Bancassurance

A High Potential for Growth……

The 3rd Middle East Insurance Forum

March 20-21, 2006
Ritz Carlton, Bahrain

Mukul Gupta
CFO & Head Bancassurance
Bajaj Allianz Life Insurance, India
 “There is no stronger force than an idea
whose time has come.”

Victor Hugo
(19th Century French Novelist)

Banks & Insurers across the World have realized Bancassurance is

the distribution channel, which would help them achieve
economies of scale and boost their revenues in the 21st Century
Agenda
Impact of Bancassurance on Increasing Insurance
Penetration and Realizing Growth – India Case

Global Bancassurance Trends

Industry Evolution - India
The Bancassurance Opportunity
Case Study : BALIC & Standard Chartered Bank
Case Study – BALIC & Syndicate Bank
Global Bancassurance Trends…
 The key factors impacting development of Bancassurance across the
globe are:

 Regulatory Environment in the country

 Banking Habits – Is Visiting the Bank natural to customers?

 Europe - Bancassurance accounts for the 35% of the sales in the

European life insurance market and is the dominant distribution channel
in a number of South European countries such as Belgium, France, Italy,
Spain and Portugal.
 US – Bancassurance started developing post the crumbling of barriers
set by the Glass-Steagaal Act in late 1990s
 Asia – Bancassurance is in its nascent stage in Asian Life Insurance
Market but is developing very rapidly due to presence of Brick & Mortar
Model of Banking in most of the Asian countries.
Banks dominate Life distribution in Southern
Europe, and making progress in Northern Europe…
Distribution channels - Life

100%
90%
80%
70%
60%
50%
40% 82%
72%
30% 65% 60%
50%
20%
10% 19 % 19 % 14 %
0%

Banks, post office Insurance co. Employees Agents Brokers - IFAs Others

Success of Bancassurance vary through out Europe due to

different regulatory environment in each country
Recent Bancassurance Trends in Asia…

Estimates of New Business generated from

Bancassurance in 2004

60

50 In India, Bancassurance
P e rc e n ta g e

40 accounts for 22% of the

sales by Private Insurers
30

20

10

Countries

Due to presence of Brick & Mortar Model of Banking, Bancassurance is

increasing its Market Share very rapidly
 Choice of Bancassurance Model Depends upon
Strategy & Environment…
Distribution Financial Services
Strategic Alliances Joint Ventures
Agreements Group
Low Degree of integration High
• Banks distribute life • A higher degree of • Clear mutual •Operations and systems
insurance products integration in product ownership of products can be fully integrated
(stand-alone or development, service and customers
•A high capability to
bundled with bank provisions and channel
• Sharing of customer leverage on banks’
products) in return for management
DBs existing customer and
fee income
• Possible sharing of other services provisions
• Requires strong and
• No or little sharing of customer DB
long-term commitments •One-stop financial
customer DB
• Requires investments in from both sides services
• Limited investment IT and sales personnel
•Potential for fully
integrated products
Control
Resource commitment
Ability to satisfy customer needs – value added
Low Reward opportunity
High
Management complexity
Convergence of interest
Who bring what to the Partnership…
Bank Insurer
• Customer base and relationships • Sales & marketing expertise for insurance products
• Distribution network • Profit maximization selling insurance products
• Brand • Strong technical expertise
• Product know-how
• Financial strength
• Brand

50% 50%
Insurance

Bancassurance partnership and distribution agreement to clearly address:

• Volume targets • Sharing of margins between • Management responsibility of
• Type of products to be sold product and distribution the product factory
• Sharing of CRM system • Require solid legal contract /
servicing agreements
Key Success Factors…
Commitment
of Partners

Motivation
Selection of
&
Customer
Training of
Selection Segments
Bank Staff
of Partner

Sales &
Product
Distribution
Offerings
Model
Industry Evolution…
Up to 1999 1999 till 2004 2005 onwards

LIC Monopoly Private Players 13 Private Players

No. of Players allowed Pvt Insurers gain
No Private Players
allowed 12 new insurers over 28% share

Confidence in Bancassurance
Agency model
Agency only replicated BA takes 20% + share among
Distribution
Focus 800K Agents Private Players
Bancassurance in
development stage Fastest Growing Distribution
Channel

ULIPs are the most popular

Traditional – Emergence of Unit products, accounts for 75% of
Products
Endowments, Money Linked Products Sales through Private
Back Plans & Wholelife Insurers
Bancassurance regulations
Regulatory Primarily Agency Primarily Agency become clearer
Environment driven regulations driven regulations Multiple models allowed-
CA, Referral, Broking
The Bancassurance Opportunity…
Real Potential Still to be Unleashed
• Banks are major players in the Indian Financial system:
• 66,000 branches (32,000 rural and 14,700 semi urban)
• Enormous retail account base of 440 mn deposit accounts
• Total deposit base of Rs. 14 trillion (USD 300 bn)

• Large Structure governed thru’ Regulations

• Four Categories of Banks – Foreign Banks, Nationalised Banks, Private Sector
Banks and Co-operative Banks catering to distinct customer segments
• Over 2500 Banks spread nationally and geographically

• Banking Habits of Customers

• Propensity to Visit Bank Branches
• High Trust in the Banking System
• Bank Managers looked upon as “Financial Advisors”

Only Tip of the Iceberg, in terms of penetration, has been touched

with less than 2% customers of State Owned Banks insured
 The Bancassurance Opportunity…
Incremental Financial Household Savings – ‘04

Government bonds Insurance

5% 14% Bank deposits
38%
Mutual Funds
1%

PF/Retirement funds
14%

Shares & Debentures

1%

Over 65% of Household financial savings are in short term instruments

Source: RBI Annual Report,

All Data for Yr 20003-04
Case Study : Standard Chartered Bank & BALIC

 Standard Chartered Bank – Largest Foreign Bank in India

 Catering to the High NetWorth clients and the Mass Affluents’

 83 Branch Offices with presence in 25 cities

 Customer Base of 2.50 million

 Deposit Base of over Rs. 135 billion (USD 3 bn)

 Client Habits : Savvy Customer Base with both high branch traffic and
Off-Site Banking habits.

 Joint operations were rolled out in January 2002 with 25 FSCs covering 30
Bank Branches.
Case Study : Standard Chartered Bank & BALIC
Model
 A designated persons stationed in
each Branch selling Insurance.
 Selling thro 11 Channels of
Distribution :- Branch Banking,
Priority Banking, Outbound Sales
Team, Mortgages, Credit Cards etc
 Over 250 Sales Staff dedicated
selling Insurance in these
Distribution Channels
 Dedicated Operation Staff for
processing SCB Proposals
 Fortnightly Saturday Schools for
Sales Staff
Results
 The Benchmark for the Indian
Industry for Bancassurance
 Bancassurance contributes 20%
of total income from Retail
Banking operations
 Avg Productivity per person is
over 12-15 policies per month
and Avg Ticket Size stands at
USD 1,100.
 Projected GWP of USD 100 mio
for FY 05-06 & earnings to Bank
to be in range of USD 25-30 mio
 Regular UnitLinked Products fit
in the clients needs of the Bank.
Distributions servicing different Customer Segments

Channels of Distributions

In-Branch Dedicated Relationship

Out Bound
Sales Team Relationship Managers
Sales Team
Managers

Distributions Catering to Different Customer Segments

Retail High
Loan New
Walk-in Networth SMEs
Customers Customers Customers
customers
Channel Distribution : Standard Chartered Bank…

15% 1%

12%

72%

Branch Banking Priority OBST SME

Branch Banking / Walk-ins Contribute over 70% of

Insurance Sales
Case Study : Syndicate Bank & BALIC

 Syndicate Bank – Nationalised Bank with a dominant holding by the

Government

 Catering to Middle Class and Rural Base

 1500 Branch Offices with presence in 500 cities and town

 Customer Base of over 17 million

 Deposit Base of over Rs. 462 bn (USD 10.2 bn)

 Client Habits : Branch Walk-ins for transactions with advice from the
Branch Staff / Manager for all financial decisions

 Bancassurance tie-up with Bajaj Allianz in October 2003

Case Study : Syndicate Bank & BALIC
MODEL
• Integrated Model Implemented with the Bank Staff being regularly
trained to directly sell Insurance to its customers.
• Phase wise Roll Out started in Oct’ 03 with 11 Insurance Managers
covering 40 Branches.
• Currently over 500 branches covered, with 250 Bank employees
selected as Insurance managers & over 75 employees of BALIC, to
promote insurance sales
• Projected GWP of USD 25 mio for FY 05-06 & Earnings to Bank to
be in range of USD 5-8 mio
• Traditional endowment, Pension Product and Mortgage Reducing
Term Assurance are the key products sold.
• Among the most successful Public Sector Bank Distribution tie-up
in India. Over 50,000 policies sold annually
Thank You
Annexures
 Insurance Industry in India…
13 Private players in the market today:

 6 Bank owned insurers- HDFC Standard Life, ICICI

Prudential, ING Vysya, Metlife, OM Kotak, SBI Life

 7 Independent Insurers- Bajaj Allianz , Birla Sun Life, Aviva,

Max New York Life, Tata AIG, Reliance Life and Sahara Life

 LIC – The state Insurer is the dominant player with over

70% of the market share

 Total Life Market Size at Rs. 250 billion (USD 5.5. Bn)
 Consideration for Banks…
1. Increase in Fee Based Income
6. Provide integrated
financial services tailored to
2. Reduce reliance on
the life cycle of customers
16 2/3 % interest spreads as the major
1 source of income

16 62/3 % 2 %
16 2/3

16 2/3 % 16 2/3 %
5 3
3. Leverage extensive
customer base
16 2/3 %
4
5. Reduce risk based capital
req. for the same level of
revenue
4. One stop shop for all
Financial Services
 Consideration for Insurers…
Immediate access to New
Markets

Improve sales
Increase in Market
effectiveness & after sales
Penetration
service

Insurer

Reduce reliance on
Develop new financial traditional distribution
products more efficiently channel

Combine Cost Saving &

Increased Profitability
Bancassurance Models Worldwide…

Distribution Strategic Alliances Joint Ventures Financial Services

Agreements Group

European Life bancassurers progressively abandon the intermediary role to gain access to long-term profits
(bank-owned model)

Germany: numerous cross France: bank-owned units = 56%

share-holdings between of total Life & pension premiums
banks & insurers make vs. 44% for the distribution Spain
acquisitions or mergers more agreement
difficult Netherlands, branch networks
Italy

US: mainly distribution

agreements & banks
acquiring large brokers.
Concentration on Life
products.
Asia: mainly distribution agreements & strategic alliances, other
models facing regulatory restrictions
S Korea,
India, China, Singapore
Japan