CHAPTER – 1 INTRODUCTION AND DESIGN OF THE STUDY Introduction: The business of banking around the globe is changing due

to integration of global financial markets, development of new techniques, 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. One of these is bancassurance. Bancassurance – a term coined by combining the two words ‘bank’ and ‘insurance” (in French) connotes distribution of insurance products through banking channels. It refers to a tie-up arrangement of a bank with insurance companies for selling insurance products in life and non-life segments as corporate agents for fee based income. This income is risk free as the bank plays the role of an intermediary for securing business to insurance company. Bancassurance is a package of banking and insurance services under one roof. Bancassurance in its simplest form is the distribution of insurance products through a bank distribution channel. In concrete term, bancassurance which is also known as ‘Allfinanz’ (in German) – distributes a package of financial services that can fulfill both banking and insurance needs at the same time. It takes various forms in various countries depending upon demography, economic and legislative climate of that country. Profile of a country decides the kinds of products bancassurance shall be dealing with. Economic situation will determine the trends in terms of turnover, market share etc. The legislative climate will decide the periphery within which the bancassurance has to operate. The coming together of different financial services has provided synergies in operation and development of new concepts.

Origin of Bancassurance: Bancassurance has grown in different places in different forms based on the demographic. 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. actually everybody is the winner. banks. we can say bancassurance tries to exploit synergies between both the insurance companies and the banks. With the increased competition and squeezing of interest rates. for insurance company – a tool of increasing its market penetration and premium turnover. Bancassurance if taken in right spirit and implemented properly can be win-win situation for all the participants. Fee based income can be increased through hawking of risk products like insurance.The motive behind bancassurance varies: For banks – product diversification and source of additional fee income. So. high quality product and delivery at doorsteps. for customers – reduced price. profits are likely to be under pressure. viz. Meaning and Definition of Bancassurance: Bancassurance is the distribution of insurance products through the banks’ distribution channel. banks started the process of selling life insurance decades ago and the customers found the concept appealing for various reasons. in countries like Spain and UK. . In simple terms. Across Europe. Bancassurance can be an important source of revenue for banks. economic and legislative condition of the country. insurers and the customers.

With the liberalization and deregulation of the insurance industry. Italy. As a result of this. the practice was late to start (only in 1990s). It is most successful in Europe. bancassurance evolved in India around 2002. Spain. followed by Germany. especially in France. Bancassurance tends to have greater influence where banking habits are well entrenched. Global Scenario: The term bancassurance first appeared in France in 1980 to define the sale of insurance products through banks’ distribution channels. from where it started.’ The system of bancassurance was well received in Europe. The concept of bancassurance is relatively new in the USA.Germany took the lead and it was called ‘ALLFINANCE. almost 16% of the life premium in the Asian markets in the year 2006 primarily due to . France taking the lead. With the US Government repealing the Act in 1999. it is also developing in Canada. the concept of bancassurance is very new. Belgium and Luxemburg. the concept of bancassurance started gaining popularity and growth in the USA also. life insurance was primarily sold through individual agents who focuses on wealthier individuals leading to a majority of the American middleclass households being under insured. it has been estimated that bancassurance contributed the growing Indian and Chinese markets. The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial service providers thereby putting a barrier on bancassurance. Mexico and Australia. In India. In USA. Coming to Asia. UK. etc.

The legal climate in the Middle East is very conducive to bancassurance and is free from hurdles. It originated in India in the year 2000 when the government issued notification under Banking Regulation which allowed Indian banks to do insurance distribution. For the banks. With very low level of penetration of insurance. Currently. As per the concept of Corporate Agency. Bancassurance comes a help in this direction also. insurers and customers. As for the insurance company. This is why more and more banks are getting into bancassurance so as to improve their incomes. fluctuating and quite narrowing these days. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on Corporate Agency regulations. perceptions are beginning to change and there is a wider acceptance of appropriately developed life products. Bancassurance provides various advantages to banks. banks can act as an agent of one life and one non-life insurer. Indian Scenario: Bancassurance is a new buzzword in India. Banks do not get great margins because of the competition. the prospects for bancassurance are quite bright.Middle East has probably the lowest penetration of bancassurance products and this has a lot to do with the cultural and religious attitude of predominantly Muslim customers for whom life insurance in its purely commercial form has been a taboo. bancassurance accounts for a share of almost 25% to 30% of the premium income amongst the private players in India. Interest is market driven. . income from bancassurance is the only non-interest based income. it gets improved geographical reach without additional costs. Increase competition also makes it difficult for banks to retain their customers. Providing multiple services at one place to the customers means enhanced customer satisfaction. Nowadays.

It helps the insurance companies to tap the market at a much lower cost. As for the customer. Given these changes.India’s rural market has huge potential that is still untapped by the insurance companies. The success of the partnership between the two entities depends on the right model partnership. that no . Setting up their own networks entails such a huge cost company would be interested in doing so.3% of GDP with only 8% of the total population currently insured. Thus. bancassurance and collaboration between banks and insurers has a long way to go in India. The penetration level of life insurance in the Indian market is considerably low at 2. the competitive nature of the Indian market ensures that the reduction in cost would result in benefits in terms of lower premium rates being passed on to him. Bancassurance again comes as an answer. bancassurance provide an apparently viable model for product diversification by banks and a cost effective distribution channel for insurers.

Sign up to vote on this title
UsefulNot useful