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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 other’s strengths and weaknesses. 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. 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. 1
History of Banking in India. 1. Definition 2. History
History of Insurance in India 1. Definition 2. History
Introduction to Banking
Banking as per the Banking Regulation Act, Banking is defined as: “accepting for the purpose of lending of deposits of money from the public for the purpose of lending or investment, repayable on demand through cheques, drafts or order.” A sound and effective banking system is necessary for a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. Many new things have come up in the banking sector in the recent years. Banks have adopted the new technology because banking has not remained up to accepting and lending but now it is all about satisfying the needs of the customers. The development of the Indian banking sector has been accompanied by the introduction of new norms. New services are the order of the day, in order to stay ahead in the rat race. Banks are now foraying into net banking, securities, and consumer finance, housing finance, treasury market, merchant banking etc.They are trying to provide every kind of service which can satisfy or rather we should say that it can delight the customers. Entry of private and foreign banks in the segment has provided healthy competition and is likely to bring more operational efficiency into the sector. Banks are also coping and adapting with time and are trying to become one-stop financial supermarkets. The market focus is shifting from mass banking products to class banking with the introduction of value added and customized products.
Introduction to Insurance Sector
Insurance may be defined as: “It is a contract between two parties where by one party undertakes to compensate the another party for the loss arising due to an uncertain events for which the another party agrees to pay a certain amount regularly.” In India, insurance has a deep-rooted history. Insurance in India has evolved over time heavily drawing from other countries, England in particular. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. The Insurance Act, 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.Today there are 14 general insurance companies and 14 life insurance companies operating in the country. But today also the insurance companies are trying to capture Indian markets as not many people are aware of it. The insurance sector is a colossal one and is growing at a speedy rate of 1520%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and 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.
1. Meaning 2. Origin 3. Models of Bancassurance i. ii. iii. Structural classification Product based classification Bank Referrals
What is BANCASSURANCE?
With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. Since the banking services, insurance and fund management are all interrelated activities and have inherent synergies, selling of insurance by banks would be mutually beneficial for banks and insurance companies. With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide
reach, was thought of as a potential distribution channel, useful for the insurance companies. This union of the two sectors is what is known as Bancassurance.
Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, Bancassurance, tries to exploit synergies between both the insurance companies and banks. Bancassurance can be important source of revenue. With the increased competition and squeezing of interest rates spread, profits are likely to be under pressure. Fee based income can be increased through hawking of risk products like insurance. 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.
The banks taking over insurance is particularly well-documented with reference to the experience in Europe. Across Europe in countries like Spain and UK, banks started the process of selling life insurance decades ago and customers found the concept appealing for various reasons. Germany took the lead and it was called “ALLFINANZ”. The system of bancassurance was well received in Europe. France taking the lead, followed by Germany, UK, Spain etc. In USA the practice was late to start (in 90s). It is also developing in Canada, Mexico, and Australia. In India, the concept of Bancassurance is very new. With the liberalization and deregulation of the insurance industry, bancassurance evolved in India around 2002.
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 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, and packaged with proper 7
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.
c) Insurance as Fully Integrated Financial Service/ Joint ventures
Apart from the above two, the fully integrated financial service involves much more comprehensive and intricate relationship between insurer and bank, where the bank functions as fully universal in its operation and selling of insurance products is just one more function within. This includes banks having wholly owned insurance subsidiaries with or without foreign participation. The great advantage of this strategy being that the bank could make use of its full potential to reap the benefit of synergy and therefore the economies of scope. This may be suitable to relatively larger banks with sound financials and has better infrastructure. 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 FDI’s participation up to 49 per cent.
Product based classification
(a) Stand-alone Insurance Products
In this case bancassurance 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 menu of products offered to the bank’s customer, however, the products of banks and insurance will have their respective brands too.
(b) Blend of Insurance with Bank Products This method aims at blending of insurance products as a ‘value addition’ while promoting the bank’s own products. Thus, banks could sell the insurance
products without any additional efforts. In most times, giving insurance cover at a nominal 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, has 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.
III. Bank Referrals 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.
Utilities of Bancassurance 1. For Banks: i. As a source of fee based income ii. Product diversification iii. Building close relations with the customers
2. For Insurance Companies i. ii. iii. iv. v. Stiff competition High cost of agents Rural penetration Multi-channel distribution Targeting middle income customers
As a source of fee income 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, letter of credits and other operations. This kind of revenue stream has been more or less steady over a period of time and growth has
been fairly predictable. 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. Fee income from the distribution of insurance products has opened new horizons for the banks and they seem to love it. From the banks’ point of view, opportunities and possibilities to earn fee income via Bancassurance route are endless. 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.
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
Building close relations with the customers 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. For example, through bancassurance a customer gets home loans along with insurance at one single place as a combined product. Another important advantage that
bancassurance brings about in banks is development of sales culture in their employees. Also, banking in India is mainly done in the 'brick and mortar' model, which means that most of the customers still walk into the bank branches. This enables the bank staff to have a personal contact with their customers. In a typical Bancassurance model, the consumer will have access to a wider product mix - a rather comprehensive financial services package, encompassing banking and insurance products.
For Insurance Companies
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.
High cost of agents
Insurers have been tuning into different modes of distribution because of the high cost of the agencies services provided by the insurance companies. These costs became too much of a burden for many insurers compared to the returns they generate from the business. 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.
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.
Multi channel Distribution
Now a days the insurance companies are trying to exploit each and every way to sell the insurance products. For this they are using various distribution channels. The insurance is sold through agents, brokers through subsidiaries etc. In order to make the most out of India’s large population base and reach out to a worthwhile number of customers there was a need for Bancassurance as a distribution model.
Targeting Middle income Customers In previous there was lack of awareness about insurance. The agents sold insurance policies to a more upscale client base. The middle income group people got very less attention from the agents. So through the venture with banks, the insurance companies can 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.
Regulations for Bancassurance in India
1. RBI Norms for banks entering into Insurance sector 2. IRDA Norms for Insurance companies tying up with Banks
RBI Norms for banks
RBI Guidelines for the Banks to enter into Insurance Business 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 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. 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 17
to the level of non-performing assets of the applicant bank so as to ensure that nonperforming 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.
IRDA Norms for Insurance Companies
The Insurance regulatory development & Authority has given certain guidelines for the 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. 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.
Benefits of Bancassurance
1. To Banks 2. To Insurance companies 3. To Customers
To Banks From the banks point of view:
(A)By selling the insurance product by their own channel the banker can increase their income. (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 above-mentioned facility for Bankassurance purpose with customers & non-customers. (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.
From the Insurer Point of view:
(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 ATM’s 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.
From the customers' point of view:
(A) Product innovation and distribution activities are directed towards the satisfaction of needs of the customer. (B) Bancassurance model assists customers in terms of reduction price, diversified product quality in time and at their doorstep service by banks. (C)Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc. (D) Easy access for claims, as banks are a regular visiting place for customers. (E) Innovative and better product ranges and products designed as per the needs of customers. (F)Any new insurance product routed through the bancassurance Channel would be well received by customers. . (G) Customers could also get a share in the cost savings in the form of reduced premium rate because of economies of scope, besides getting better financial counseling at single point.
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
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.
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: 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.
Bank Employees / Platform Banking: 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.
Corporate Agencies and Brokerage Firms:
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.
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.
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 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.
Outside Lead Generating Techniques: One last method for developing bancassurance eyes 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.
HDFC Standard Life Insurance (profile) Products offered HDFC Standard Life Insurance (perspective)
HDFC Standard Life Insurance
Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited) - India's leading housing finance institution, and a Group Company of the Standard Life Plc, UK. The Company is one of leading private insurance companies, offering a range of individual and group insurance solutions, in India. Being a joint venture of top financial services groups, HDFC Standard Life has adequate financial expertise to manage long-term investments safely and resourcefully. HDFC Standard Life Insurance offers a range of individual and group solutions, which can be easily personalized to specific needs. Its group solutions have been planned to offer complete flexibility, together with a low charging structure. As of 31 December, 2008, the Company's new business premium income stood at Rs. 1,839.70 Crores; it has covered over 812,811 lives so far. The MD and CEO of HDFC Standard Life Mr. Deepak Satwalekar, has given the company new directions and has helped the company achieve the status it currently enjoys. HDFC Standard Life brings to you a whole range of insurance solutions be it group or individual or NAV services for corporations; they can be easily customized as per specific needs. HDFC Standard Life Insurance India boasts of covering around 8.7 lakh lives by March'2007. The gross incomes standing at a whopping Rs. 2, 856 crores, HDFC Standard Life Insurance Corporation is sure to become one of the leaders and the first preference for any life insurance customer. The Bancassurance partners of HDFC Standard Life Insurance Co Ltd are HDFC, HDFC Bank India Limited, Union Bank of India, Indian Bank, Bank of Baroda, Saraswat Bank and Bajaj Capital.
Products Offered by HDFC Standard Life Insurance
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HDFC Term Assurance Plan HDFC Loan Cover Term Assurance Plan HDFC Home Loan Protection Plan
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HDFC Children's Plan HDFC Unit Linked Young Star II HDFC Unit Linked Young Star Plus II HDFC Unit Linked YoungStar Champion
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HDFC Personal Pension Plan HDFC Unit Linked Pension II HDFC Unit Linked Pension Maximiser II HDFC Immediate Annuity
Savings & Investment Plans
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HDFC Unit Linked Endowment Plus II HDFC SimpliLife HDFC Unit Linked Endowment II HDFC Unit Linked Enhanced Life Protection II HDFC Unit Linked Wealth Maximiser Plus HDFC Unit Linked Endowment Winner HDFC Endowment Assurance Plan HDFC Money Back Plan HDFC Single Premium Whole of Life Insurance Plan HDFC Assurance Plan HDFC Savings Assurance Plan
HDFC Critical Care Plan HDFC SurgiCare Plan
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Group Term Insurance Plan Group Variable Term Insurance Plan Group Unit Linked Plan - Gratuity Group Unit Linked Plan - Superannuation Group Unit Linked Plan - Leave Encashment
HDFC Standard Life Insurance (perspective)
HDFC Standard Life insurance is the oldest life insurance company in the world. It is the largest insurer in the UK and is the 28th largest company in the world. In India, the company is marketing life insurance products and unit linked investment plans. From my research at HDFC SLIC, I found that the company has a lot of competition from other private insurers like ICICI, Aviva, Birla Sun Life and Tata AIG. It also faces competition from LIC. To compete effectively HDFC SLIC could launch cheaper and
more reasonable products with small premiums and short policy terms (the number of year’s premium is to be paid). The ideal premium would be between Rs. 5000 – Rs. 25000 and an ideal policy term would be 10 – 20 years. HDFC must advertise regularly and create brand value for its products and services. Most of its competitors like Aviva, ICICI, Max, Reliance and LIC use television advertisements to promote their products. The Indian consumer has a false perception about insurance – they feel that it would not benefit them if they do not live through the policy term. Nowadays however, most policies are unit linked plans where a customer is benefited even if their death does not occur during the policy term. This message should be conveyed to potential customers so that they readily invest in insurance. Family responsibilities and high returns are the two main reasons people invest in insurance. Optimum returns of 16 – 20 % must be provided to consumers to keep them interested in purchasing insurance. On the whole HDFC standard life insurance is a good place to work at. Every new recruit is provided with extensive training on unit linked funds, financial instruments and the products of HDFC. This training enables an advisor/sales manager to market the policies better. HDFC was ranked 13 in the Best Places to Work survey. The company should try to create awareness about itself in India. In the global market it is already very popular. With an improvement in the sales techniques used, a fair bit of advertising and modifications to the existing product portfolio, HDFC would be all set to capture the insurance market in India as it has around the globe.
Various Trends Challenges
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 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 client’s 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.
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. 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.
Indian scenario Global scenario Future scope of Bancassurance Other tie ups Survey Analysis Findings Recommendations Conclusion Bibliography
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. India's rural market has huge potential that is still untapped by the insurance companies. Setting up their own networks entails such a huge cost, that no company would be interested in doing so. Bancassurance again comes as an answer. It helps the insurance companies to tap the market at a much lower cost. As for the customer the competitive nature of the Indian market ensures that the reduction in costs would result in benefits in terms of lower premium rates being passed on to him. The penetration level of life insurance in the Indian market is considerably low at 2.3% 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, 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.
Future scope for Bancassurance
By now, it has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates to provide with more sophisticated and variety of financial and banking products and services. The outlook for bancassurance remains positive. While development in individual markets will continue to depend heavily on each country’s regulatory and business environment, bancassurers could profit from the tendency of governments to privatize health care and pension liabilities. India has already more than 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 2530% 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: 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. Public Sector Company: 16. Life Insurance Corporation of India
Non-Life Insurance tie-ups:
Private Sector Companies: 1. Royal Sundaram Allianz Insurance Co. Ltd. 2. TATA-AIG General Insurance Co. Ltd. 3. Reliance General Insurance Co. Ltd. 4. IFFCO-TOKIO General Insurance Co. Ltd. 5. ICICI Lombard General Insurance Co. Ltd. 6. Bajaj Allianz General Insurance Co. Ltd. 7. HDFC Chubb General Insurance Co. Ltd. 8. Cholamandalam MS General Insurance Co. Ltd. 9. Star Health and Alhed Insurance Co. Ltd.
Public Sector Companies: 10. The New India Assurance Co. Ltd. 11. National Insurance Co. Ltd. 12. United India Insurance Co. Ltd. 13. The Oriental Insurance Co. Ltd. 14. Export Credit Guarantee Corporation Ltd. 15. Agriculture Insurance Company Ltd.
Survey analysis (questionnaire)
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:
Are you aware of Bancassurance?
N 2% o 0
Ys e N o
Y s8 % e 0
Interpretation: - Among those who surveyed, 80% of respondents were aware
that their bank provided bancaasurance.They knew with which Insurance Company their bank has tie up with; also 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.
Have You Taken An Insurance Policy From Your Bank?
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.
The Kind Of Insurance Policy Taken From The Bank:-
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. Reasons For Taking An Insurance Policy:-
90 80 70 60 50 40 30 20 10 0
Security Savings Brand Image of Bank Image of Bank Insurance
Interpretation: 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, they took the policy. There were 4o% 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.
On Your Choice Which Mode Of Insurance Distribution Channel Would You Prefer To Buy The Policy From?
Ins urance com panies 20%
Brokers 7% Ag ents 50%
Interpretation: 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.
Which Bank Do You Feel Would Excel In Bancaasurance? Rate Them Accordingly
100 90 80 70 60 50 40 30 20 10 0
Public Sector Private Sector Foreign Banks
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?
Interpretation: 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.
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 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. 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. 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.
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 insurer’s specifications. 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.
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. 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!
Theories and Practices in Insurance.