BANCASSURANCE

DECLARATION
I Ms. KAJAL GAGWANI , student of KETs V. G. Vaze College of Arts, Science and
Commerce, Mulund studying in T. Y. Bcom Banking and Insurance, Semester VI,
Hereby declare that I have completed the project on BANCASSURANCE in the
academic year 2011-2012.
This information is true and to the best of my knowledge and belief.

Signature
KAJAL GAGWANI

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ACKNOWLEDGEMENT
After so many days of hard work in completing this project, it finally comes to a day
of expressing to a number of people. I would like to extend highest appreciation and
gratitude to our Principal, Dr. BHARAT. B. SHARMA.
A special thanks to Mr. SIR who has always been a combination of strict, vigilant
and guided nature. I would also like to thank our Course Coordinator, Mrs. Seema
Pawar for providing guidance regarding this project. I thank them for their
continuous support and valuable inputs of this project.
A special mention must be made to Librarian Mr. Paritosh Pawar and Assisstant
Librarian Mrs. Kavita Mehta and also other library staff who have provided me the
right information and study material at the right point of time.
I would also like to thank the University for giving a chance to conduct this project.
From this project I was able to gain more knowledge for the future.
I cannot end without thanking my father and friends on whose constant
encouragement and love I have relied throughout my project.
Last but not least, thanks to God. May your name be exalted, honored and glorified.
THANK YOU ALL.

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DESIGN OF THE STUDY

SCOPE
The researcher has tried to study about Bancassurance. The project has been designed
to cover the concept of Bancassurance in India.
The project tries to take a glance over the various aspects of Bancassurance, its
meaning and origin, meaning of banking and insurance both , benefits of
bancassurance and SWOT analysis of bancassurance.

OBJECTIVE

To understand the concept of BANCASSURANCE

To recognize need and importance of bancassurance.

To identify the challenges and opportunities of bancassurance.

To cover various aspects relating to BANCASSURANCE.

LIMITATIONS

Data collection was very time consuming.

Banks and insurance companies were reluctant to disclose information.

RESEARCH METHODOLOGY
The research methodology for this project was done in one way:
Secondary data- The secondary information is collected from websites and
newspapers.

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BANCASSURANCE

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Executive Summary

The Banking and Insurance industries have changed rapidly in the

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

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INDEX
Chapter

Topic

Pg no.

No.
1.

History of Banking in India

10-13

2.

History of Insurance in India

About Bancassurance

14-19

Meaning
Origin
3.

Models of Bancassurance
Utilities of Bancassurance

20-24

For Banks

4.

For Insurance Companies

Regulations for Bancassurance in

India

25-29

RBI Norms for banks entering into

Insurance sector
IRDA Norms for Insurance companies
tying up with Banks
5.

Benefits of Bancassurance

30-34

To Banks
To Insurance companies

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To Customers
6.

Distribution Channels

35-37

7.

Case Study

38-51

8.

Various Trends

52-54

9.

Challenges
SWOT Analysis

55-61

Strengths
Weaknesses
Opportunities
Threats
10.

Indian scenario

62-68

Global scenario
Future scope of Bancassurance
Other tie ups
11.

Findings

69

12.

Recommendations

70

13.

Conclusion

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14.

72

Bibliography

Chapter 1

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History of Banking in India.

1. Definition
2. History

History of Insurance in India

1. Definition
2. History

Introduction to Banking

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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

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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
countrys 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.

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Chapter 2

About Bancassurance

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1. Meaning
2. Origin
3. Models of Bancassurance

i.

Structural classification

ii.

Product based classification

iii. 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
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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.

Meaning
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.

Origin
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.

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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

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for the insurance product for a fee/commission. This seems to be more viable and
appropriate for most of the mid-sized banks in India as also the rate of commission
would be relatively higher than the referral arrangement. This, however, is prone to
reputational risk of the marketing bank. There are also practical difficulties in the
form of professional knowledge about the insurance products. This could, however, be
overcome by intensive training to chosen staff, packaged with proper incentives in the
banks coupled with selling of simple insurance products in the initial stage. This
model is best suited for majority of banks including some major urban cooperative
banks because neither there is sharing of risk nor does it require huge investment in
the form of infrastructure and yet could be a good source of income. This model of
bancassurance worked well in the US, because consumers generally prefer to
purchase policies through broker banks that offer a wide range of products from
competing insurers.

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 FDIs participation up to 49 per cent.

II.

Product based classification

(a) Stand-alone Insurance Products

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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 banks 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 banks 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 banks 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.

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Chapter 3

Utilities of Bancassurance

1. For Banks:

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i.

As a source of fee based income

ii.

Product diversification

iii.

Building close relations with the customers

2. For Insurance Companies

i.

Stiff competition

ii.

High cost of agents

iii.

Rural penetration

iv.

Multi-channel distribution

v.

Targeting middle income customers

For Banks

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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 banks point of view. At the end of the
day, it is easy money for the banks as there are no risks and only gains.

Product Diversification
In terms of products, there are endless opportunities for the banks.
Simple term life insurance, endowment policies, annuities, education plans,
depositors insurance and credit shield are the policies conventionally sold through the
Bancassurance channels. Medical insurance, car insurance, home and contents
insurance and travel insurance are also the products which are being distributed by the
banks. However, quite a lot of innovations have taken place in the insurance market

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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.

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For Insurance Companies

Stiff Competition
At present there are 15 life insurance companies and 14 general
insurance companies in India. Because of the Liberalization of the economy it became
easy for the private insurance companies to enter into the battle field which resulted in
an urgent need to outwit one another. Even the oldest public insurance companies
started facing the tough competition. Hence in order to compete with each other and
to stay a step ahead there was a need for a new strategy in the form of Bancassurance.
It would also benefit the customers in terms of wide product diversification.

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.

Rural Penetration
Insurance industry has not been much successful in rural penetration of
insurance so far. People there are still unaware about the insurance as a tool to
insure their life. However this gap can be bridged with the help of Bancassurance.
The branch network of banks can help make the rural people aware about
insurance and there is also a wide scope of business for the insurers. In order to
fulfill all the needs bancassurance is needed.
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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 Indias 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 banks middle income customers, there was a need
felt for Bancassurance.

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Chapter 4

Regulations for Bancassurance in India

1. RBI Norms for banks entering into Insurance sector

2. IRDA Norms for Insurance companies tying up with Banks

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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

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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
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.

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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
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(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.

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Chapter 5

Benefits of Bancassurance

To Banks
2. To Insurance companies
3. To Customers

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BANCASSURANCE

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.

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To Insurers
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 ATMs and other technology being
used by the banks.
(G)The selling can be structured properly by selling insurance products through
banks.
(H) The product can be customized as per the needs of the customers.

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To 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.

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Chapter 6

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

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Distribution Channels
Traditionally, insurance products were promoted and sold principally
through agency systems only. The reliance of insurance industry was totally on the
agents. Moreover with the monopoly of public sector insurance companies there was
very slow growth in the insurance sector because of lack of competition. The need for
innovative distribution channels was not felt because all the companies relied only
upon the agents and aggressive marketing of the products was also not done. But with
new developments in consumers behaviours, evolution of technology and
deregulation, new distribution channels have been developed successfully and rapidly
in recent years.
Recently Bancassurers have been making use of various distribution channels,
they are:

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

Special Advisers:
Special Advisers are highly trained employees usually belonging to the
insurance partner, who distribute insurance products to the bank's corporate
clients. The Clients mostly include affluent population who require personalised

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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

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BANCASSURANCE
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:
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.

E-Brokerage:
Banks can open or acquire an e-Brokerage arm and sell insurance
products from multiple insurers. The changed legislative climate across the world
should help migration of bancassurance in this direction. The advantage of this
medium is scale of operation, strong brands, easy distribution and excellent
synergy with the internet capabilities.

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.

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Chapter 7

SBI Life Insurance (profile)

Products offered

SBI Life Insurance (perspective)

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BANCASSURANCE

State bank of India Life Insurance

SBI Life Insurance is a joint venture between the State Bank of India and Cardif
SA of France. SBI Life Insurance is registered with an authorized capital of Rs 1000
crore and a paid up capital of Rs 500 crores. SBI owns 74% of the total capital and
Cardif the remaining 26%.
State Bank of India enjoys the largest banking franchise in India. Along with
its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,500 branches
across the country, arguably the largest in the world. Cardif is a wholly owned
subsidiary of BNP Paribas, which is the Euro Zones leading Bank. BNP Paribas is
one of the oldest foreign banks with a presence in India dating back to 1860. Cardif is
ranked 2nd worldwide in creditors insurance offering protection to over 35 million
policyholders and net income in excess of Euro 1 billion. Cardif has also been a
pioneer in the art of selling insurance products through commercial banks in France
and in 35 more countries.
SBI Life Insurances mission is to emerge as the leading company offering a
comprehensive range of Life Insurance and pension products at competitive prices,
ensuring high standards of customer service and world class operating efficiency.SBI
Life has a unique multi-distribution model encompassing Bancassurance, Agency and
Group Corporate.
SBI Life extensively leverages the SBI Group as a platform for cross-selling
insurance products along with its numerous banking product packages such as
housing loans and personal loans. SBIs access to over 100 million accounts across
the country provides a vibrant base for insurance penetration across every region and
economic strata in the country ensuring true financial inclusion.

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BANCASSURANCE
Agency Channel, comprising of the most productive force of more than 25,000
Insurance Advisors, offers door to door insurance solutions to customers.

Products Offered by SBI

Individual Products
A. Unit Linked products:

1) SBI Life - Horizon II:

SBI Life-Horizon II is a unique, non participating Unit Linked
Insurance Plan in Indian Insurance Industry, where you need to be a financial market
expert. This plan offers the flexibility of Unit Linked Plan along with Automatic Asset
Allocation which provides relatively higher returns on your money where as
increasing death benefits provide higher security to your family

2) SBI Life - Unit Plus II:

This is a non participating individual unit linked product. It provides
unmatched flexibility to match the changing requirements. It provides choice of 5
investments funds in a single policy

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BANCASSURANCE

3) SBI life- unit plus child plan:

SBI LIFE understand you better and hence have developed SBI Life Unit Plus Child Plan to suit you and your needs best. This Plan is meant for
parents in the age group of 18-57 having a child between the age group of 0-15
years.

4) SBI Life Unit Plus Elite:

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

B. Pension Products

SBI Life - Horizon II Pension:

A unique Unit Linked Pension Plan that will enable the
customers to build a kitty good enough to enable them to spend a
peaceful and financially sound, retired life. SBI Life - Horizon II
Pension is a safe and hassle free way to get high returns. It comes
with the unique feature of Automatic Asset Allocation by means of
which you truly, dont need to be an expert to grow your money.

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BANCASSURANCE

1) SBI Life - Unit Plus II Pension:

SBI Life understands the basic needs for pension plan and give the
customers financial strength to maintain the life style even after the retirement.
This is a unit linked pension plan wherein the policyholder chooses an investment
period from 5 to 52 years for a vesting age between 50 to 70 years. They can
choose to pay either single premium or pay regular premium for the entire policy
term. Their contributions are invested into 4 fund options as per their choice.

2) SBI Life - Lifelong Pensions:

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

3) SBI Life - Immediate Annuity:

SBI Life - Immediate Annuity Plan is introduced for Pension
Policyholders. This product provides annuity payments immediately from
payment of purchase price. It has been specially designed to cater to the annuity
needs of existing policyholders (SBI Life - Lifelong Pensions, SBI Life - Horizon
II Pension, SBI Life - Unit Plus II Pension) at the vesting age.

C. Pure Protection Products

1) SBI Life - Swadhan:

This is a Traditional Term Assurance Policy with guaranteed
refund of basic premium .Life cover is provided at no cost. Tax benefit
is also provided. There is also a rebate on high sum assured. There is
also flexible benefit premium paying mode.

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BANCASSURANCE

2) SBI Life - Shield:

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

3) SBI Life Shield as a Keyman Insurance Policy:

A Keyman insurance policy is taken to protect the organization against the
reduction in profit resulting from the death of the Keyman. As per IRDA circular
only Pure Term Assurance Products may be used as a Keyman Insurance. The
SBI Life Insurance provides SBI Life Shield as a Keyman Insurance Policy.

D. Protection cum Savings Products

1) SBI Life Sudarshan:

SBI Life - Sudarshan is an Endowment Policy designed to provide
savings and protection to the policyholder and their family. They can save
regularly for the future. Thus at the end of the plan, he will receive a substantial
amount of savings along with the accumulated bonuses declared. At the same
time, his family will be protected for death risk for the full Sum Assured.

2) SBI Life - Scholar II:

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BANCASSURANCE
Twin benefit of saving for the child's education and securing a bright
future despite the uncertainties of life. Option to receive the installments in lump
sum at the due date of first installment of Survival benefit.

E. Money back scheme products

1) SBI Life - Money Back:

It is a Traditional Saving Plan with added advantage of life cover and
guaranteed cash inflow at regular intervals. The plan has a number of money
back options specially suited to the customers needs. The cover is available at
competitive premium rates.

2) SBI Life - Sanjeevan Supreme:

It is a Traditional Saving Plan which offers a life cover for the term of the
customers choice at the same time does not burden him with liability to pay
premiums for the entire term and also provides cash flows at regular intervals.

F. For Brokers:

1) SBI Life - SARAL ULIP:

It is a simple Unit Linked Non-Participating Insurance

Plan. The sum assured is based on Term and Premium amount. There
is also flexibility to increase or decrease regular premium and it also
provides tax benefits.

Group Products

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BANCASSURANCE
A. Group Employee Benefit Products
I. Retirement Solutions:
1) SBI Life - CapAssure Gratuity Scheme:
It is a Non-Participating yearly renewable traditional Group Gratuity
Scheme. Under this scheme, the contributions paid continue to accumulate on
traditional platform of investments and at the end of the financial year; an investment
income earned on your contributions is credited to your gratuity fund account.

2) SBI Life - CapAssure Superannuation Scheme:

It is a Non-Participating yearly renewable traditional group superannuation
scheme. The object of this scheme is to ensure that the underlying fund is
accumulated in such a manner so that the fund will be sufficient to purchase an
expected amount of annuity to an employee upon his retirement / to the legal heir in
the event of an unfortunate death during service. The scheme would also entitle the
employee for some benefit, defined as per the scheme rules, on his resignation,
retirement, permanent total disability whilst in service, death whilst in service.

3) SBI Life - CapAssure Leave Encashment Scheme:

It is a Non-Participating yearly renewable traditional group leave
encashment scheme. Under this scheme, the contributions paid continue to
accumulate on traditional platform of investments and at the end of the financial year;
an investment income earned on your contributions is credited to your CA-LE fund
account.

4) SBI Life - Group Immediate Annuity:

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

5) SBI Life - Golden Gratuity:

It is a yearly renewable unit linked group gratuity plan. Along with managing
the gratuity fund a life cover on the employees life protect their family financially in
case of unfortunate event.

6) SBI Life - Dhanrashi:

It is a traditional non participating Group Savings Linked Insurance scheme.
This scheme is applicable for both employer-employee and non-employer employee
groups. It has attractive returns on savings with twin benefits. It also provides
protection at low cost with no medical examination and also hassle free joining
process with no entry charges.

7) SBI Life - Swarna Jeevan:

It is a Group Immediate Annuity Plan for Corporate Clients (ie.EmployerEmployee groups) and other Group Administrators. It provides Attractive Annuity
rates due to group effect. It also gives customized annuity options to customers. It
gives the option to choose the periodicity of annuity payment.

8) SBI Life - Group Gratuity cum Life Cover Scheme:

It is a Participating yearly renewable traditional Group Gratuity Scheme.
Under this scheme, the contributions paid continue to accumulate on traditional
platform of investments. It also provides tax benefits.

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BANCASSURANCE
9) SBI Life - Group Superannuation Scheme:
SBI Life provides two types of Superannuation schemes:
1. Defined Benefit Scheme: It defines the amount of benefit that an employee
receives at retirement.
2. Defined Contribution Scheme: It defines the annual contribution that the employer
will deposit into the scheme for each employee.

10) SBI Life provides SBI Life - Group Leave Encashment cum Life
Cover Scheme:
It is a Non-Participating yearly renewable traditional group leave encashment
scheme. Under this scheme, the contributions paid continue to accumulate on
traditional platform of investments.

11) SBI Life - SWARNA GANGA:

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

II. Group Protection Plans

1) SBI Life - Sampoorn Suraksha:
SBI Life - Sampoorn Suraksha is a yearly renewable group term insurance
plan which provides life cover at comparatively lower premium than individual
insurance to the groups who are engaged in the similar kind of activities. It is
available for both Formal and Informal Groups.

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2) SBI Life Super Suraksha:

It is group term assurance non-participating plan. The Product provides
cover at an affordable premium due to the benefits of coverage of a wide section, and
the administered savings achieved. There is a possibility of profit sharing based on the
mortality experience of the group.

3) SBI Life - Super Suraksha in Lieu of EDLI:

Life cover available to employees irrespective of their Provident Fund
Balance. Lower premium rates are also available. No medical evidence is required
and also there accident death benefit.

4) SBI Life - Credit Guard:

It is a Non Participating Group Term Insurance Plan. It is a simple and easy
solution to cover the cardholders of a bank/other Financing entity, through a Group
Master Policy.

III. Specialized Term Insurance

1) SBI Life - Shield used as Keyman:

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

B. Group Term with ROP:

1) SBI Life - Swadhan (Group):

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BANCASSURANCE
It is a Non Participating Group Term Insurance Plan with Return of Premium.
It is a simple and easy solution which offers dual benefits of life cover protection in
the event of death and refund of premium in case of survival up to the end of the
cover term.

C. Group Loan Protection Products

1) SBI Life - Dhanaraksha Plus SP
It provides decreasing term cover at a very low cost. Available for various types
of individual loans for borrowers of a lending institution through a Group Master
Policy. There is only one time payment of premium.

2) SBI Life - Dhanaraksha Plus LPPT:

It provides decreasing term cover at a very low cost. Available for various
types of individual loan for borrowers of a lending institution through a Group Master
Policy. There is Limited Premium Payment Term.

3) SBI Life - Dhanaraksha Plus RP:

It provides decreasing term cover at a very low cost. Available for various
types of individual loan for borrowers of a lending institution through a Group Master
Policy. There are two options for premium payment i.e. throughout the cover term or
2/3rd of the cover term.

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D. Group Savings Protection
1) SBI Life - Nidhi Raksha RP:
It is a unique Plan which will help protect and grow the customers savings. It
is offered to deposit holders of the master policyholder (bank/financial institution). It
is a transparent plan, where the benefit available at any point of time is clearly defined
in the Certificate of Insurance (COI) issued to the insured group member.

E. Group Micro Insurance

1) SBI Life - Grameen Shakti:
The purpose of this product is to provide life insurance protection to the
weaker sections of the society. It is a Group Micro insurance product with refund of
premiums at maturity.

2) SBI Life - Grameen Super Suraksha:

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

SBI Life Insurance Company (perspective)

SBI Life insurance, a joint venture between State Bank of India, the largest
bank in the country and bancassurance major Cardiff of France. SBIs stake in the
venture is 74% whereas Cardiff has 26% share. They have launched many products so

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BANCASSURANCE
far incorporating certain features that are introduced for the first time in the country.
SBI -Life is banking on the bancassurance model on the strength of the SBI Groups
10000 plus bank branches and its vast customer base. In addition it is also tapping
other. banks corporate agents and the traditional agency route to penetrate the
insurance market SBI Life is planning to introduce more novel and user friendly
products to cater to the requirements of the consumers in different segments.

SBI has the largest banking network in the county. The bank is looking
for business from every customer segment of the bank rural and urban segments,
upper, middle and lower income segments /groups and corporate segment. Besides
their own channels they are planning to distribute products through other interested
banking channels also. It is expected that 2/3 rd of the premium income in expected to
come by way of bancassurance and the rest from the traditional agency channel as
well as ties up with corporate agents (Sundaram Finance). SBI has also introduced
group insurance to some well managed corporate staffs.

Technology is an integral part of this operation. Cardiff provided the

technology required. The project was initiated in April 2004, and the initial roll-out
was completed by August 2004. SBI Life has implemented an Internet-centric IT
system

with

browser-based

front-office

and

back-office

systems,

channel

management, policy product details, online premium calculator and facility for group
insurance customers to view their individual savings status on the Web. The
organization has the facility to pay premiums through credit cards, Net banking,
standing instructions, etc. This is fully integrated with the core systems through
industry standards such as XML, EDI, etc.
Even as it plans to scale up operations shortly, SBI Life Insurance Company
Ltd is looking at tripling its gross premium income in the new financial year. In 200708, SBI Life earned a total premium income of Rs 5,622 crore, of which income from
new policy sales was Rs 4,800 crore. For the current financial year, their target is to
achieve a total premium income of Rs 10,500 crore and a first year premium income

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of Rs 8,500 crore. The SBI Life ranks second in terms of market share among private
life insurers in the country.
SBI Life Insurance Company is the first among the 14 life insurance
companies in the private sector to post a net profit in 2005-06. There are life insurance
players much more aggressive than SBI and they have still not been able to break the
record of SBI. Their success is largely on the channel strategy and product strategy.
The another aspect is their superior investment performance. They have consistently,
over the last two years, generated 11-12 per cent earnings from the investments.
SBI Life Insurance is uniquely placed as a pioneer to usher bancassurance
into India. The company hopes to extensively utilize the SBI Group as a platform for
cross-selling insurance products along with its numerous banking product packages
such as housing loans, personal loans and credit cards.

Chapter 8

Various Trends

Challenges

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Trends

Though bancassurance has traditionally targeted the mass market, but

bancassurers have begun to finely segment the market, which has resulted in
tailor-made products for each segment.
Some bancassurers are also beginning to focus exclusively on distribution. In
some markets, face-to-face contact is preferred, which tends to favour
bancassurance development.
Nevertheless, banks are starting to embrace direct marketing and Internet
banking as tools to distribute insurance products. New and emerging channels
are becoming increasingly competitive, due to the tangible cost benefits
embedded in product pricing or through the appeal of convenience and
innovation.

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Bancassurance proper is still evolving in Asia and this is still in infancy in

India and it is too early to assess the exact position. However, a quick survey
revealed that a large number of banks cutting across public and private and
including foreign banks have made use of the bancassurance channel in one
form or the other in India.
Banks by and large are resorting to either referral models or
Corporate agency model to begin with.
Banks even offer space in their own premises to accommodate the insurance
staff for selling the insurance products or giving access to their clients
database for the use of the insurance companies.
As number of banks in India have begun to act as corporate agents to one or
the other insurance company, it is a common sight that banks canvassing and
marketing the insurance products across the counter

Challenges
Increasing sales of non-life products, to the extent those risks are retained by
the banks, require sophisticated products and risk management. The sale of
non-life products should be weighted against the higher cost of servicing those
policies.
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

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cropped up quite occasionally. So, before entering into a bancassurance
alliance, just like any merger, cultural due diligence should be done and
human resource issues should be adequately prioritized.
Private sector insurance firms are finding change management in the public
sector, a major challenge. State-owned banks get a new chairman, often from
another bank, almost every two years, resulting in the distribution strategy
undergoing a complete change. So because of this there is distinction created
between public and private sector banks.
The banks also have fear that at some point of time the insurance partner may
end up cross-selling banking products to their policyholders. If the insurer is
selling the products by agents as well as banks, there is a possibility of conflict
if both the banks and the agent target the same customers.

Chapter 9

SWOT Analysis

1. Strengths
2. Weaknesses
3. Opportunities
4. Threats
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SWOT Analysis
Banking and Insurance are very different businesses. Banks have less risk
but the insurance has a greater risk. Even though, banks and insurance companies in
India are yet to exchange their wedding rings, Bancassurance as a means of
distribution of insurance products is already in force in some form or the other.
Banks are selling Personal Accident and Baggage Insurance directly to
their Credit Card members as a value addition to their products. Banks can
straightaway leverage their existing capabilities in terms of database and face-to face
contact to market insurance products to generate some income for themselves, which
previously was not thought of.
The sale of insurance products can earn banks very significant
commissions (particularly for regular premium products). In addition, one of the
major strategic gains from implementing bancassurance successfully is the
development of a sales culture within the bank. This can be used by the bank to

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promote traditional banking products and other financial services as well.
Bancassurance enables banks and insurance companies to complement each others
strengths as well.

It is therefore essential to have a SWOT analysis done in the context of

bancassurance experiment in India. A SWOT analysis of Bancassurance is given
below:

Strengths
In a country like India of one billion people where sky is the limit there is a
vast untapped potential waiting for life insurance products. Our other strength
lies in a huge pool of skilled professionals whether it is banks or insurance
companies who may be easily relocated for any bancassurance venture.
Banks have the credibility established with their constituents because of a
variety of services and schemes provided by them. They also enjoy pride of
place in the hearts of people because of their long presence and sustained
image.
Banks also enjoy a wide network of branches, even in the remotest areas that
can facilitate taking up the task on a large and massive scale, simultaneously.
Banks are very well aware with the psychology of the customers because of
their interaction with the customers on regular basis. Because of this the
bankers can guess the attitude and diverse needs of the customers and could
change the face of insurance distribution to personal line insurance.
People rely more upon LIC and GIC for taking insurance. If the products of
LIC and GIC are provided through bancassurance it would be an added
advantage to the insurance companies.

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With the help of banks trained staff, its brand name and the confidence and
reliability of people on the banks, the selling of insurance products can be
done in a more proper way.
Other than all these things there is a huge potential for insurance sector, as the
population of India is high and a large part of it has remained untapped till
now. So this can create an added advantage for both banks and insurers.

Weaknesses
In spite of growing emphasis on total branch mechanism and full
computerization of bank branches, the rural and semi-urban banks have still to
see information technology as an enabler. The IT culture is unfortunately
missing completely in all of the future collaborations. The internet connections
are also not properly provided to the staff.
To undertake the distribution of the insurance products, the bank employees
have to undergo certain minimum period of training, followed by a test and
then get themselves licensed. Moreover the standards of the examination have
been raised in the recent past making it difficult for many examinees to clear
the same.
There is lack of personalized services because the traditional insurance agent
is considered a member of the family and hence is able to render a
personalized service during and after the sales process. However that may not
be the case in regards to a bank employee.
There are many differences in the way of thinking and business approaches of
bankers and the managers of insurance companies. Banks are traditionally
demand-driven organizations with a reactive selling philosophy. Insurance
organizations are usually need-driven and have an aggressive selling
philosophy.

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The visit of a customer to the bank is to have a simple transaction like deposit
or withdrawal. Busy customers will have no time to have a discussion on a
long-term durable purchase like insurance across the counter. Also, the visits
in urban or metro branches are going to be fewer because of ATMs and ebanking.
Another drawback is the inflexibility of the products i.e. it cannot be tailor
made to the requirements of the customer. For a bancassurance venture to
succeed it is extremely essential to have in-built flexibility so as to make the
product attractive to the customers.

Opportunities
There is a vast untapped potential waiting to be mined particularly for life
insurance products. There are more than 900 million lives waiting to be given
a life cover (total number of individual life policies sold in 1998-99 was just
91.73 million).
There are many people in many areas that are still unaware about the
insurance and its various products and are waiting that somebody should come
and give them the information about it.

In urban and metro areas, where the customers are willing to get many
services like lockers and safe deposit systems and other products and services
from banks, there is a good opportunity to market many property related

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general insurance policies like fire insurance, burglary insurance and mediclaim insurance 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.

Banks in their normal course of functions lend finance in the form of loans for
cars, or for buying a house to clients etc. They can take advantage of this by
cross-selling the insurance products and combine it as a package.

Another area that could be of interest to bankers to sell insurance is exploiting

the corporate customers and tying 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.

Threats:
Success of a Bancassurance venture requires change in approach, thinking and
work culture on the part of everybody involved. The work force at every level
are so well entrenched in their classical way of working that there is a definite
threat of resistance to any change that Bancassurance may set in. Any
relocation to a new company or subsidiary or change from one work to a
different kind of work will not be easily acceptable by the employees.
Another possible threat may come from non-response from the targeted
customers. If many joint ventures took place between banks and insurance

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companies then it may happen that the customers may not respond to such
ventures as happened in U.S.
Insurance in India is perceived more as a saving option than providing risk
cover. So this may create an adverse feeling in the minds of the bankers that
such products may lessen the sales of regular bank saving products. Also
selling of investment and good return products may affect the FD Portfolio of
the banks.
There would be a problem of Reputational Contagion i.e. loss of market
confidence towards one in a venture leading to loss of confidence on the other
because of identical brand recognition, similar management and consolidated
financial reporting etc.
If no strict norms are there for such ventures then many unholy ventures may
take place which may give rise to tough competition between bancassurers
resulting in lower prices and the Bancassurance venture may never break
because of such situations.
The most common obstacles to success of Bancassurance are poor manpower
management, lack of a sales culture within the bank, no involvement by the
branch manager, insufficient product promotions, failure to integrate
marketing plans, marginal database expertise, poor sales channel linkages,
inadequate incentives, resistance to change, negative attitudes toward
insurance and unwieldy marketing strategy.

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Chapter 10

Indian scenario
Global scenario
Future scope of Bancassurance
Other tie ups

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Indian Scenario

The business of banking around the globe is changing due to integration of

global financial markets, development of new technologies, universalization of
banking operations and diversification in 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

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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
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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.

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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 countrys regulatory and business environment,
bancassurers could profit from the tendency of governments to privatize health care
and pension liabilities.
India has already more than 200 million middle class population coupled
with vast banking network with largest depositors base, there is greater scope for use
of bancassurance. In emerging markets, new entrants have successfully employed
bancassurance to compete with incumbent companies. Given the current relatively
low bancassurance penetration in emerging markets, bancassurance will likely see
further significant development in the coming years.
In India the bancassurance model is still in its nascent stages, but the
tremendous growth and acceptability in the last three years reflects green pasture in
future. The deregulation of the insurance sector in India has resulted in a phase where
innovative distribution channels are being explored. In this phase, bancassurance has
simply outshined other alternate channels of distribution with a share of almost 2530% of the premium income amongst the private players.

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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.
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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.
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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.

Findings
Although the concept is simple enough in theory, but in practice it has been
found to be far from straightforward.
Almost many people have a fair idea about Bancassurance and that their banks
sell various insurance products. But still few people dont know about
Bancassurance as a concept.
It has been also found out that the banks have various opportunities to cross
sell insurance products. The insurance companies also have the opportunity to
take advantage of the banks network and other avenues.

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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.

Recommendations
The Insurance companies need to design products specifically for distributing
through banks. Trying to sell traditional products may not work so effectively.
The employees of the banks who are selling insurance products must be given
proper training so that they can answer to any queries of the customers and can
provide them products according to their needs.
Banks should also provide after sales services and they should be more
aggressive in selling the insurance products.

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Banks should also do the settlement of claims which will increase the trust and
reliability of the customers on the banks.
In India, since the majority of the banking sector is in public sector which has
been widely responsible for the lethargic attitude and poor quality of customer
service, it needs to rebuild the blemished image. Else, the bancassurance
would be difficult to succeed in these banks.
A formal and standard agreement between these banks and the insurance
companies should be taken up and drafted by a national regulatory body.
These agreements must have necessary clauses of revenue sharing. In case of
possible conflicts, the bank management and the management of the insurance
company should be able to resolve conflicts arising in future.
For bancassurance to succeed, products and processes will need to be tailored
to bank markets, rather than adjusted to insurers specifications.
Banks and Insurance companies should apply all the skills and potential in this
area and take advantage of the same and they should improve the products
from time to time according to the needs of the customers.

Conclusion
The life Insurance Industry in India has been progressing at a rapid growth
since opening up of the sector. The size of country, a diverse set of people combined
with problems of connectivity in rural areas, makes insurance selling in India a very
difficult task. Life Insurance Companies require good distribution strength and
tremendous man power to reach out such a huge customer base.
The concept of Bancassurance in India is still in its nascent stage, but the
tremendous growth and the potential reflects a very bright future for bancassurance in
India. With the coming up of various products and services tailored as per the

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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!

Bibliography

Insurance watch.

Business world.

Business today.
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Theories and Practices in Insurance.

Webliography
www.insuremagic.com

www.google.com

www.sbilife.com

www.india infoline.com

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