policy. And the banks need not to go any
where for customers.
(C) The Bankers have extensive experience in marketing. They can
easily attract customers & non-customers because the customer &
non-customers also bank on banks.
(D) Banks are using different value added services life-E. Banking tele
banking, direct mail & so on they can also use all the abovementioned facility for Bankassurance purpose with customers & noncustomers.
(E) Productivity of the employees increases.
(F) By providing customers with both the services under one roof,
they can improve overall customer satisfaction resulting in higher
customer retention levels.
(G) Increase in return on assets by building fee income through the
sale of insurance products.
(H) Can leverage on face-to-face contacts and awareness about the
financial conditions of customers to sell insurance products.
(I) Banks can cross sell insurance products E.g.: Term insurance
products with loans.
To Insurers
From the Insurer Point of view:
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(A) The Insurance Company 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.
(C)Insurers can exploit the banks' wide network of branches for
distribution of products. The penetration of banks' branches into the rural
areas can be utilized to sell products in those areas.
(D)Customer database like customers' financial standing, spending habits,
investment and purchase capability can be used to customize products
and sell accordingly.
(E)Since banks have already established relationship with customers,
conversion ratio of leads to sales is likely to be high. Further service
aspect can also be tackled easily.
(F)The insurance companies can also get access to ATMs and other
technology being used by the banks.
(G)The selling can be structured properly by selling insurance products
through banks.
(H) The product can be customized as per the needs of the customers.
To Customers
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Chapter 6
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Distribution Channels:
1. Career agents
2. Special advisers
3. Salaried agents
4. Bank employees
5. Corporate agency & Brokerage firm
6. Direct response
7. Internet
8. E- Brokerage
9. Outside lead generating techniques
Distribution Channels
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Traditionally, insurance products were promoted and sold
principally through agency systems only. The reliance of insurance
industry was totally on the agents. Moreover with the monopoly of
public sector insurance companies there was very slow growth in the
insurance sector because of lack of competition. The need for innovative
distribution channels was not felt because all the companies relied only
upon the agents and aggressive marketing of the products was also not
done. But with new developments in consumers behaviours, evolution of
technology and deregulation, new distribution channels have been
developed successfully and rapidly in recent years.
Recently Bancassurers have been making use of various
distribution channels, they are:
Career Agents:
Career Agents are full-time commissioned sales personnel
holding an agency contract. They are generally considered to be
independent contractors. Consequently an insurance company can
exercise control only over the activities of the agent which are specified
in the contract. Many bancassurers, however avoid this channel, believing
that agents might oversell out of their interest in quantity and not quality.
Such problems with career agents usually arise, not due to the nature of
this channel, but rather due to the use of improperly designed
remuneration and incentive packages.
Special Advisers:
Special Advisers are highly trained employees usually
belonging to the insurance partner, who distribute insurance products
to the bank's corporate clients. The Clients mostly include affluent
population who require personalised and high quality service. Usually
Special advisors are paid on a salary basis and they receive incentive
compensation based on their sales.
Salaried Agents:
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Salaried Agents are an advantage for the bancassurers because
they are under the control and supervision of bancassurers. These
agents share the mission and objectives of the bancassurers. These are
similar to career agents, the only difference is in terms of their
remuneration is that they are paid on a salary basis and career agents
receive incentive compensation based on their sales.
Direct Response:
In this channel no salesperson visits the customer to induce a
sale and no face-to-face contact between consumer and seller occurs.
The consumer purchases products directly from the bancassurer by
responding to the company's advertisement, mailing or telephone
offers. This channel can be used for simple packaged products which
can be easily understood by the consumer without explanation.
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Internet:
E-Brokerage:
Banks can open or acquire an e-Brokerage arm and sell
insurance products from multiple insurers. The changed legislative
climate across the world should help migration of bancassurance in
this direction. The advantage of this medium is scale of operation,
strong brands, easy distribution and excellent synergy with the internet
capabilities.
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Chapter 7
Products offered
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4) 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. Pension Products
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SBI Life - Immediate Annuity Plan is introduced for
Pension Policyholders. This product provides annuity payments
immediately from payment of purchase price. It has been specially
designed to cater to the annuity needs of existing policyholders (SBI
Life - Lifelong Pensions, SBI Life - Horizon II Pension, SBI Life Unit Plus II Pension) at the vesting age.
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F. For Brokers:
1) SBI Life - SARAL ULIP:
Group Products
I. Retirement Solutions:
1) SBI Life - CapAssure Gratuity Scheme:
It is a Non-Participating yearly renewable traditional Group
Gratuity Scheme. Under this scheme, the contributions paid continue to
accumulate on traditional platform of investments and at the end of the
financial year; an investment income earned on your contributions is
credited to your gratuity fund account.
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benefit, defined as per the scheme rules, on his resignation, retirement,
permanent total disability whilst in service, death whilst in service.
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It is a Group Immediate Annuity Plan for Corporate Clients
(ie.Employer-Employee groups) and other Group Administrators. It
provides Attractive Annuity rates due to group effect. It also gives
customized annuity options to customers. It gives the option to choose the
periodicity of annuity payment.
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through a Group Master Policy. There is only one time payment of
premium.
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1) SBI Life - Grameen Shakti:
The purpose of this product is to provide life insurance
protection to the weaker sections of the society. It is a Group Micro
insurance product with refund of premiums at maturity.
BANCASSURANCE
of bancassurance and the rest from the traditional agency channel as well
as ties up with corporate agents (Sundaram Finance). SBI has also
introduced group insurance to some well managed corporate staffs.
Technology is an integral part of this operation. Cardiff
provided the technology required. The project was initiated in April 2004,
and the initial roll-out was completed by August 2004. SBI Life has
implemented an Internet-centric IT system with browser-based frontoffice and back-office 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, Net
banking, standing instructions, etc. This is fully integrated with the core
systems through industry standards such as XML, EDI, etc.
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loans and credit cards. SBIs access to over 100 million accounts provides
a vibrant base to build insurance selling across every region and
economic strata in the country.
Chapter 8
Various Trends
Challenges
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Trends
Though bancassurance has traditionally targeted the mass market,
but bancassurers have begun to finely segment the market, which
has resulted in tailor-made products for each segment.
Some bancassurers are also beginning to focus exclusively on
distribution. In some markets, face-to-face contact is preferred,
which tends to favour bancassurance development.
Nevertheless, banks are starting to embrace direct marketing and
Internet banking as tools to distribute insurance products. New and
emerging channels are becoming increasingly competitive, due to
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the tangible cost benefits embedded in product pricing or through
the appeal of convenience and innovation.
Bancassurance proper is still evolving in Asia and this is still in
infancy in India and it is too early to assess the exact position.
However, 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 referral models or
Corporate 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 clients database for the use of the insurance companies.
As number of banks in India have begun to act as corporate
agents to one or the other insurance company, it is a common sight
that banks canvassing and marketing the insurance products across
the counters.
Challenges
Increasing sales of non-life products, to the extent those risks are
retained by the banks, require sophisticated products and risk
management. The sale of non-life products should be weighted
against the higher cost of servicing those policies.
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Bank employees are traditionally low on motivation. Lack 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.
Human Resource Management has experienced some difficulty due
to such alliances in financial industry. Poaching for employees,
increased work-load, additional training, maintaining the
motivation level are some issues that has cropped up quite
occasionally. So, before entering into a bancassurance alliance, just
like any merger, cultural due diligence should be done and human
resource issues should be adequately prioritized.
Private sector insurance firms are finding change management in
the public sector, a major challenge. State-owned banks get a new
chairman, often from another bank, almost every two years,
resulting in the distribution strategy undergoing a complete change.
So 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 cross-selling 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.
Chapter 9
SWOT Analysis
1. Strengths
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2. Weaknesses
3. Opportunities
4. Threats
SWOT Analysis:
Banking and Insurance are very different businesses. Banks
have less risk but the insurance has a greater risk. Even though, banks
and insurance companies in India are yet to exchange 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 Personal Accident and Baggage Insurance
directly to their Credit Card members as a value addition to their
products. Banks can straightaway leverage their existing capabilities in
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terms of database and face-to 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 major 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 others strengths as
well.
It is therefore essential to have a SWOT analysis done in the
context of bancassurance experiment in India. A SWOT analysis of
Bancassurance is given below:
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.
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They also enjoy pride of place in the hearts of people because of
their long presence and sustained image.
Banks also enjoy a wide network of branches, even in the remotest
areas that can facilitate taking up the task on a large and massive
scale, simultaneously.
Banks are very well aware 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.
People rely more upon LIC and GIC for taking insurance. If the
products of LIC and GIC 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. So this can create an added advantage
for both banks and insurers.
Weaknesses:
In spite of growing emphasis on total branch mechanism and full
computerization of bank branches, the rural and semi-urban banks
have still to see information technology as an enabler. The IT
culture is unfortunately missing completely in all of the future
collaborations. The internet connections are also not properly
provided to the staff.
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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. Moreover the
standards of the examination have been raised in the recent past
making it difficult for many examinees to clear the same.
There is lack of personalized services because the traditional
insurance agent is considered a member of the family and hence is
able to render a personalized service during and after the sales
process. However that may not be the case in 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 demand-driven organizations with a
reactive selling philosophy. Insurance organizations are usually
need-driven and have an aggressive selling philosophy.
The visit of a customer to the bank is to have a simple transaction
like deposit or withdrawal. Busy customers will have no time to
have a discussion on a long-term durable purchase like insurance
across the counter. Also, the visits in urban or metro branches are
going to be fewer because of ATMs and e-banking.
Another drawback is the inflexibility of the products i.e. it cannot
be tailor made to the requirements of the customer. For a
bancassurance venture to succeed it is extremely essential to have
in-built flexibility so as to make the product attractive to the
customers.
Opportunities:
There is a vast untapped potential waiting to be mined particularly
for life
insurance products. There are more than 900 million
lives waiting to be given a life cover (total number of individual
life policies sold in 1998-99 was just 91.73 million).
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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 medi-claim insurance etc.
Banks' database is enormous even though the goodwill may not be
of loans for cars, or for buying a house to clients etc. They can take
advantage of this by cross-selling the insurance products and
combine it as a package.
Threats:
Success 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. Any relocation to a new
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company or subsidiary or change from one work to a different kind
of work will not be easily acceptable by the employees.
Another possible threat may come from non-response from the
targeted customers. If many joint ventures took place between
banks and insurance companies then it may happen that the
customers may not respond to such ventures as happened in U.S.
Insurance in India is perceived more as a saving option than
providing risk cover. So this may create an adverse feeling in the
minds of the bankers that such products may lessen the sales of
regular bank saving products. Also selling of investment and good
return products may affect the FD Portfolio of the banks.
There would be a problem of Reputational Contagion i.e. loss of
market confidence towards one in a venture leading to loss of
confidence on the other because of identical brand recognition,
similar management and consolidated financial reporting etc.
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
expertise, poor sales channel linkages, inadequate incentives,
resistance to change, negative attitudes toward insurance and
unwieldy marketing strategy.
Chapter 10
Indian scenario
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Global scenario
Future scope of Bancassurance
Other tie ups
Survey Analysis
Findings
Recommendations
Conclusion
Bibliography
Indian Scenario
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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
non-banking activities. Due to all these movements, the boundaries that
have kept various financial services separate from each other have
vanished. The coming together of different financial services has
provided synergies in operations and development of new concepts. One
of these is bancassurance.
Bancassurance is a new buzzword in India. It originated
in India in the year 2000 when the Government issued notification under
Banking Regulation Act which allowed Indian Banks to do insurance
distribution. It started picking up after Insurance Regulatory and
Development Authority (IRDA) passed a notification in October 2002 on
'Corporate Agency' regulations. As per the concept of Corporate Agency,
banks can act as an agent of one life and one non-life insurer. Currently
bancassurance accounts for a share of almost 25-30% of the premium
income amongst the private players in India.
Bancassurance provides various advantages to banks,
insurers and the customers. For 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. Providing multiple
services at one place to the customers means enhanced customer
satisfaction. As for the insurance company the advantage that
bancassurance provides is evident. The insurance company gets improved
geographical reach without additional costs. In India around 67,000
branches are there for PSU banks alone. If all 67,000 branches sell the
insurance products one can see the reach. This is one method of
penetrating the market.
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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 2.3% of GDP with only 8% of the total population
currently insured.
Thus, bancassurance provide an apparently viable model
for product diversification by banks and a cost-effective distribution
channel for insurers. The success of the partnership between the two
entities depends on the right model partnership. Given 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
'wage earner' bracket by 2010, there is every reason to be optimistic that
bancassurance in India will play a long inning.
Global Scenario
Bancassurance has grown at different pace and taken different
shapes and forms in different countries depending on the demography,
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economic and legislations in that country. During the last two decades,
bancassurance has taken deep roots in various countries, especially in
Europe. Bnacassurance, so far, has been basically European.
Bancassurance has seen tremendous acceptance and growth
across nations. Although it enjoys a penetration rate in excess of 50% in
France, Spain, Italy and Belgium, other countries have opted for more
traditional networks. The Life insurance market in the UK is largely in
the hands of the brokers. With advent of bancassurance, their market
share has increased from 40% in 1992 to 54% in 1999. Sales agents also
play an important role on a market entirely regulated by the Financial
Services & Markets Act (FSMA) which imposes very strict marketing
conditions. In Germany, the market continues to be dominated by general
sales agents, even if their market share has declined from 85% in 1992 to
54% in 1999.
Bancassurance recorded huge growth in Europe but not in
USA and Canada. In the US, there were hurdles till recently banks were
not allowed to do insurance business and vice versa. In several countries
in LatinAmerica, banks have benefited from recent reforms financial
deregulation, among others by selling insurance products across the
counter. In China, 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 Hong Kong, when a Swiss bank introduced bancassurance,
the life insurance sales went up by 240%. Japan has to make a remarkable
headway in bancassurance. In the Philippines, banks are permitted to own
100% of the insurance company. Bancassurance is yet to be exploited in
Singapore. There is a huge market potential out there in many countries
and especially in India when compared to the global benchmark. It is a
good news to bancassurers that only about 25% of the global insurable
population is insured, and even among them most are underinsured.
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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 countrys regulatory and business environment, bancassurers
could profit from the tendency of governments to privatize health care
and pension liabilities.
India has already more than 200 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. Given 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
explored. In this phase, bancassurance has simply outshined other
alternate channels of distribution with a share of almost 25-30% 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 front-end
for these products. In India, the signs of initial success are already there
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.
Other tie-ups
Life Insurance tie-ups:
Private Sector Companies:
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1. Bajaj Allianz Life Insurance Co. Ltd.
2. Birla Sun Life Insurance Co. Ltd.
3. HDFC Standard Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Co. Pvt. Ltd.
6. SBI Life Insurance Company Limited
7. TATA-AIG Life Insurance Company Ltd.
8. Sahara India Life Insurance Co. Ltd.
9. Aviva Life Insurance Co India Pvt. Ltd.
10. Kotak Mahindra OU Mutual Life Insurance Co. Ltd.
11. Max New York Life Insurance Co. Ltd.
12. MetLife India Insurance Co. Pvt. Ltd.
13. Reliance Life Insurance Co. Ltd.
14. Shriram Life Insurance Co. Ltd.
15. Bharti Axa Life Insurance Co. Ltd.
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12. United India Insurance Co. Ltd.
13. The Oriental Insurance Co. Ltd.
14. Export Credit Guarantee Corporation Ltd.
15. Agriculture Insurance Company Ltd.
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housewives, businessmen, professionals, students, etc. The following
analysis was done on the basis of the survey conducted:
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Interpretation: Among the people who were surveyed, there were only
34% people who had taken insurance policy from their respective banks.
Remaining 66% respondents didnt opt to take a policy from their banks.
63%
60
50
42%
40
30 23%
18%
20
10
0
Deposit Based
Loan Based
Life Insurance
Others
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a part of the deposit scheme. Only 18% have taken life insurance cover
from the bank and 42% belong to others category.
90
80
80%
28%
Security
Savings
65%
40%
70
60
50
40
30
20
10
0
Brand Image of
Bank
Bank Image of
Insurance
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Public Sector
Banks
Private Sector
Banks
Foreign Banks
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Interpretation: 90% people said that private sector banks would excel in
this because of their aggressive selling policies and they provide quality
services to the customers. 70% votes were given to foreign banks.
Because 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.
Do You Think Bancassurance Has A Good Future?
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Findings
Although the concept is simple enough in theory, but in practice it
has been found to be far from straightforward.
Almost many people have a fair idea about Bancassurance and that
their banks sell various insurance products. But still few people
dont 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 banks network and
other avenues.
It is also seen that customers have a lot of trust on the banks, and
because of that trust the customers will take the insurance products
from banks.
As the brand name of the banks is important so is the brand image
of the insurance companies. So the banks and the insurance
companies must tie-up with the right partners. This will help them
to create a better image in the minds of the customers.
It has also clear from the study that the private sector and the
foreign banks have better future in Bancassurance. But the public
sector banks are also trying to give them a tough competition e.g.
SBI Life Insurance Co.
The insurance business can go a long way because there is a large
population who is still unaware about insurance. So 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. So banks will have to improve in that area. They should
provide after sales services to the customers.
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Banks now-a-days are trying to provide each and every service to
its customers. So by providing insurance, banks can add one more
service to their list.
Recommendations
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 majority 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. Else, the bancassurance would be difficult to succeed in
these banks.
A 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.
For bancassurance to succeed, products and processes will need to
be tailored to bank markets, rather than adjusted to insurers
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. Life
Insurance Companies 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 experienced a lot during the preparation of the project. I had
just 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 objectives
have been met to its fullest.
I have also experienced 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 just taken a flying
start. It has a long way to go .. after all The SKY IS THE LIMIT!
Bibliography
Insurance watch.
Business world.
Business today.
Theories and Practices in Insurance.
Webliography
www.insuremagic.com
www.google.com
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www.sbilife.com
www.india infoline.com
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