The life insurance industry in India has been progressing at a rapid pace since opening up of the sector in 2000. The size of the country, a diverse set of people combined with problems of connectivity in rural areas, makes insurance selling in India a very difficult proposition. Life insurance companies require immense distribution strength and tremendous manpower to reach out to such a huge customer base. This distribution will undergo a sea change as various insurance companies are proposing to bring insurance products into the lives of the common man by making them available at the most basic financial point, the local bank branch, through bancassurance. BANCASSURANCE: TWIN THRUST is the process through which insurance products are sold to customers at their local banks. With a banking network of 65,000 branches serving more than 300 million retail banking customers, insurance can be available at affordable prices to people even in remote corners of the country. Twin here signifies the combination of a Bank and an Insurance company the two being the largest institutions of financial services and revenue earners in the domain of finance. Thrust (force that drives something forward) ...thrust in this case is symbiotic n mutual(ly beneficial) helping in the upward/northward growth of both businesses and the economy as a whole. The relationship is symbiotic; but there are challenges. The most common challenges to success are poor manpower management, lack of a sales culture within the bank, no involvement by the branch manager, insufficient product promotions, failure to integrate marketing plans, marginal database expertise,
1|P a g e

poor sales channel linkages, inadequate incentives, resistance to change, negative attitudes toward insurance and unwieldy marketing strategy. Even insurers and banks that seem ideally suited for a bancassurance partnership can run into problems during implementation. Before targeting the market, it is essential to do a SWOT analysis. One more important obstacle in development of bancassurance in India has been a set of regulatory barriers. Some of these have recently been cleared with the passage of the Insurance (Amendment) Act, 2002. Looking at the west where sales through the banking network have been a roaring success, the Indian banking sector has far to go. But one thing stands obvious. If insurance in India is to succeed, it can only be through the bancassurance channel. Thus the scope of this project is limited to the following parameters :♣ ♣ ♣

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

♣ ♣ ♣

To be able to understand to what extent bancassurance has reserved a place in the lives of the people in the country a survey analysis has been conducted.

2|P a g e

The business of banking around the globe is changing due to integration of the global financial markets, development of new technologies, universalization of banking operations and diversification in non-banking financial activities. Due to all these movements, the boundaries that have kept various financial services separate from each other have vanished. The coming together of different financial services has provided synergies in operations and development of new concepts. One of these is Bancassurance. Bancassurance simply means selling of insurance products by banks. Bancassurance, which is also called Allfinanz -. a one-stop financial service to meet the requirements of banking services and also to provide reliable protection to customers. Bancassurance is identified as an alternative distribution channel, the key issue which is closely linked to the regulatory climate of the country to improve the non-interest income of banks. In this arrangement, insurance companies and banks undergo a tie-up, a system in which a bank has a corporate agency with an insurance company to sell its products. By selling insurance policies the bank earns revenue apart from interest. It is called as fee-based income. This income is purely risk free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company. The distribution of insurance products through banks is beneficial not only to the insurance and banking companies, but also to the customers. The growth of
3|P a g e

bancassurance depends on how well the banks and the insurance companies are able to overcome the operational challenges that are being constantly thrown at them. The need of the hour for the bancassurance venture is to inculcate new ideas, new approach and work culture.

Financial Services



Bancassurance Bancassurance

But it is a controversial issue as many experts feels that this gives the banking sector too great a control over financial services market in the respective country. Therefore it has also been restricted in many countries too. But, still the countries have permitted Bancassurance in their market has seen a tremendous boom in that sector. The share of premium collected by them has increased in a constant manner. This success coincided with a favorable taxation for life insurance products as well as with the consumers' growing needs, in terms of middle and long term savings, which is due to an inadequacy of the pension schemes in India.
4|P a g e

The term first appeared in France in 1980, to define ‘the sale of insurance products through banks’ distribution channels (SCOR 2003) The Life Insurance Marketing and Research Association’s (LIMRA’s) insurance dictionary defines bancassurance as “the provision of Life insurance services by banks and building societies”. According to IRDA, ‘bancassurance’ refers to banks acting as corporate agents for insurers to distribute insurance products.” Literature on bancassurance does not differentiate if the bancassurance refers to selling of life insurance products or non-life insurance products. Accordingly, ‘bancassurance’ is defined to mean banks dealing in insurance products of both life and nonlife type in any forms. But in this research the focus is entirely concentrated towards life insurance. It is also important to clarify that the term bancassurance does not just refer specifically to distribution alone. Other features, such as legal, fiscal, cultural and/or behavioral aspects also form an integral part of the concept of bancassurance (SCOR 2003).

5|P a g e

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

In India, ever since espousing of financial reforms following the recommendations of First Narasimhan Committee, the contemporary financial landscape has been reshaped. Banks, in particular, stride into several new areas and offer innovative products, viz., merchant banking, lease and term finance, capital market / equity market related activities, hire purchase, real estate finance and so on. Thus, present-day banks have become far more diversified than ever before. Therefore, their entering into insurance business is only a natural corollary and is fully justified too, as ‘insurance’ is another financial service required and desired by the bank’s customers. Bancassurance as a concept first began in India, when the insurance industry opened up to private participation in December 1999. With the liberalization and deregulation of the insurance industry, bancassurance evolved in India around 2002 and competition is now tougher than ever before where everyone is trying to come out with better innovations to stay that one-step ahead. Both banks and insurance companies are looking at each other to generate new sources of income using 18 crore customer accounts. India has a population of 1,054 million out of which only 77.7 million Indians have a life insurance policy as per the survey conducted by Federation of Indian Chamber and Commerce of Industry (FICCI). The Indian insurance market accounts only for 0.59% of $2,627 bn global insurance market. According to Swiss-Re
7|P a g e

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

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

The Indian middle-class segment is the second largest in the world after China. It is estimated that through bancassurance banks and insurance can collectively receive a fee-based income of Rs. 13,500 cr and Rs. 22,000 cr, over the next five years. Many banks and financial institutions have set up joint ventures with foreign insurance companies like SBI Life (with Cardiff of
8|P a g e

France), MetLife India (MetLife and J&K Bank amongst others) ICICI Prudential (with ICICI), HDFC Standard Life (with HDFC), etc. The companies like Aviva, MetLife, Birla Sun Life, SBI Life, etc., have taken bancassurance as an important channel for distribution. SBI Life Insurance Company is a predominant player in bancassurance. The company aimed at acquiring 75% of the total business through bancassurance and the balance through the other channels by 2007. Allianz Group is a business entity engaged in worldwide insurance business embracing more than 70 countries of five continents to serve 60 million customers through its international subsidiary network. Banks have got a wide retail network proving to be a vital distribution channel of insurance products. To ensure that only financially sound banks enter into this stream, the IRDA has laid down certain prerequisites. To operate as a distribution channel, banks must possess a net worth of at least Rs. 500 cr and a capital adequacy ratio of a minimum 10%. The increasing number of tie-ups between banks and insurance companies is confirming the growing importance of this distribution channel. In the financial year 2003-04, the bancassurance channel contributed 70% towards the total sales of Aviva India. It also contributed 6% of non-life premiums and 13% in life in 2006. There is huge market potential in India when compared to the global benchmark. The winds of liberalization has brought the necessary competition and better pricing into the industry with the help of financial engineering techniques and models, significant advances in information technology and consumer demands. As a result, banks began exploiting convergence of the financial industry and financial liberalization. Banking institutions and

9|P a g e

insurance companies have found bancassurance as an attractive and profitable complement to their existing activities in India.


1. Integration of the financial service industry in terms of banking, securities business and insurance is a growing worldwide phenomenon. The Universal Banking concept is evolving on these lines in India. 2. Banks are the key pillars of India’s financial system. The public has immense faith in banks. 3. Share of bank deposits in the total financial assets of households has been steadily rising. 4. Indian Banks have immense outreach to the households. Total of 66000 branches (as of 2007) of commercial banks, each branch serving an average of 15,000 people. 5. Banks enjoy considerable goodwill and access in the rural regions.There are more than 33000 branches in rural India (about 50% of total), and approximately 14,500 semi-urban branches, where insurance growth has been most buoyant. 200 exclusive Regional Rural Banks in deep hinterland. 6. Banks have enormous retail customer base.Share of ‘individuals’ as a category in bank accounts is steadily increasing.Rural and semi urban bank accounts constitiute close to 60% in terms of number of accounts,indicating the
10|P a g e

number of potential lives that could be covered by insurance with the upfront involvement of banks. 7. Banks world over have realized that offering value-added services such as insurance, helps to meet client expectations. Competition in the Personal Financial Services area is getting `hot’ in India and that Banks can retain customer loyalty by offering them a vastly expanded and more sophisticated range of products. Insurance distribution can also help the bank to increase the fee-based earnings to a large extent. 8. Fee-based selling helps to enhance the levels of staff productivity in banks. This is vitally important to bring higher motivation levels in banks in India. 9. Banks can put their energies into the small-commission customers that insurance agents would tend to avoid. Banks’ entry in distribution can help to enlarge the insurance customer base rapidly. This helps to popularize insurance as an important financial protection product. 10. Bancassurance helps to lower the distribution costs of insurers. Acquisition cost of insurance customer through bank is low. Selling insurance to existing mass market banking customers is far less expensive than selling to a group of unknown customers. Experience in Europe has shown that bancassurance firms have a lower expense ratio. This benefit could go to the insured public by way of lower premiums. 11. Banks have an important role to play in the pension sector when deregulated. Low cost of collecting pension contributions is the key element in the success of developing the pension sector. Money transfer costs in
11|P a g e

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

Traditionally, much fewer non-life insurance products are distributed through bancassurance than life insurance products. There are several reasons for this:

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


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


Life insurance products are generally long-term products, which require customers to have complete confidence in the institution that invests their money. And we now know that, in many countries, banks have a better image and are more trusted than insurance companies.


12|P a g e

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


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

13|P a g e

In terms of products, there are endless opportunities for the banks. Simple term life insurance, endowment policies, annuities, education plans, depositors’ insurance and credit shield are the policies conventionally sold through the Bancassurance channels. Medical insurance, car insurance, home and contents insurance and travel insurance are also the products which are being distributed by the banks. However, quite a lot of innovations have taken place in the insurance market recently to provide more and more Bancassurance-centric products. Insurers who are generally accused of being inflexible in the pricing and structuring of the products have been responding too well to the challenges (say opportunities) thrown open by the spread of Bancassurance. They are ready to innovate and have set up specialized Bancassurance units within their fold. Examples of some new and innovative bancassurance products are Income Builder Plan, Critical Illness Cover and Return of Premium products which are doing well in the market.

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

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


Because of the liberalization of the economy it became easy for the private

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

Insurers have been tuning into different modes of distribution because

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

15|P a g e

Insurance industry has not been very successful in rural penetration of

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

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

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

16|P a g e


17|P a g e

Insurance Regulatory and Development Authority (IRDA) is contemplating the idea of permitting banks to have multiple tie-ups with insurance companies. If this change takes place, an individual will have more options to choose from. As per the present norms, a bank cannot have more than one tie-up with an insurance company each in life and non-life segment. Tables 1 and 2 depicts that one insurance company has tied up with many banks in order to increase their revenues, but a bank is not allowed to tie-up with more than one insurance company. The question that comes to the fore is who will be more benefited with this move, whether banks or insurance companies. The positive benefits would be:

Banks can provide multiple options to their customers in terms of insurance products. Customers will be benefited, as they will get the insurance products of more companies under one roof. They will get an opportunity to compare different products and make the best choice.
18|P a g e

It will be a boon for the banks since they can earn huge commissions without making any financial investment. They will be providing the products of other companies with the same infrastructure and same employees.

It will also help them establish bonds with different insurance companies and negotiate the best prices with them. From the sales point of view, the benefits for the banks will be: Selling of more than one product will give the sellers (banks) a better exposure to compare the plus and minus of each single product, and this will make it easier for them to pitch the right product to the right customer based on their needs (need-based selling happens only when you have more products in your basket, as is in the case of mutual funds). Third party product selling is one powerful avenue. Among the third party products, life insurance policies are the highest income generators. With more insurance companies tying up with a single bank, Banks' focusing more on this dilutes their focus on core banking services and commitment to any particular insurance company will also dwindle. Clashes are not ruled out if all insurance companies are providing same amount of commission to banks, and expect equal sale of their products. If customers are buying products of one company then, other co-partners can blame the bank for favoring the other insurance company. This in turn can hamper customer service. On the Indian front, SBI Life has reaped the maximum benefits from bancassurance. Taking advantage of its branch network, it generated almost 39% of its total premium in 2006-07 through bancassurance route.
19|P a g e


FY 2009 Market Share-Private Players

20|P a g e




Banks intending not to take risk could adopt ‘referral model’. The

actual transaction with the prospective client in referral model is done by the staff of the insurance company either at the premises of the bank or elsewhere. Referral model is nothing but a simple arrangement, wherein the bank, while controlling access to the clients data base, parts with only the business leads to the agents/ sales staff of insurance company for a ‘referral fee’ or commission for every business lead that was passed on. In fact a number of banks in India have already resorted to this strategy to begin with. This model would be suitable for almost all types of banks including the RRBs / CoOperative banks and even Co-Operative societies both in rural and urban. There

21|P a g e

is greater scope in the medium term for this model. Banks to begin with can start with this model and then move on to the other models.


The other form of non-risk participatory distribution channel is that of

‘Corporate Agency’, wherein the bank staff as an institution acts as a corporate agent for the insurance product for a fee/commission. This seems to be more viable and appropriate for most of the mid-sized banks in India as also the rate of commission would be relatively higher than the referral arrangement. This, however, is prone to reputational risk of the marketing bank. There are also practical difficulties in the form of professional knowledge about the insurance products. This could, however, be overcome by intensive training to chosen staff, and packaged with proper incentives in the banks coupled with selling of simple insurance products in the initial stage. This model is best suited for majority of banks including some major urban 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.



Apart from the above two, the fully integrated financial service involves much more comprehensive and intricate relationship between insurer and
22|P a g e

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

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



23|P a g e

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


Following the issuance of Government of India Notification dated August 3, 2000, specifying ‘Insurance’ as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of The Banking Regulation Act, 1949, RBI issued the guidelines on Insurance business for banks. 1. Any scheduled commercial bank would be permitted to undertake

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

24|P a g e


Banks which satisfy the eligibility criteria given below will be permitted to

set up a Joint Venture Company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a bank can hold in the Joint Venture Company will normally be 50% of the paid up capital of the insurance company.

The eligibility criteria for joint venture participant is as under:
i. The net worth of the bank should not be less than Rs. 500 crore; ii. The CRAR of the bank should not be less than 10 per cent; iii. The level of Non-Performing Assets should be reasonable; iv. The bank should have net profit for the last three consecutive years; v. The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory. 3. In cases where a foreign partner contributes 26% of the equity with the

approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one public sector bank or private sector bank may be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, only those banks which satisfy the criteria given in paragraph 2 above, would be eligible. 4. A subsidiary of a bank or of another bank will not normally be allowed to

join the insurance company on risk participation basis. 5. Banks which are not eligible for ‘joint venture’ participant as above, can

make investments up to 10% of the net worth of the bank or Rs.50 crore,
25|P a g e

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

The eligibility criteria for these banks will be as under:
i. The CRAR of the bank should not be less than 10%; ii. The level of NPAs should be reasonable; iii. The bank should have net profit for the last three consecutive years. 6. All banks entering into insurance business will be required to obtain prior

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

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

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

26|P a g e


Latest audited balance sheet will be considered for reckoning the eligibility


The Insurance Regulatory & Development Authority has given certain guidelines for Bancassurance. They are as follows:-

1. Chief Insurance Executive: Each bank that sells insurance must have a Chief Insurance Executive to handle all the insurance matters & activities. 2. Mandatory Training: All the people involved in selling the insurance should under-go mandatory training at an institute determined (authorized) by IRDA & pass the examination conducted by the authority. 3. Corporate agents: Commercial banks, including co-operative banks and RRBs may become corporate agents for one insurance company.

4. Banks cannot become insurance brokers.
27|P a g e

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

As the current legislation places the following:i.

Training And Examination Requirements: Upon the Corporate Insurance Executive within the corporate agency, this barrier has effectively been removed.


Another regulatory change is published in the recent publication of IRDA regulation relating to the Licensing of Corporate agents Specified Person To Satisfy The Training & Examination: According to new regulation of IRDA only the specific persons have to satisfy the training & examination requirement as Insurance Agent.


28|P a g e


Life insurance premium represents 55% of the world insurance premium and life insurance is basically a saving market. So it is one of the methods to increase deposits of banks.

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

Insurers have been turning in ever greater numbers to alternative modes of distribution because of the high costs they have paid for agent services. These costs became too much of a burden for many insurers compared to the returns they generated.

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

The ratio of expenses to premiums, as an important efficiency factor, is noticed very well that expenses ratio in insurance activities through bancassurance

29|P a g e

is extensively low as the bank and the insurance company is benefiting from the same distribution channels and people.

The prospects for increased consolidation between banking and insurance is more likely dominated and derived by the marketing innovations that are likely to follow from financial service modernization. Such innovations would include cross selling of banking, insurance and brokerage products and services; the increased use of the Internet by consumers and a blending of insurance and banking corporate cultures. The degree to which banks devote themselves to the sale and servicing of insurance varies from country to country and among individual banks. bancassurance, so far, has been principally a European concept.

30|P a g e

UP TO 1999 1999 TILL 2002
Private Players allowed 12 new insurers

12 Private Players LIC loses 12% share Confidence in BA BA takes 20% + share among Private Players, Alignment of most Banks for exclusive arrangements BA regulations become clearer, multiple models allowed - CA, Referral, Broking


LIC Monopoly No Private Players allowed


Agency only 800K LIC agents

Agency model replicated Little confidence in BA


LIC of India Act Insurance Act 1938

IRDA Act 1999 Primarily Agency driven regulations



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

Bancassurance helps banks collect non-fund income which can supplement the interest income and increase their profitability.


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


31|P a g e

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


Cross-selling, if followed by good marketing practices and customer services, enhances loyalty of a customer, who can then become the brand ambassador of the bank and offer free of cost advertisement for the bank. This word-ofmouth publicity for the bank is the most effective and positive advertisement for the bank.

It also gives an opportunity to mobilize deposits because when deposit products of banks are clubbed with low-cost insurance products, they become more attractive to the customer.


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


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


Banks have extensive experience in marketing their products to existing customers and non-customers. Technology has made marketing of products easier for the banks. They have number of communication channels like Automated Teller Machines (ATM), Telebanking, SMS Banking, etc.
32|P a g e

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

By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification.


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.


Customer database like customers' financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly.


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


The insurance companies can also get access to ATM’s and other technology being used by the banks.
33|P a g e


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


The system of payment of premium is simplified for the customer. He can simply give a standing instruction to his banker for such a transaction.


Bancassurance offers a convenient one-stop financial supermarket to the customer, as he is getting all his comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.



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

Innovative and better product ranges designed as per the needs of customers.










Channel would be well received by customers.

Bancassurance products can give better value for money and offer cheaper premiums to the customer due to the lower distribution costs.
34|P a g e

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

Special Advisers 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 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.

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

There are a number of banks who cooperate with independent agencies or brokerage firms while some other banks have found corporate agencies. The advantage of such arrangements is the availability of specialists needed for complex insurance matters and through these arrangements the customers get good quality of services.

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

Internet banking is already securely established as an effective and profitable basis for conducting banking operations. Bancassurers can feel confident that Internet banking will also prove an efficient vehicle for cross selling of insurance savings and protection products. Functions requiring user input (check ordering, what-if calculations, credit and account
37|P a g e

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

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.

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

38|P a g e


Choice of sales model and process Sales structures and resources from Bank and Insurer Leverage of the Bank’s brand

Value to Insurance Co.

Product fitment and differentiation

Value to Bank

Staff Motivation

Management Focus and Commitment to shared objectives

Successful integration of insurance in Banking activity

Value to Customer

39|P a g e

The difference in working style and culture of the banks and insurance sector needs greater appreciation. Insurance is a ‘business of solicitation’ unlike a typical banking service, it requires great drive to ‘sell/market the insurance products. It should, however, be recognized that ‘bancassurance’ is not simply about selling insurance but about changing the mindset of a bank. Moreover, in India since the majority of the banking sector is in public sector and which has been widely disparaged for the lethargic attitude and poor quality of customer service, it needs to refurbish the blemished image. Else, the bancassurance would be difficult to succeed in these banks. Studies have revealed that the basic attitudinal incompatibility on the part of employees of banks and insurance companies and the perception of customers about the poor quality of banks had led to failures of bancassurance even in some of the Latin American countries. There are also glitches in the system of bancassurance strategy in the form of ‘conflict of interests’, as some of the products offered by the banks, viz., ‘term deposits’ and other products which are mainly aimed at long term savings/ investments can be very similar to that of the insurance products. Banks could as well feel apprehension about the possibility of substitution effect between its own products and insurance products and more so, as a

40|P a g e

number of insurance products in India comes with an added attraction of tax incentives. In case the Bancassurance is fully integrated with that of the banking institution, it is suitable only for larger banks; however, it has other allied issues such as putting in place ‘proper risk management techniques’ relating to the insurance business, etc. As there is a great deal of difference in the approaches of ‘selling of insurance products’ and the usual banking services- thorough understanding of the insurance products by the bank staff coupled with extra devotion of time on each customer explaining in detail of each product’s intricacies is a prerequisite. Moreover, insurance products have become increasingly complex over a period of time, due to improvisation over the existing products as well as due to constant innovation of new products, emanating from the excessive competition adding to even more difficulties in comprehension of the products and marketing by the bank staff. These can result in resistance to change and leading to problems relating to industrial relations. Unlike, the banking service, there is no guarantee for insurance products that all efforts that a bank staff spends in explaining to a customer would clinch the deal due to the very nature of the insurance products. This frustration of the bank staff has the danger of spill over effect even on their regular banking business.

41|P a g e

Bankers in India are extremely naïve in insurance products as there were no occasions in the past for the bankers to deal in insurance products; therefore they require strong motivation of both monetary and non monetary incentives. This would be more so in the emerging scenario due to complex innovations in the field of insurance / pension products at a rapid pace with the entry of a number of foreign insurance companies with vast experience in the developed countries’ framework. Reorientation of staff in the public sector banks in particular, to be less bureaucratic and more customer friendly would indeed be a challenging task, albeit it is a prerequisite for the success of bancassurance. The above outlined problems need not, however, deter the banking sector to embark on bancassurance as any form of resistance from the bank employees could be tackled by devising an appropriate incentive system. The following should be kept in mind while embarking on the path to bancassurance:

Long-term agreement (minimum 3 to 5 years) should be signed between the two parties. Deciding factors for reaching an agreement should be the brand equity and service standards of the partner rather than price. Total Customer Relationship Management (CRM) should form the basis of relationship in order to achieve cross-selling. Huge investment in Information Technology (IT) systems, training, retraining, call-center and product development will be required.

42|P a g e

The objective should be the creation of the one-stop shop with banks in the role of financial advisors to their clients.


In a country like India of one billion people where sky is the limit there is

a vast untapped potential waiting for life insurance products. Our other strength lies in a huge pool of skilled professionals whether it is banks or insurance companies who may be easily relocated for any bancassurance venture.

Banks have the credibility established with their constituents because of

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

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

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

Banks are very well aware of the psychology of the customers because

of their interaction with the customers on regular basis. Because of this the
43|P a g e

bankers can guess the attitude and diverse needs of the customers and could change the face of insurance distribution to personal line insurance.


In spite of growing emphasis on total branch mechanism and full

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

To undertake the distribution of the insurance products, the bank

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

There is lack of personalized services because the traditional insurance

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

44|P a g e

There are many differences in the way of thinking and business

approaches of bankers and the managers of insurance companies. Banks are traditionally “demand-driven” organizations with a reactive selling philosophy. Insurance organizations are usually “need-driven” and have an aggressive selling philosophy.

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

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

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

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


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

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

There are many people in many areas that are still unaware about the

risks covered by insurance and its various products and are waiting that somebody should come and give them the information about it.
45|P a g e

There is a good opportunity to market many property related general

insurance policies like fire insurance, burglary insurance and medi-claim insurance and can take advantage of this by cross-selling the insurance products and combine it as a package as value addition to the bank’s core products like credit cards and debit cards etc.

Banks' database is enormous even though the goodwill may not be the

same. This database has to be dissected and various homogeneous groups are to be churned out in order to position the bancassurance products. With a good IT infrastructure, this can really do wonders

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

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

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

Insurance 13%

2% s nk ba op r.. Co 3% nt u 's e F C Deb NB & 2% es ar ds Sh un lF ua

Governm ent bonds/Sm all Savings 13%

ut M

46|P a g e

Source-ICICI Direct


Success in bancassurance requires change in approach, thinking and work

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

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

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

There would be a problem of “Reputational Contagion” i.e. loss of market of identical brand recognition, similar management and

confidence towards one in a venture leading to loss of confidence on the other because consolidated financial reporting etc.

47|P a g e

The most common obstacles to success of Bancassurance are poor

manpower management, lack of a sales culture within the bank, no involvement by the branch manager, insufficient product promotions, failure to integrate marketing plans, marginal database expertise, poor sales channel linkages, inadequate incentives, resistance to change, negative attitudes toward insurance and unwieldy marketing strategy.


Some Banks yet to firm up partnerships. Insurers partnered with Select Banks under Corp Agency or Referral

Change in regulations could impact current arrangements

Most Banks have shortterm agreements; a stage of realignments may occur

Stage of Polarization: Emergence of winners, Strong alignments with Banks with cross investments and exclusive Broking arrangements

Mergers and Acquisitions could impact the industry

Initial Phase

Short Term 2004-05

Medium Term 2005-08

Long Term 2010 Onwards

Source: Compiled from from Business Line

48|P a g e

In a country with a population of over 100 crores, the insurable population has been estimated to be over 30 crores. The population covered with some form of insurance has been estimated only at 8 crores (Exhibit I).

Exhibit I: Life Insurance Coverage Levels Indian population Insurable population Insured population % of population covered under insurance
Compiled from various sources

100 crores 30 crores 8 crores 27%

With only 27% of the insured population covered under insurance, there is immense potential for further coverage. Many rural pockets are yet to be tapped. The per capita premium of $13 in India is also believed to be among the lowest in the world.

49|P a g e

A survey was conducted of about 50 people who did regular banking transactions and also had an insurance policy. These included several housewives, businessmen, professionals, students, etc. The following analysis was done on the basis of the survey conducted:


No 20%
Yes No

Yes 80%

INTERPRETATION: - Among those who were surveyed, 80% of the respondents were aware that their bank provided bancassurance services. They knew with which Insurance Company their bank has tied up with; also
50|P a g e

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


Yes 34%

N o 66%


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

51|P a g e


70 60 50 40 30 23% 20 10 0




Deposit Based

Loan Based

Life Insurance


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


90 80 70 60 50 40 30 20 10 0







Brand Image of bank

Brand Image of Insurance Company

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

53|P a g e


Ins uran ce com pan ies 20%

Banks 23 %

Brokers 7% Age nts 50%

50% people preferred agents because they provide personalized services. 20% took insurance from companies because of their trust on the company. 23% said they would buy insurance from banks because of the brand name and their trust on banks. Only 7% said that they would buy insurance from brokers.

54|P a g e


100 90 80 70 60 50 40 30 20 10 0

90% 70%


Public Sector Banks

Private Sector Banks

Foreign Banks

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

55|P a g e




Yes No

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

56|P a g e



Almost many people have a fair idea about bancassurance and that the

various insurance products their banks sell. But still few people don’t know about bancassurance as a concept.

It has been also found out that the banks have various opportunities to

cross sell insurance products. The insurance companies also have the opportunity to take advantage of the bank’s network and other avenues.

It is also seen that customers have a lot of trust on the banks, and

because of that trust the customers will take the insurance products from banks.

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

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

It has also clear from the study that the private sector and the foreign

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

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

agents. So banks will have to improve in that area. They should provide after sales services to the customers.
57|P a g e

The concept is still has now moved forward from its embryonic stage and is rapidly developing and growing but the client preference for this channel has been encouraging and the future looks to be rosy for bancassurance. Predominantly, the new insurance companies have opted for this channel in a bigger way. The future will decide the models which would emerge as favorites and the ones which will not make it. The success of the model to a considerable extent will also be decided by the integration of the human resources in terms of mindset, IT and supportive systems. From the client's point of view bancassurance is a value-added proposition as they would be advised by better trained and more trustworthy bank officials rather than advisors/agents (with exceptions) whose primary consideration, it is often said would be their own monetary benefit. The cost synergies of integrating banking and insurance operations apart, the issue of bancassurance is laden with several potential risks. To name a few - lack of focus in areas of insufficient managerial experience, supervisory oversight and enhanced potential for regulatory arbitrage, reengineering, inappropriate capital allocation within the group and the distinct possibility of both the partners to aggregate risk exposures rather than acting as a hedge. Bancassurance is set to grow at a scorching pace soon becoming a norm and eventually capture equal share of the insurance business as their agency channel.
58|P a g e

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

Sign up to vote on this title
UsefulNot useful