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BANK ASSURANCE AND PERSONAL INSURANCE COVER: AN ANALYTICAL STUDY ON NATIONALISED BANKS

Introduction

Bank has already changed a great deal over the past decade. Banker was once content to collect your deposits and then lend the money to companies at a profit. Now they wants to lend to you as well. It could be a loan for a new house, a new car or even for education in a foreign university. Then there are products like µDemat¶ services and mutual funds. When you walk into your bank six months from now, it is likely that they will try to sell a host of insurance products to you even. Bank assurance - a term coined by combining the two words bank and insurance (in French) - connotes distribution of insurance products through banking channels. Banc assurance encompasses terms such as µAllfinanz¶ (in German), µIntegrated Financial Services¶ and µAssure banking¶. This concept gained currency in the growing global insurance industry and its search for new channels of distribution. Banks, with their geographical spread and penetration in terms of customer reach of all segments, have emerged as viable sources for the distribution of insurance products. The initial action does show that many banks seem to believe that bank assurance will be a big success here. Some foreign and Indian banks -- Stanchart-Grindlays, ABN-Amro, Citibank, HSBC, Bank of Baroda (BoB) and State Bank of India (SBI) -- are hoping to replicate the French success of this insurance-cum-banking model.

Formulation Of the Problem:

An analytical study on bank assurance and personal insurance cover provided by the nationalized banks to the account holder and their customers in India. The study also details the various insurance policies that are provided by the banks.

Statement of problem:

The above analytical problem gives an elaborate idea to the reader about the latest bank assurance policies that is given by the nationalized banks to the account holders respectively. The study also gives the wide view about the area that is covered by such policies. The study also gives a brief idea about the various types of personal insurance including the life insurance and the accidental insurance policy.

Objectives:

1. Whether the policy is designed to be a competent policy and whether it secure the
µinsurer¶ or not.

2. To analyze whether the insurer had complete knowledge of such policies.

3. Whether the insurer are properly secured from the risk and whether the insured properly indemnifies the insurer¶s claim after the happening or non happening of such event.

Hypothesis: y The personal accidental insurance assured by the nationalized banks covers the risks factors i. Banks also have much lower distribution costs than insurance companies and thus are the fastest emerging distribution channel. it is the logical route for insurers to take. violent and visible means and results in death or disablement. Whether there are probably any lacunae under such insurance policies. in death or any accident caused to the insurer.e. tying up with banks provides extensive geographical spread and countrywide customer access. y Whether personal accident insurance covers the risk of bodily injuries arising directly from an accident that was caused by external. For insurers. REVIEW OF LITERATURE: There are various commentaries relating to the concept of Bank assurance and the various policies that are led down under the personal accidental insurance policies. secure the insurer himself or to the beneficiary of the insurer. saving patterns and life stages of the customers they serve.´ ± Naveen Sethi.4. . ³Banks have expertise on the financial needs. y The insurance contract is made in good faith and discloses properly all the terms and condition to the insurer.

³Personal accident insurance covers the risk of bodily injuries arising directly from an accident that was caused by external. banks are looking at other avenues. to augment their income. Regulations requiring certain proportions of sales to the rural and social sectors give an added impetus to the drive for µbancassurance¶. as elsewhere.´ ± Ray Hodgin ³In India.M. The data is collected from library sources and should be properly analyzed before coming to the conclusion.Ray Methodology: The methodology of the above doctrinal research would rely upon the primary method of data collection. violent and visible means and results in death or disablement. banks are seeing margins decline sharply in their core lending business.´ ± Dr. Selling through traditional methods to these sectors can be inefficient . including the sale of insurance products. WHY BANK ASSURANCE IN INDIA? The management of the new Indian operations is conscious of the need to grow quickly to reduce painful start-up expense overruns. Banks with their huge networks and large customer bases give insurers an opportunity to do this efficiently. Consequently. R.

one of the major strategic gains from implementing bank assurance successfully is the development of a sales culture within the bank. accidental death and dismemberment is an inexpensive form of personal accident insurance. Consequently. as elsewhere. This is perhaps the precursor of a trend we have seen in the United Kingdom and elsewhere where banks started off as distributors of insurance but then moved to a manufacturing role with fully owned insurance subsidiaries. In India. µBancassurance¶ is not simply about selling insurance but about changing the mindset of a bank.and expensive. banks are looking at other avenues. to augment their income. but they pay a cash sum when you have an injury due to an accident. banks are seeing margins decline sharply in their core lending business. Several types of policies supplement an insurance program. a daily or monthly amount or a payment for loss of life from an accident. WHAT ARE PERSONAL ACCIDENTAL INSURANCE Personal accident insurance covers your expenses from an accident with a lump sum payment. several banks have recognised the potential of insurance in India and have taken equity stakes in insurance companies. Some policies only pay for specific types of accident. This can be used by the bank to promote traditional banking products and other financial services as well. This is still an issue for insurers despite the recent widening of the definition of the rural sector (so that it now accords with the census definition). Often. In addition. including the sale of insurance products. The sale of insurance products can earn banks very significant commissions (particularly for regular premium products). . Tying up with a bank with an appropriate customer base can give an insurer relatively cheap access to such sectors. There are several ways to buy personal accident insurance. Other forms are similar to disability income. In addition to acting as distributors.

1977. 5. since it indemnifies the loss in case of injury leading to death. personal accident insurance was brought under tariff insurance. Nature of personal accident insurance 1. It also might include a lump sum daily payment if you suffer injury from an accident. 6. 3. 4. Firstly. There are specific percentages for other losses. Accident insurance doesn't pay for extended periods in the way disability does. Strictly speaking. 7. It is a category of different type of insurance.Accident insurance may be accidental death and dismemberment insurance that pays a specific amount if you die and a lesser amount if you lose a limb. This amount isn't an income replacement but a fixed dollar amount. 2. It is an insurance based on the principle of utmost good faith. Other policies pay a daily amount if you receive injury from an accident. It is a part of the non-traditional insurance. Some policies increase payment if you had a seat belt on at the time of injury. you must lose a thumb and index finger on the same hand in order to get 25 percent of the policy face value. Often accident insurance pays in percentage with the death receiving 100-percent payment. the physical or life indemnity cannot be indemnified in terms of money. since the life is an invaluable asset. loss of both eyes or combination of one hand and foot or sight in one eye. . It is tariff insurance under which the rate indemnity or every type of accident and physical inability has been determined. It is a policy designed for an individual or a group of persons. One form of accident insurance is travelers insurance and includes only accidents from plane crashes. It offers lump sum payments for the loss of a limb. For instance. It is a supplement to life insurance. From January. it is not a contract of indemnity.

2. 7. This predetermined amount usually can be more than the actual monetary loss. Janta individual types of policy. Types of personal accident insurance: Some Important types of policies are as below: 1. This means that a specified amount of claim is paid to the insured on happening of an event. Rural personal accident policy. 8. without considering the actual monetary loss. Third party/ passenger/ driver accident policy. the policy under personal insurance is issued as a benefit policy. 3. Personal accident family package policy. . The principles of subrogation and contribution do not apply to personal accident insurance. 4. This means that an insured can get any number of accident policies and are benefited. 5. It does not mean that the insurer is not aware of this fact. Accidental policy issued by aviation department. Medical (Hospital and house) treatment policy.Secondly. 6. Group insurance personal accident policy for school children. he will see that the principle of indemnity is fully observed.

and other belonging to such field. Bank Assurance. machine operators. artisans. Consultant. 4.Classification of risks involved: The amended rules in regard to personal accident policy have been implemented from April 1. excluding the risk group IV. Risk group III: All such persons. horse race hinders. Risk group II : It includes architects. ice hockey. circus. bank assurance accounted for 24% of new life insurance sales by µweighted¶ premium income in Singapore in 2002. Risk Group I: It includes accountants. 3. 1994. For example. brokers and direct marketing. sportsmen and athletics' carpenters and others engaged in this type of risks. In other Asian markets we have seen bank assurance make significant headway in recent times. Almost without exception these companies are seeking to utilize multiple distribution channels such as traditional agency. veterinary doctors. persons engaged in electricity generation. or other heavy vehicles. polo-players. engineers. driver's of trucks. and armory. and others from the same trade. teachers. hand gliding. engaged in physical labour. This is a significant increase on the . 1. 2. such as garage and motor mechanics. bankers administrative officers and others form professional field. According to this direction. vehicle drivers. advocates. Risk group IV: Person engaged in underground mines. Bank assurance is seen by many to be a significant or even the primary channel (the latter being the case for at least SBI Life). doctors. winter sports. with 12 in the life insurance sector and eight in the non-life insurance sector. but not doing any manual work. mountaineers. Reasons for growing phenomena of Bank assurance: The opening up of the insurance industry to private sector participation in December 1999 has led to the entry of 20 new players. contractors. the personal accident risks are classified into four categories. superintendent engineers.

insurance. y Insurers operate through banc assurance own and control relationships with customers. Banks that build fee income can cover . This is because the bank and the insurance company is benefiting from the same distribution channels and people. y Life insurance premium represents 55% of the world insurance premium. Such innovations would include cross selling of banking. So it is one of the methods to increase deposits of banks. assuming a constant asset base. In Hong Kong the figure for 2002 is expected to be at the 20% level for the same basic reasons. y Insurers have been turning in ever-greater numbers to alternative modes of distribution because of the high costs they have paid for agent services. and as the life insurance is basically a saving market. One of the best ways to increase ROA. y The ratio of expenses to premiums. These costs became too much of a burden for many insurers compared to the returns they generated. and brokerage products and services. and a melding of insurance and banking corporate cultures. the increased use of the Internet by consumers. is through fee income. y One of the most important reason of considering Banc assurance by Banks is increased return on assets (ROA).equivalent 2001 statistic of 15% and is as a result of growth in significant bank-centric bank assurance operations. it is noticed very well that expenses ratio in insurance activities through banc assurance is extremely low. y It is believed that the prospects for increased consolidation between banking and insurance is more likely dominated and derived by the marketing innovations that are likely to follow from financial service modernization. y In non-life insurance business banks are looking to provide additional flow of revenues from the same customers through the same channel of distribution and with the same people. Insurers who operate through the agency relationship are hardly having any control on their relationship with their clients. Insurers found that direct relationships with customers gave them greater control of their business at a lower cost. an important efficiency factor.

Banks also enjoy significant brand awareness within their geographic regions. telemarketing. They also have access to multiple communications channels. a banks branch network allows the face-to-face contact that is so important in the sale of personal insurance. Over the last decade. Sale of personal line insurance products through banks meets an important set of consumer needs. again providing for a lower per-lead cost when advertising through print. Banks that make the most of these advantages are able to penetrate their customer base and markets for above-average market share.more of their operating expenses. In addition. y Another advantage banks have over traditional insurance distributors is the lower cost per sales lead made possible by their sizable. Banks that effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios. and one way to build fee income is through the sale of insurance products. Banks have extensive experience in marketing to both existing customers (for retention and cross selling) and non-customers (for acquisition and awareness). which they can leverage in selling them personal line insurance products. who comprise the . European banks have more than doubled the conversion rates of insurance leads into sales and have increased sales productivity to a ratio which is more than enough to make banc assurance a highly profitable proposition. Banks¶ proficiency in using technology has resulted in improvements in transaction processing and customer service. and products tailored to the middle market. and mail) to make appointments. leveraging their reputation and distribution systems. phone. loyal customer base. Personal-lines carriers have found it difficult to grow using traditional agency systems because price competition has driven down margins and increased the compensation demands of successful agents. Most large retail banks engender a great deal of trust in broad segments of consumers. etc. Middle-income consumers. y By successfully mining their customer databases. such as statement inserts. life agents have sold fewer and larger policies to a more upscale client base. (branch. banks could change the face of insurance distribution. radio and/or television. and utilizing ¶sales techniques. y Other bank strengths are their marketing and processing capabilities. direct mail. y By leveraging their strengths and finding ways to overcome their weaknesses. y Insurers have much to gain from marketing through banks. ATMs.

It is therefore essential to have a SWOT analysis done in the context of bank assurance experiment in India. which hitherto was not thought of µHuge capital investment¶ will be required to create infrastructure particularly in IT and telecommunications. insurers will recapture much of this under served market. success requires a clear understanding of what must be done. Opportunities. how it will be done and by whom. As with any initiative. Bank assurance in India . Threats) STENGTH: . Banks also participate in the distribution of mortgage linked insurance products like fire. y Most insurers that have tried to penetrate middle-income markets through alternative channels such as direct mail have not done well. Weakness. By capitalizing on bank relationships. get little attention from most life agents. a call center will have to be created.bulk of bank customers.A SWOT Analysis: Bank assurance as a means of distribution of insurance products is already in force. a change in approach is necessary. an R & D cell will need to be created to generate new ideas and products. motor or cattle insurance to their customers. 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. The place to begin is to segment the strengths that the bank and insurer bring to the business opportunity. top professionals of both industries will have to be hired. SWOT Analysis: (Strength. Clearly.

also need to be given tax exemption to further the cause of insurance and to increase domestic revenue for the country. therefore R & D efforts to create new products will be minimal in the beginning. sky is the limit for personal lines insurance products. The middle class population that we are eyeing at is today overburdened. There are more than 900 Million lives waiting to be given a life cover.e. Additionally. it cannot be tailor made to the requirements of the customer. banks. LIC and GIC both have a good range of personal line products already lined up. WEAKNESS: The IT culture is unfortunately missing completely in all of the future collaborators i. which is so essential for the development of any bank assurance project. first by inflationary pressures on their pockets and then by the tax net. For a bank assurance venture to succeed. GIC & LIC. GIC with 4200 operating offices and LIC with 2048 branch offices are almost already omnipresent. Elementary IT requirement like networking (LAN) is not in place even in the headquarters of these institutions. Internet connection is not available even to the managers of operating offices. The insurance companies worldwide are eyeing on this. There is a vast untapped potential waiting to be mined particularly for life insurance products. LIC schemes get IT exemptions but personal line products from GIC (mediclaim already has this benefit) like householder. etc. There are about 200 Million households waiting to be approached for a householder¶s insurance policy. Where is the money left to think of insurance? Fortunately. A late awakening seems to have dawned upon but it is a case of too late and too little. Another drawback is the inflexibility of the products i. Millions of people traveling in and out of India can be tapped for Overseas Mediclaim and Travel Insurance policies. travel. when the need today is of Wide Area Network (WAN) and Vast Area Network (VAN).In a country of 1 Billion people. 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 bank assurance venture. After discounting the population below poverty line the middle market segment is the second largest in the world after China. . it is extremely essential to have in-built flexibility so as to make the product attractive to the customer.e.

With a good IT infrastructure. thinking and work culture on the part of everybody involved.St Germaine Act. A rush of joint ventures took place between banks and insurance companies and all these failed due to the non-response from the target customers. This can take the form of merger or acquisition or setting up a joint venture or creating a subsidiary by either party or just the working collaboration between banks and insurance companies. There is already an atmosphere created in the country for liberalization and there appears to be a political consensus also on the subject. The investors in the capital may turn their face off in case the rate of return on capital falls short of the existing rate of return on capital. Therefore. This happened in USA in 1980s after the enactment of Garn . Also if the unholy alliances are allowed to take place there will be fierce competition in the market resulting in lower prices and the bank assurance venture may never break-even. this can really do wonders. the return from bank assurance must at least match those returns. Any relocation to a new company or subsidiary or change from one work to a different kind of work will be resented with vehemence. Thailand and Singapore have already taken a leap in this direction and they are not doing badly. Another possible threat may come from non-response from the target customers. Other developing economies like Malaysia. Our 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 bank assurance may set in. . THREATS: Success of a bank assurance venture requires change in approach. Since banks and insurance companies have major portion of their income coming from the investments. RBI or IRA should have no hesitation in allowing the marriage of the two to take place.OPPURTUNITY: Banks¶ database is enormous even though the goodwill may not be the same as in case of their European counterparts. US banks have now again (since late 1990s) turned their attention to insurance mainly life insurance. This database has to be dissected variously and various homogeneous groups are to be churned out in order to position the bank assurance products.

such agreements may be financially advantageous for banks. this barrier has effectively been removed. A noticeable exception is that for those possessing the Certified Associate ship of Indian Institute of Bankers (CAIIB) only 50 hours of training (rather than 100 hours) will be required.Specified persons. This was clearly an impractical requirement and had held up the implementation of bank assurance in the country. Other regulatory changes of note in this area are the recently published Insurance Regulatory and Development Authority (IRDA) regulations relating to the licensing of corporate agents. the so-called . a restrictive feature of the bank assurance regulations is that they appear to constrain the corporate agent to receiving only commission. which are increasingly common internationally. Given the open-mindedness and responsiveness of the IRDA to regulations in general.) within the corporate agency. Although expected. 2002. This specifies the institutions that can become corporate agents and sets out the training and examination requirements for the individuals who will be selling on behalf of the corporate agent. is unfortunate as profit sharing agreements. In the longer term a profit-sharing agreement can help a bank move from being a distributor to a manufacturer of insurance products thus leading to greater integration in the financial services marketplace. professional bank officers carrying out the financial advisory process.REGULATORY ISSUES: The development of bank assurance in India has been slowed down by certain regulatory barriers. we hope that it will not be too long before profit-sharing agreements are permitted between insurers and corporate agents . . We feel that this.the corporate insurance executive.specified persons. It is hoped that this aspect of the regulations will lead to well educated. Prior to this. As the current legislation places the training and examination requirements upon a designated person (. serve to align the interests of the bank and the insurance company. all the directors of a company wishing to take up corporate agency (such as a bank) were technically required to undertake 100 hours of agency training and pass an examination. profit-sharing arrangements would seem to be ruled out. have to satisfy the same training and examination requirements as insurance agents. This also applies to certified accountants and actuaries. Also. if applied in practice. which have only recently been cleared with the passage of the Insurance (Amendment) Act. as products sold through bank channels can be highly profitable.

One form of accident insurance is travelers insurance and includes only accidents from plane crashes. It also might include a lump sum daily payment if you suffer injury from an accident. Some policies increase payment if you had a seat belt on at the time of injury. accidental death and dismemberment is an inexpensive form of personal accident insurance. It is a category of different type of insurance. Accident insurance doesn't pay for extended periods in the way disability does. . Nature of personal accident insurance 1. It offers lump sum payments for the loss of a limb.WHAT ARE PERSONAL ACCIDENTAL INSURANCE Personal accident insurance covers your expenses from an accident with a lump sum payment. It is a part of the non-traditional insurance. you must lose a thumb and index finger on the same hand in order to get 25 percent of the policy face value. Other policies pay a daily amount if you receive injury from an accident. a daily or monthly amount or a payment for loss of life from an accident. Accident insurance may be accidental death and dismemberment insurance that pays a specific amount if you die and a lesser amount if you lose a limb. but they pay a cash sum when you have an injury due to an accident. Often. Other forms are similar to disability income. For instance. 3. Often accident insurance pays in percentage with the death receiving 100-percent payment. There are specific percentages for other losses. It is a policy designed for an individual or a group of persons. 2. This amount isn't an income replacement but a fixed dollar amount. There are several ways to buy personal accident insurance. Several types of policies supplement an insurance program. Some policies only pay for specific types of accident. loss of both eyes or combination of one hand and foot or sight in one eye.

he will see that the principle of indemnity is fully observed.4. It does not mean that the insurer is not aware of this fact. 6. It is tariff insurance under which the rate indemnity or every type of accident and physical inability has been determined. 4. 8. Strictly speaking. Third party/ passenger/ driver accident policy. This means that an insured can get any number of accident policies and are benefited. Rural personal accident policy. 7. Janta individual types of policy. This means that a specified amount of claim is paid to the insured on happening of an event. It is an insurance based on the principle of utmost good faith. since it indemnifies the loss in case of injury leading to death. Accidental policy issued by aviation department. Secondly. the policy under personal insurance is issued as a benefit policy. 3. It is a supplement to life insurance. This predetermined amount usually can be more than the actual monetary loss. since the life is an invaluable asset. Types of personal accident insurance: Some Important types of policies are as below: 1. The principles of subrogation and contribution do not apply to personal accident insurance. Firstly. it is not a contract of indemnity. personal accident insurance was brought under tariff insurance. 5. the physical or life indemnity cannot be indemnified in terms of money. 5. Group insurance personal accident policy for school children. 1977. From January. 2. without considering the actual monetary loss. .

6. Risk group IV: Person engaged in underground mines. hand gliding. 4. Classification of risks involved: The amended rules in regard to personal accident policy have been implemented from April 1. and others from the same trade. polo-players. persons engaged in electricity generation. circus. and other belonging to such field. 2. Medical (Hospital and house) treatment policy. Reasons for growing phenomena of Bank assurance: . Risk group III: All such persons. Personal accident family package policy. and armory. advocates. teachers. such as garage and motor mechanics. excluding the risk group IV. artisans. superintendent engineers. Consultant. driver's of trucks. Risk Group I: It includes accountants. engaged in physical labour. machine operators. sportsmen and athletics' carpenters and others engaged in this type of risks. engineers. 1994. 1. veterinary doctors. Risk group II : It includes architects. 7. mountaineers. or other heavy vehicles. vehicle drivers. According to this direction. bankers administrative officers and others form professional field. contractors. horse race hinders. but not doing any manual work. 3. the personal accident risks are classified into four categories. winter sports. ice hockey. doctors.

So it is one of the methods to increase deposits of banks. with 12 in the life insurance sector and eight in the non-life insurance sector. y The ratio of expenses to premiums. For example. y Life insurance premium represents 55% of the world insurance premium. an important efficiency factor. This is a significant increase on the equivalent 2001 statistic of 15% and is as a result of growth in significant bank-centric bank assurance operations. and as the life insurance is basically a saving market. brokers and direct marketing. Bank assurance is seen by many to be a significant or even the primary channel (the latter being the case for at least SBI Life). These costs became too much of a burden for many insurers compared to the returns they generated. y Insurers have been turning in ever-greater numbers to alternative modes of distribution because of the high costs they have paid for agent services. In other Asian markets we have seen bank assurance make significant headway in recent times. bank assurance accounted for 24% of new life insurance sales by µweighted¶ premium income in Singapore in 2002. y In non-life insurance business banks are looking to provide additional flow of revenues from the same customers through the same channel of distribution and with the same people. y Insurers operate through banc assurance own and control relationships with customers. Insurers who operate through the agency relationship are hardly having any control on their relationship with their clients. Insurers found that direct relationships with customers gave them greater control of their business at a lower cost. In Hong Kong the figure for 2002 is expected to be at the 20% level for the same basic reasons. Bank Assurance. it is noticed very well that expenses ratio in insurance activities through banc assurance is extremely .The opening up of the insurance industry to private sector participation in December 1999 has led to the entry of 20 new players. Almost without exception these companies are seeking to utilize multiple distribution channels such as traditional agency.

Banks that make the most of these advantages are able to penetrate their customer base and markets for above-average market share. the increased use of the Internet by consumers. telemarketing. Banks also enjoy significant brand awareness within their geographic regions. radio and/or television. and a melding of insurance and banking corporate cultures. y Another advantage banks have over traditional insurance distributors is the lower cost per sales lead made possible by their sizable. again providing for a lower per-lead cost when advertising through print. One of the best ways to increase ROA. y Other bank strengths are their marketing and processing capabilities. y By leveraging their strengths and finding ways to overcome their weaknesses. Banks¶ proficiency in using technology has resulted in improvements in transaction processing and customer service. They also have access to multiple communications channels. assuming a constant asset base. . Most large retail banks engender a great deal of trust in broad segments of consumers. and one way to build fee income is through the sale of insurance products. direct mail. etc. such as statement inserts. a banks branch network allows the face-to-face contact that is so important in the sale of personal insurance. is through fee income. loyal customer base. Banks that build fee income can cover more of their operating expenses. and brokerage products and services. insurance. y It is believed that the prospects for increased consolidation between banking and insurance is more likely dominated and derived by the marketing innovations that are likely to follow from financial service modernization.low. This is because the bank and the insurance company is benefiting from the same distribution channels and people. Sale of personal line insurance products through banks meets an important set of consumer needs. ATMs. In addition. banks could change the face of insurance distribution. Banks that effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios. Banks have extensive experience in marketing to both existing customers (for retention and cross selling) and non-customers (for acquisition and awareness). Such innovations would include cross selling of banking. which they can leverage in selling them personal line insurance products. y One of the most important reason of considering Banc assurance by Banks is increased return on assets (ROA).

an R & D cell will need to be created to .A SWOT Analysis: Bank assurance as a means of distribution of insurance products is already in force. Over the last decade. European banks have more than doubled the conversion rates of insurance leads into sales and have increased sales productivity to a ratio which is more than enough to make banc assurance a highly profitable proposition. 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. a call center will have to be created. and utilizing ¶sales techniques. Banks also participate in the distribution of mortgage linked insurance products like fire. phone. Personal-lines carriers have found it difficult to grow using traditional agency systems because price competition has driven down margins and increased the compensation demands of successful agents. Bank assurance in India . and products tailored to the middle market. By capitalizing on bank relationships. success requires a clear understanding of what must be done. Banks are selling Personal Accident and Baggage Insurance directly to their Credit Card members as a value addition to their products. The place to begin is to segment the strengths that the bank and insurer bring to the business opportunity. y Insurers have much to gain from marketing through banks. and mail) to make appointments. (branch. y Most insurers that have tried to penetrate middle-income markets through alternative channels such as direct mail have not done well.y By successfully mining their customer databases. top professionals of both industries will have to be hired. life agents have sold fewer and larger policies to a more upscale client base. leveraging their reputation and distribution systems. how it will be done and by whom. Middle-income consumers. who comprise the bulk of bank customers. Clearly. which hitherto was not thought of µHuge capital investment¶ will be required to create infrastructure particularly in IT and telecommunications. a change in approach is necessary. get little attention from most life agents. insurers will recapture much of this under served market. As with any initiative. motor or cattle insurance to their customers.

banks. There are about 200 Million households waiting to be approached for a householder¶s insurance policy. sky is the limit for personal lines insurance products.e. 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 bank assurance venture. Millions of people traveling in and out of India can be tapped for Overseas Mediclaim and Travel Insurance policies. LIC and GIC both have a good range of personal line products already lined up. There are more than 900 Million lives waiting to be given a life cover. GIC & LIC. Weakness. GIC with 4200 operating offices and LIC with 2048 branch offices are almost already omnipresent. Threats) STENGTH: In a country of 1 Billion people. The insurance companies worldwide are eyeing on this.generate new ideas and products. Internet connection is not available even to the managers of operating offices. It is therefore essential to have a SWOT analysis done in the context of bank assurance experiment in India. After discounting the population below poverty line the middle market segment is the second largest in the world after China. A late awakening seems to have dawned upon but it is a case of too late and too little. SWOT Analysis: (Strength. which is so essential for the development of any bank assurance project. There is a vast untapped potential waiting to be mined particularly for life insurance products. when the need today is of Wide Area Network (WAN) and Vast Area Network (VAN). Opportunities. WEAKNESS: The IT culture is unfortunately missing completely in all of the future collaborators i. therefore R & D efforts to create new products will be minimal in the beginning. Elementary IT requirement like networking (LAN) is not in place even in the headquarters of these institutions. . Additionally.

Any relocation to a new company or subsidiary or change from one work to a different kind of work will be resented with vehemence. This can take the form of merger or acquisition or setting up a joint venture or creating a subsidiary by either party or just the working collaboration between banks and insurance companies. With a good IT infrastructure. th inking and work culture on the part of everybody involved. THREATS: Success of a bank assurance venture requires change in approach. Therefore. OPPURTUNITY: Banks¶ database is enormous even though the goodwill may not be the same as in case of their European counterparts. first by inflationary pressures on their pockets and then by the tax net. This database has to be dissected variously and various homogeneous groups are to be churned out in order to position the bank assurance products. Thailand and Singapore have already taken a leap in this direction and they are not doing badly. This happened .e. Where is the money left to think of insurance? Fortunately. Other developing economies like Malaysia. this can really do wonders. For a bank assurance venture to succeed. it is extremely essential to have in-built flexibility so as to make the product attractive to the customer. it cannot be tailor made to the requirements of the customer. Another drawback is the inflexibility of the products i. etc. RBI or IRA should have no hesitation in allowing the marriage of the two to take place.The middle class population that we are eyeing at is today overburdened. also need to be given tax exemption to further the cause of insurance and to increase domestic revenue for the country. Another possible threat may come from non-response from the target customers. travel. LIC schemes get IT exemptions but personal line products from GIC (mediclaim already has this benefit) like householder. Our 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 bank assurance may set in. There is already an atmosphere created in the country for liberalization and there appears to be a political consensus also on the subject.

REGULATORY ISSUES: The development of bank assurance in India has been slowed down by certain regulatory barriers. the so-called . professional bank officers carrying out the financial advisory process.specified persons. A noticeable excep tion is that for those possessing the Certified Associate ship of Indian Institute of Bankers (CAIIB) only 50 hours of training (rather than 100 hours) will be required. Other regulatory changes of note in this area are the recently published Insurance Regulatory and Development Authority (IRDA) regulations relating to the licensing of corporate agents. a restrictive feature of the bank assurance regulations is that they appear .Specified persons. Prior to this.) within the corporate agency. Since banks and insurance companies have major portion of their income coming from the investments. the return from bank assurance must at least match those returns.in USA in 1980s after the enactment of Garn . 2002. US banks have now again (since late 1990s) turned their attention to insurance mainly life insurance. Although expected. It is hoped that this aspect of the regulations will lead to well educated. This specifies the institutions that can become corporate agents and sets out the training and examination requirements for the individuals who will be selling on behalf of the corporate agent. As the current legislation places the training and examination requirements upon a designated person (. The investors in the capital may turn their face off in case the rate of return on capital falls short of the existing rate of return on capital. This also applies to certified accountants and actuaries. . all the directors of a company wishing to take up corporate agency (such as a bank) were technically required to undertake 100 hours of agency training and pass an examination. Also if the unholy alliances are allowed to take place there will be fierce competition in the market resulting in lower prices and the bank assurance venture may never break-even. have to satisfy the same training and examination requirements as insurance agents. which have only recently been cleared with the passage of the Insurance (Amendment) Act.the corporate insurance executive.St Germaine Act. this barrier has effectively been removed. A rush of joint ventures took place between banks and insurance companies and all these failed due to the non-response from the target customers. This was clearly an impractical requirement and had held up the implementation of bank assurance in the country.

such agreements may be financially advantageous for banks. In the longer term a profit-sharing agreement can help a bank move from being a distributor to a manufacturer of insurance products thus leading to greater integration in the financial services marketplace. Given the open-mindedness and responsiveness of the IRDA to regulations in general. profit-sharing arrangements would seem to be ruled out.to constrain the corporate agent to receiving only commission. We feel that this. as products sold through bank channels can be highly profitable. serve to align the interests of the bank and the insurance company. is unfortunate as profit sharing agreements. which are increasingly common internationally. we hope that it will not be too long before profit-sharing agreements are permitted between insurers and corporate agents . if applied in practice. Also.