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‘BANCASSURANCE’ as term itself tells us what does it means. It’s a combination of the term ‘Bank’ and ‘Insurance’. It means that insurance have started selling their product through banks. It’s a new concept to Indian market but it is very widely used in western and developed countries. It is profitable both to Banks and Insurance companies and has a very bright future to be the most develop and efficient means of distribution of Insurance product in very near future. Insurance company can sell both life and non-life policies through banks. The share of premium collected by banks is increasing in a decent manner from the time it was introduce to the Indian market. In India Bancassurance in guide by Insurance Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and insurance company have to meet particular requirement to get into Bancassurance business. It is predicted by experts that in future 90% of share of premium will come from Bancassurance business only. Currently there are more and more banking and Insurance Company and venturing into Bancassurance business for better business prospect in future. The banking business is also generating more profit by more premium collected by them and they also receive commission like normal insurance agent which increase their profits and better reputation for the banks as there service base also increase and are able to provide more service to customers and even more customer are attracted toward bank.
Guru Nanak College Of Arts, Science & Commerce.
Bancassurance-A Boost To Banking Sector.
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. In simpler way it can be said as "Bancassurance" in French and "All Finanz" (Universal Banking) in German refers to a tie up arrangement of banks with insurance companies for selling the insurance products in life and non life segments as corporate agents for fee based income. This income is risk-free, as the bank plays a role of an intermediary for souring business to insurance company. Bancassurance is a package of banking and insurance service at one roof. The introduction of Bancassurance has broadened the scope of retail banking.
Guru Nanak College Of Arts, Science & Commerce.
Bancassurance-A Boost To Banking Sector.
The banks taking over insurance is particularly well-documented with reference to the experience in Europe. Across Europe in countries like Spain and UK, banks started the process of selling life insurance decades ago and customers found the concept appealing for various reasons. Germany took the lead and it was called “ALLFINANZ”. The system of bancassurance was well received in Europe. France taking the lead, followed by Germany, UK, Spain etc. Bancassurance was not much popular in USA as Steagall Act, 1933 prevented banks of USA from entering into alliance with financial service providers, therefore putting a ban on bancassurance. As a result of this, Life insurance was primarily sold by insurance agents, who focused mainly on wealthier class of people, which lead to majority of American middle class households uninsured. With US government repealing the act, and after the passage of Gramm-Leach Bliley Act, 1999, the concept of Bancassurance started gaining momentum in USA also. In India, the concept of Bancassurance is very new. With the liberalization and deregulation of the insurance industry, bancassurance evolved in India around 2002.
Bancassurance in Indian Context:
In India, Bancassurance is a novel concept. Insurance and Banking are two different sectors and are regulated by different entities: 1. 2. All Banks come under the control of Reserve Bank of India (RBI) Insurance sector follow the guidelines of Insurance Regulatory Development Authority (IRDA) Hence, the banks entering into Insurance business has to follow the norms of both RBI and IRDA.
Guru Nanak College Of Arts, Science & Commerce.
Bancassurance-A Boost To Banking Sector.
RBI Guidelines: 1. Any Commercial Bank can undertake insurance business as an agent of insurance company on fee basis. There is no risk participation for such banks. 2. Joint Ventures will be allowed for financially strong banks who are wishing to undertake insurance business with risk participation if they satisfy the following criteria: Net worth of the bank should be not less than Rs.500 crore. Capital Adequacy Ratio should be not less than 10% in the bank. There should be reasonable level of Non Performing Assets (NPA) The bank should have earned net profit continuously for last three year If there is any subsidiary, in such cases, the performance of subsidiaries should be satisfactory. 3. Banks which are not eligible for joint venture participation can opt up to - 10% of the net worth of bank (or) -Rs.50Corerswhicheverislower. Besides this, the requirements relating to the Non Performing Assets, Capital Adequacy Ratio and Net Profit maintained has to be followed as per the rules mentioned in the participation of banks in Joint ventures.
Guru Nanak College Of Arts, Science & Commerce.
Bancassurance-A Boost To Banking Sector.
According to IRDA, a private sector participant has to fulfill the following requirements to enter into the insurance business: 1. 2. 3. Banks should have a minimum paid up capital of Rs.100 Crores Investments has to be made in the policyholder funds only in India. There is a restriction of international companies to the minority equity holdings up to 26%. 4. Each bank selling insurance should have a Chief Insurance Executive to
handle all the activities and matters relating to the insurance. 5 .CommercialBanks, Co-operativeBanks and Regional Rural Banks may
become the corporate agents for one insurance company. 6. Banks can act as a corporate agent for any one of life or non life insurers
but, cannot become insurance brokers for many life or non life insurers. IRDA has also notified regulations relating to registration of insurers, their assets and liabilities, conduct of business, licensing of insurance agents etc.
Guru Nanak College Of Arts, Science & Commerce.
The agent banker gets high commission on the first premium paid by the customer and later a marginal commission on renewal premium till the maturity of the policy for regular premium plans. Features of Bancassurance The features of bancassurance states as follows: Banks Act as Corporate Agents Instead of running after individual agents for business. bankers act as a corporate agent for the insurance companies.Bancassurance-A Boost To Banking Sector. Guru Nanak College Of Arts. A one time commission is also paid in case of single premium policies. insurance companies invented the concept of bancassurance. Page 6 . Science & Commerce. Here. Bancassurance helped them in motivating their customers to buy insurance products with the help of banks.
By providing multiple services at one place. Bancassurance helps in generating additional revenue for the banks. banks must opt for bancassurance to leverage their income levels and keep abreast with the changes and latest developments in the financial markets. Hence. insurance companies are tying up with various commercial banks to sell their products and lure more customers. At present. banks are unable to get margins as a result of acute competition and this is making it difficult for them to retain their customers. banks can develop strong relationships with their customers and sell insurance products.Bancassurance-A Boost To Banking Sector. through bancassurance. For example. Science & Commerce. making survival difficult in the current financial markets. Page 7 Guru Nanak College Of Arts. Financial experts say that since interest rates have been falling and profits are declining. banks without any additional investments on infrastructure are able to earn service-based income (commission) to augment their core lending activities. Win-Win Model Under bancassurance. Interest is market driven and its movement depends on market conditions. Bancassurance is a successful model for both insurance companies and banks. a customer gets home loans. more banks are getting into bancassurance with existing infrastructure. For the banks. . the satisfaction level of customers can be increased. At the same time. income from bancassurance is only non-interest-based income. In the current global financial crisis many banks are looking at bancassurance as it generates additional income in the form of fees. Currently. to meet the overhead costs and to improve their incomes. Insurance companies affirm that marketing ‘risk products’ through banks is a cost effective proposition. along with insurance as a combined product. Additional Revenue There are various advantages of bancassurance.
Bancassurance helps in lowering distribution costs of the insurers. It provides the insurance companies with valuable inputs. by way of lower premiums. Valuable Inputs from Bankers Another advantage of bancassurance is that the employees of banks can learn marketing techniques. Hence.5 million people have access to healthcare facilities. Selling insurance to existing mass market of banking is less expensive than selling it to a group of unknown customers. acquisition cost of insurance through banks is low. Reduced Costs: Banks play a significant role in building up a feasible healthcare program in India. Science & Commerce. They can analyze the insurance markets and recommended suitable plans to meet the requirements of customers. Models of Bancassurance Guru Nanak College Of Arts. Only 2. This benefit could go to the insured public. is growing.Bancassurance-A Boost To Banking Sector. Experience in Europe has shown that bancassurance firms have a lower expense ratio. It is imperative to discuss with financial advisers before an insurance product is introduced in the market. The demand for healthcare products. which banks can distribute. Page 8 .
banks to begin with can resort to this model and then move on to the other models. In fact a number of banks in India have already resorted to this strategy to begin with. I. 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. 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. There is greater scope in the medium term for this model. wherein the bank staff as an institution acts as corporate agent for the insurance product for a fee/commission. For. b) Corporate Agency The other form of non-sick participatory distribution channel is that of ‘Corporate Agency’.Bancassurance-A Boost To Banking Sector. 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. Page 9 . 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. while controlling access to the clients data base. Referral model is nothing but a simple arrangement. 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. This. Science & Commerce. wherein the bank. Guru Nanak College Of Arts.
Bancassurance-A Boost To Banking Sector. This may Guru Nanak College Of Arts. the fully integrated financial service involves much more comprehensive and intricate relationship between insurer and bank. is prone to reputational risk of the marketing bank. c) Insurance as Fully Integrated Financial Service/ Joint ventures Apart from the above two. This could. be overcome by intensive training to chosen staff. however. 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. where the bank functions as fully universal in its operation and selling of insurance products is just one more function within. however. because consumers generally prefer to purchase policies through broker banks that offer a wide range of products from competing insurers. Page 10 . 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. There are also practical difficulties in the form of professional knowledge about the insurance products. This includes banks having wholly owned insurance subsidiaries with or without foreign participation. Science & Commerce. And packaged with proper incentives in the banks coupled with selling of simple insurance products in the initial stage.
however. There is great scope for further growth both in life and nonlife insurance segments as GOI is reported have been actively considering to increase the FDI’s participation up to 49 per cent. Insurance is sold as one more item in the menu of products offered to the bank’s customer. Page 11 . 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. Science & Commerce. this type of bancassurance seems to have emerged out of necessity in India to an extent. II. therefore. Product based classification (a) Stand-alone Insurance Products In this case bancassurance involves marketing of the insurance products through either referral arrangement or corporate agency without mixing the insurance products with any of the banks’ own products/ services. (b) Blend of Insurance with Bank Products Guru Nanak College Of Arts.Bancassurance-A Boost To Banking Sector. the products of banks and insurance will have their respective brands too. be suitable to relatively larger banks with sound financials and has better infrastructure.
g. Thus. Many banks in India. in recent years. the insurance companies get databases of the customers and the customers get the benefits. have also been packaged with the insurance cover as an additional incentive. In most times. etc. Guru Nanak College Of Arts. giving insurance cover at a nominal premium/ fee or sometimes without explicit premium does act as an added attraction to sell the bank’s own products. Here the banks do not issue the policies. Similarly the home loans / vehicle loans. credit card. whereas the cardholders get the ‘insurance cover’ for a nominal fee or (implicitly included in the annual fee) free from explicit charges/ premium. etc. e. Science & Commerce. The companies issue the policies and pay the commission to them. III. they only give the database to the insurance companies. banks could sell the insurance products without any additional efforts.. This method aims at blending of insurance products as a ‘value addition’ while promoting the bank’s own products. housing loans.Bancassurance-A Boost To Banking Sector. education loans. has been aggressively marketing credit and debit card business. That is called referral basis. Page 12 .. In this method also there is a win-win situation every where as the banks get commission. Bank Referrals There is also another method called 'Bank Referral'.
Bancassurance-A Boost To Banking Sector. Current Scenario As far as the present scenario is concerned the banking industry is in a transition phase.. Science & Commerce. The Public Sector Banks. Guru Nanak College Of Arts. ATMs. they are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. mobile banking. phone banking. Page 13 . On the other hand the Private Sector Banks in India are witnessing immense progress They have pioneered Internet banking. etc. are unfortunately burdened with excessive Non Performing assets massive manpower and lack of modern technology. While on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. which are the mainstay of the Indian Banking system account.
There has been an increase in the bank focus on retail segment with the economic slow down. insurance products.Bancassurance-A Boost To Banking Sector. The Reserve Bank of India being the regulatory authority of the banking system.. to advise on and sell new financial instruments like consumer loans. customers have become more discerning and less "loyal" to banks.. Science & Commerce. there have been active efforts in the banking circles to switch over to customercentric business model. With the entry of new players and multiple channels. Branches are in fact a key channel for customer retention and profit growth in rural and semi-urban set up. Branches could also be used to inform and educate customers about other. The top concern in the mind of every bank's CEO is increasing or at least maintaining the market share in every line of business against the backdrop of heightened competition. permitted them to enter into insurance sector as well. Page 14 . mutual fund products. The banks today are more market driven and market responsive. more efficient channels. It has issued a set of detailed guidelines setting out various ways for a bank in India to enter into insurance sector. The success of such a model depends upon the approach adopted by banks with respect to customer data management and customer relationship management. This makes it imperative that banks provide best possible products and services to ensure customer satisfaction. etc. with the reorganization of the need for banks to diversify their activities at the right time. Guru Nanak College Of Arts. To address the challenge of retention of customers. Banks are now realizing that one of their best assets for building profitable customer relationships especially in a developing country like India is the branch.
Bancassurance-A Boost To Banking Sector. Scope for Bancassurance By now. While development in individual Page 15 Guru Nanak College Of Arts. The outlook for bancassurance remains positive. . it has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates providing with more sophisticated and variety of financial and banking products and services. Science & Commerce.
bancassurers could profit from the tendency of governments to privatize health care and pension liabilities. In this phase. 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. bancassurance has simply outshined other alternate channels of distribution with a share of almost 25-30% of the premium income amongst the private players. it is vital for bancassurance to ensure that banks remain fully committed to promoting and distributing insurance products. bancassurance will likely see further significant development in the coming years. In India. there is greater scope for use of bancassurance. Science & Commerce. markets will continue to depend heavily on each country’s regulatory and business environment. The deregulation of the insurance sector in India has resulted in a phase where innovative distribution channels are being explored. India has already more than 200 million middle class population coupled with vast banking network with largest depositors base. To be fruitful. Guru Nanak College Of Arts. new entrants have successfully employed bancassurance to compete with incumbent companies. In India the bancassurance model is still in its nascent stages. Page 16 . In emerging markets. the signs of initial success are already there despite the fact that it is a completely new phenomenon. but the tremendous growth and acceptability in the last three years reflects green pasture in future.Bancassurance-A Boost To Banking Sector. There is no doubt that banks are set to become a significant distributor of insurance related products and services in the years to come. Given the current relatively low bancassurance penetration in emerging markets.
Science & Commerce. Benefits of Bancassurance Guru Nanak College Of Arts. Page 17 .Bancassurance-A Boost To Banking Sector.
bancassurance would mean a major gain. Science & Commerce. Example: Guru Nanak College Of Arts. Hence the banks today have shifted their focus from fund-based revenue (loans & advances) to feebased income. all banks have been able to do is sustain themselves but not profit much. thus giving an additional boost to the banks bottom line. Since interest rates have been falling and profit on off take of credit has been low. Enter bancassurance and fee based income through hawking of risk products would be guaranteed.based income For banks. Page 18 .Bancassurance-A Boost To Banking Sector. Benefits of bancassurance to the banks Fee.
Banks that build fee income can cover more of their operating expenses. The sale of insurance products builds fee income. Take a highly conservative average first year premium per policy of Rs. Selling of insurance products provides bank employees with new challenges and enhanced skills thus improving their productivity and efficiency.13500 crore (going by a simple back-of-the-envelope calculation: Rs. Profitability Guru Nanak College Of Arts. Page 19 . Increase staff productivity Bancassurance gives an opportunity to the bank staff to harness their sales skills and adapt to the changing business environment.Bancassurance-A Boost To Banking Sector.13500 crore in commission) Increased Return on assets (ROA) One of the ways to increase ROA. Banks those effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expenses ratios.5000 x 15% x 18 crore accounts = Rs. There are about 18 crore bank accounts.5000 and an average commission of 15% that banks would gain Banks can earn a total commission of Rs. is through fee income. assuming a constant asset base. Let’s assume a bank sells one insurance policy to each of these account holders over a period of five years. Science & Commerce.
Selling whose range of financial services to clients increases Customer Retention. Creating a universal banking platform Bancassurance offers a good opportunity to increase the bank’s share of the customer requirements through the cross-selling of insurance products. Bancassurance provides financial benefits in the form of commission. It seeks Customer Loyalty by offering satisfactory and expanded base for services. Enhances customer relationship Bancassurance results in high customer relationship with the bank by providing more services. There by resulting into profits. Science & Commerce. thereby facilitating convergence. profits from new business. bank’s fixed cost reduction. Increasing the customer base Banks can garner fresh business by using insurance as a selling hook. Benefits of bancassurance to the Insurers Cheaper than agents Page 20 Guru Nanak College Of Arts. Bancassurance helps banks to become one step closer to be “Onestop financial supermarket”. and increases the staff productivity. . All financial products are available under one roof.Bancassurance-A Boost To Banking Sector.
Example: SBI Life finds that this channel saves as much as 40% of their operating cost when compared to business procured through their own regular agents. This channel allows an insurer to effectively tap the rural sector. A tie up with a bank allows an insurance company to access large customer base at a low cost. Cost – reduction Studies reveal that 50% of an insurance company’s cost is directly or indirectly related to distribution. Greater control of their business Guru Nanak College Of Arts. Selling insurance through traditional methods in rural area is an expensive proposition. Bancassurance may work out to be cheaper compared to companies appointing agents for selling insurance products. Penetration into the rural areas too becomes easier for banks.Bancassurance-A Boost To Banking Sector. Page 21 . Expenses ratio in insurance activities through bancassurance is very low. This is particularly considering the bank’s wide network and the reach they have compared to the agents. Science & Commerce. They can solve the difficulties arising out of price competition which has driven down the margins and increased the compensation demand of successful agents. Rural penetration The existing wide network of banks in rural areas can be utilized for selling insurance products.
Urban as well as rural both markets are tapped simultaneously. thereby facilitating growth. Insurers found that direct relationships with customers gave them greater control of their business at a lower cost. Page 22 . Science & Commerce. The middleclass income holders who comprise the bulk of bank customers get very little attention. By using bancassurance channel the insurer can capture much of its underserved market.Bancassurance-A Boost To Banking Sector. Insurers who operate through bancassurance own and control relationships with customers.000 branches spread throughout the country. Example: Bajaj Allianz has witnessed a 350% growth due to bancassurance. Provides Competitive advantage Guru Nanak College Of Arts. Targeting middle-income customers Through agents the insurer can only sell fewer and large policies to a more up scale client. Market penetration Wide network of branches form the ideal distribution channel. Banks have an established distribution network of more than 68. Facilities Growth Reduced costs and high premium turnover results in profitability. Insurers who operate through the agency relationship hardly have any control on their relationship with their clients.
Customers too. pensions. Bancassurance acts as a source of new business to reach wider customer base with the help of a bank. Benefits of bancassurance to the Customers Availability of a complete package Combined bank and insurance products will find complete solution to the customers. find them more trustworthy. banks are in a better position to understand the needs of the customers and sell trailor made policies. 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. Provides competitive advantage over the non-bancassurers. Reduced costs Guru Nanak College Of Arts. Banks and insurance companies are converging towards a model of global retail financial institution offering a wide array of products. considering their long-standing relationship with banks. savings and insurance products. Having been accustomed to the customer’s choices. Science & Commerce. Page 23 .Bancassurance-A Boost To Banking Sector. It leads to the creation of “One-Stop Shop” where a customer can apply for mortgages.
Page 24 .Bancassurance-A Boost To Banking Sector. Good quality product Product innovation and distribution activities are directed towards the satisfaction of the needs of the customer. the benefit ultimately passing on to the customers in way of reduced premiums. Since banks can understand the needs of the customers in a better way. The customer gains as the costs are reduced. The customer can obtain a basket of products under one roof. Time savings & convenience The customers can get risk coverage at bank itself which saves time and adds to the customer’s convenience. Also. Guru Nanak College Of Arts. the customer gets a good quality product. Bancassurance gives the insurance company the benefit of cost-effective distribution channel. Science & Commerce. customer gets the advantage of a customized product as per his need and requirements. The ease of renewals adds to the customer’s comfort.
they are: 1. E. Direct response 7. Science & Commerce. new distribution channels have been developed successfully and rapidly in recent years. The reliance of insurance industry was totally on the agents. insurance products were promoted and sold principally through agency systems only. Distribution Channels Traditionally. Recently Bancassurers have been making use of various distribution channels. Bank employees 5. 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. Career agents 2. Special advisers 3. Internet 8. Corporate agency & Brokerage firm 6.Bancassurance-A Boost To Banking Sector. Outside lead generating techniques Guru Nanak College Of Arts. Salaried agents 4. evolution of technology and deregulation. Page 25 .Brokerage 9. Moreover with the monopoly of public sector insurance companies there was very slow growth in the insurance sector because of lack of competition. But with new developments in consumers’ behaviours.
Many bancassurers. Moreover their level of customer service is usually very high due to the renewal commissions. They are generally considered to be independent contractors. Science & Commerce.Bancassurance-A Boost To Banking Sector. policy persistency bonuses. however avoid this channel. who distribute insurance products to the bank's corporate clients. or other customer service-related awards paid to them. Career Agents Career Agents are full-time commissioned sales personnel holding an agency contract. supervision and motivation can be highly productive and cost effective. not due to the nature of this channel. Consequently an insurance company can exercise control only over the activities of the agent which are specified in his contract. Special Advisors Special Advisors are highly trained employees usually belonging to the insurance partner. but rather due to the use of improperly designed remuneration and/or incentive packages. believing that agents might oversell out of their interest in quantity and not quality. The Clients mostly include affluent population who require personalised and high quality service. Banks refer complex insurance requirements to these advisors. 1. Despite this limitation on control. Usually Special advisors are paid on a salary basis and they receive incentive compensation based on their sales. 2. Page 26 . Guru Nanak College Of Arts. Such problems with career agents usually arise. career agents with suitable training.
Guru Nanak College Of Arts. Some bancassurers. Salaried Agents in bancassurance are similar to their counterparts in traditional insurance companies and have the same characteristics as career agents.g. have changed their sales forces to salaried agent status 3. the time which they can devote to insurance sales is limited. concerned at the bad publicity which they have received as a result of their career agents concentrating heavily on sales at the expense of customer service. These agents share the mission and objectives of the bancassurers. The platform banker may be a teller or a personal loan assistant and the representative being referred to may be a tarined bank employee or a representative from the partner insurance company. Bank Employees / Platform Bankers 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. those customers who actually visit the branch during the opening hours. e.e. Platform Bankers can usually sell simple products. due to limited opening hours and to the need to perform other banking duties. A further restriction on the effectiveness of bank employees in generating insurance business is that they have a limited target market.Bancassurance-A Boost To Banking Sector. The only difference in terms of their remuneration is that they are paid on a salary basis and career agents receive incentive compensation based on their sales. Page 27 . However. i. Science & Commerce. Salaried Agents Having Salaried Agents has the advantages of them being fully under the control and supervision of bancassurers.
then the bancassurer's potential can be severely impeded. Science & Commerce. 5.Bancassurance-A Boost To Banking Sector. If bank employees only act as "passive" insurance sales staff (or do not actively generate leads). 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. the bank employees are assisted by the bank's financial advisers. However. career agents or special advisors. production Volumes can be very high and profitable to bancassurers. Page 28 . The financial advisers either sell in the branch but some banks have also established mobile sales forces. In many set-ups. the bank employee establishes the contact to the client and usually sells the simple product whilst the more affluent clients are attended by the financial advisers of the bank which are in a position to sell the more complex products. if bank employees are used as "active" centres of influence to refer warm leads to salaried agents. In both cases. 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. 4. Direct Response In this channel no salesperson visits the customer to induce a sale and no faceto-face contact between consumer and seller occurs. The consumer purchases products directly from the bancassurer by responding to the company's Guru Nanak College Of Arts.
will find banks with household name brands and proven skills in e-business a very acceptable source of non-banking products. what-if calculations. Science & Commerce. service and leads. Functions requiring user input (check ordering. Page 29 . Banks are well advised to make their new websites as interactive as possible. 7. Internet Internet banking is already securely established as an effective and profitable basis for conducting banking operations. and credit and account applications) should be immediately added with links to the insurer. The reasonable expectation is that personal banking services will increasingly be delivered by Internet banking. which looms large as an effective source of information for financial product sales. Bancassurers can also feel confident that Internet banking will also prove an efficient vehicle for cross selling of insurance savings and protection products. It seems likely that a growing proportion of the affluent population. E-Brokerage Banks can open or acquire an e-Brokerage arm and sell insurance products from multiple insurers. Such an arrangement can also provide a vehicle for insurance sales. The changed legislative climate across the world should help migration of bancassurance in this direction. This channel can be used for simple packaged products which can be easily understood by the consumer without explanation 6.Bancassurance-A Boost To Banking Sector. everyone's target market. There is now the Internet. The advantage of this Guru Nanak College Of Arts. advertisement. mailing or telephone offers. providing more than mere standard bank data and current rates.
Adding this technique to his/her lead generation repertoire. easy distribution and excellent synergy with the internet capabilities. in most cases. medium is scale of operation. Science & Commerce. To make the overall sales effort pay anticipated benefits. strong brands. Seminars in particular can be very effective because in a non-threatening atmosphere the insurance counselor can make a presentation to a small group of business people (such as the local chamber of commerce). field questions on the topic. an insurance counselor often cannot help but be successful. 8. Outside Lead Generating Techniques One last method for developing bancassurance eyes involves "outside" lead generating techniques. such as seminars. then collect business cards. insurers need to also help their bank partners determine what the “hot buttons” will be for attracting the attention of the reader of both direct and e-mail. Great opportunities await bancassurance partners today and. success or failure depends on precisely how the process is developed and managed inside each financial institution.Bancassurance-A Boost To Banking Sector. Page 30 . Guru Nanak College Of Arts. This includes the large regional bank and the small one-unit community bank. direct mail and statement inserts.
Bancassurance-A Boost To Banking Sector. against a background of shrinking interest margins. has led to an increase in the administrative and marketing costs and limited the profit margins of the traditional banking products. Financial benefits to a bank performance can flow in a number of ways. as briefly outlined below: Guru Nanak College Of Arts. Page 31 . Science & Commerce. New products could substantially enhance the profitability andincrease productivity. Reasons for Banks to Enter Into Bancassurance The main reasons why banks have decided to enter the insurance industry area are the following: Intense competition between banks.
Life insurance is also frequently supported by favourable tax treatment to encourage private provision for protection or retirement planning. Banks have sought to offset some of the losses by entering life insurance business. as they now have the chance to offer a wide range of services to clients. Science & Commerce. This preferential treatment makes insurance products more attractive to customers and banks see an opportunity for profitable sales of such products. Page 32 .This shift in investment preferences has led to a reduction in the share of personal savings held as deposits. Customer preferences regarding investments are changing. in the form of commissions and/or profits from the business (depending upon the relationship) • Reduction of the effect of the bank fixed costs. • Increased income generated. as they are now also spread over the life insurance relationship. • Opportunity to increase the productivity of staff. Guru Nanak College Of Arts. For medium- term and long-term investments there is a trend away from deposits and toward insurance products and mutual funds where the return is usually higher than the return on traditional deposit accounts. traditionally the core element of profitability for a bank which manages clients money.Bancassurance-A Boost To Banking Sector.
g. Analysis of available information on the customer financial and social situation can be of great help in discovering customer needs and promoting or manufacturing new products or services. Banks are experiencing the increased mobility of their customers. who to a great extent tend to have accounts with more than one bank.Banks believe that the quality of their client information gives them an advantage in distributing products profitably. insurance companies). Science & Commerce. banks and insurers are forming partnerships to provide their clients with a wide range of bank and insurance products from one source. Therefore there is a strong need for customer loyalty to an organization to be enhanced. Client relationship management has become a key strategy. It is believed that as the number of products that a customer purchases from an organization increases the chance of losing that specific customer to a competitor decreases. Guru Nanak College Of Arts. To build and maintain client relationships. compared with other distributors (e.Bancassurance-A Boost To Banking Sector. Page 33 . The realization that joint bank and insurance products can be better for the customer as they provide more complete solutions than traditional standalone banking or insurance products.
use of their longstanding relationship with both corporate and retail customers. they are strategically positioned to cross-sell various products to their customers because of their extensive branch network. rural penetration. degree of ownership of customer bases. huge customer database of raw information on the customers spending patterns and investment purchase. The offer of a repertoire of financial products helps to sustain and even enhance the product-loyalty factor. Page 34 . Banks that use information as a competitive asset can transform even the toughest challenge into growth opportunities. Guru Nanak College Of Arts. Information is the capital that earns high returns. Science & Commerce. product control and brand image. deliver trusted advice and create lasting value. cheaper mode vis-à-vis agents.Bancassurance-A Boost To Banking Sector. lower cost bases personalized service. Benefits of Selling Insurance Products through Banks As the banks understand customers’ needs.
which has a presence in 28 countries. SBI’s international business accounts for 5% of its total business income. is eyeing acquisitions aboard especially on US. it provides an option for banks to seek more stable. less volat6ile feebased income and to add value to their existing operations by surmounting debilitating constraints on growth and enhanced Return on Assets (RoA). Guru Nanak College Of Arts. Case Study India’s largest bank. Capturing of huge captive business readily available in branches by assets financed brought under the Corporative Agency and the likelihood of branches bringing in incremental business by insuring other insurable assets of the borrower.3105 crore in the 2002-2003 fiscal. The banks global strategy includes expanding its overseas offices to 71 in 38 countries by the end of the current fiscal.Bancassurance-A Boost To Banking Sector. Page 35 . The attempt to develop relevant services and proactive development of customer relationship requires maximizing Customer Relationships and minimizing business risk. Bancassurance. No wonder. The bank registered a net profit of Rs. state bank of India. as against 52 offices in 28 countries now. Hence. ASIA AND Africa. Science & Commerce. apart from generating higher non-interest income. has other spin-off benefits. then bancassurance as a potent instrument of catalyzing business transformation to meet the onslaughts of progressive liberalization is widely considered both appropriate and warranted.
SBI Life Insurance Company limited is a joint venture between State Bank of India and Cardiff of France. Bancassurance is the company's key distribution channel.500 branches are selling individual policies and another 5. thereby reducing turnaround time to meet customer requirements delightfully. SBI Life products are being sold in over 6. Cardiff is a wholly owned subsidiary of BNP Paribas. Mr. O.Bancassurance-A Boost To Banking Sector. This year we hope to increase that to 50 per cent. SBI aim to strengthen the bancassurance model through the branches of State Bank of India and other associate banks we have tie-ups with. SBI Life Insurance Ltd. India’s leading private life insurance company announced the launch of ‘Bancassurance Online’ the first initiative of its kind with its Bancassurance promoter. Chairman. Guru Nanak College Of Arts. “‘Bancassurance Online’ is a significant step towards integrating insurance with banking and it will provide my staff member’s information as well as education on life insurance. at Rs 470 crore for the financial year ended March 31. State Bank of India formally inaugurated the entrance. While inaugurating the entry Chairman State Bank of India said. Currently. brings Life Insurance solutions at par with SBI’s Banking products.. SBI is the largest bank in India and Cardiff is a leading insurance company in France operating in 28 countries. contributing over 43 per cent to the total premium o.500 branches of the State Bank Group around 1. an exclusive intranet facility. State Bank of India. SBI Life now launches bancassurance online.000 group products. one of the largest European banks. Science & Commerce. 2006.P Bhatt.” Bancassurance Online’. Page 36 .
Science & Commerce.Bancassurance-A Boost To Banking Sector. Guru Nanak College Of Arts. Page 37 .
Interest is market driven and fluctuating and quite narrowing these days. 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. As for the insurance company the advantage that bancassurance provides is evident. The insurance company gets improved geographical reach without additional costs. Providing multiple services at one place to the customers means enhanced customer satisfaction. Future of Bancassurance in India Bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India. that no company would be interested in doing so. India's rural market has huge potential that is still untapped by the insurance companies. Banassurance comes as a help in this direction also.000 branches are there for PSU banks alone. It helps the insurance companies to tap the market at a much lower Page 38 Guru Nanak College Of Arts.000 branches sell the insurance products one can see the reach. Increased competition also makes it difficult for banks to retain their customers. Bancassurance again comes as an answer. If all 67. Bancassurance provides various advantages to banks. For example. income from bancassurance is the only non interest based income.Bancassurance-A Boost To Banking Sector. For the banks. Science & Commerce. Setting up their own networks entails such a huge cost. In India around 67. insurers and the customers. . 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.
3% of GDP with only 8% of the total population currently insured. there is every reason to be optimistic that bancassurance in India will play a long inning. Guru Nanak College Of Arts. The penetration level of life insurance in the Indian market is abysmally low at 2. With almost half of the population likely to be in the 'wage earner' bracket by the end of 2010. 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.Bancassurance-A Boost To Banking Sector. Science & Commerce. cost. Page 39 .
Nevertheless. Science & Commerce. 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. Page 40 . which tends to favour bancassurance development. due to the tangible cost benefits embedded in product pricing or through the appeal of convenience and innovation. Trends in Bancassurance Though bancassurance has traditionally targeted the mass market but bancassurers have begun to finely segment the market. New and emerging channels are becoming increasingly competitive. 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 started to embrace direct marketing and Internet banking as tools to distribute insurance products. Guru Nanak College Of Arts.Bancassurance-A Boost To Banking Sector.
Banks even offer space in their own premises to accommodate the insurance staff for selling the insurance products or giving access to their client’s database for the use of the insurance companies. Banks by and large are resorting to either ‘referral models’ or ‘Corporate agency model’ to begin with. Science & Commerce.Bancassurance-A Boost To Banking Sector. Page 41 . Guru Nanak College Of Arts.
The Insurance Regulatory Development Authority (IRDA) adopted a cautious approach before flagging off bancassurance. At present. Science & Commerce. Page 42 . But most insurance selling banks do not have trained sales force and there is also an acute competition from other insurance intermediaries who have well trained financial advisers (sales force). While on the one hand. even the consumers are demanding more as a result of unprecedented changes in the financial markets Legal issues Statutory restrictions have forced banks to provide their customers with limited choices.Bancassurance-A Boost To Banking Sector. it is an economical proposition to sell risk products through the numerous bank branches spread across the country. Challenges in Bancassurance Lack of trained marketing people Selling an insurance plan is not an easy task. It requires professionals with marketing skills for convincing people to buy plan. the fact that claim settlement disputes take Guru Nanak College Of Arts.
This competition will devolve with the influx of insurance broking agencies that are free to bargain for the most suitable products to satisfy the needs of customers. an unusually long time in our country is a theory issue. require sophisticated products and risk management. • Increasing sales of non-life products. to the extent those risks are retained by the banks.Bancassurance-A Boost To Banking Sector. Otherwise. In such a situation. they may lose their prime banking business. banks must be protected to safeguard their reputation. Competition As mentioned earlier. Page 43 . most bancassurance ventures will be forced to achieve optimum organization structures due to competition from independent agents. These developments are expected to challenge traditional bancassurers in the following ways: • The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own. Guru Nanak College Of Arts. • • The sale of non-life products should be weighted against the higher cost Servicing those policies. Science & Commerce.
Page 44 . changing demographic and socio-economic pattern are some trends that will result in new or changing needs for insurance protection and financial planning. In addition. In turn. Banks and insurance companies should sharpen in their skills and potential in these areas and take advantages of emerging opportunities. banks need to develop special insurance products in order to fulfill creating needs come from banking transaction or improving certain products to make lucrative and helpful to the customers. they can leverage their name.Bancassurance-A Boost To Banking Sector. In addition to traditional products. Insurance companies see bancassurance as a tool for increasing their market penetration and premium turnover. Science & Commerce. Guru Nanak College Of Arts. Bancassurance Opportunities Globalization of markets advances in technology. recognition and reputation at both local and regional levels. high quality product and delivery at doorsteps. • Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims. The motives behind banks selling bancassurance are the product diversification and a source of additional fee-based income. The customer sees bancassurance as bonanza in terms of reduced price. return on asset can be increased with more fee-based income.
Page 45 . Bancassurance in India is in very early stages of development. which had a massive potential. While many forms of bancassurance van contribute to improving cross selling. INDIA’S PERSPECTIVE Coming to India. Guru Nanak College Of Arts. Science & Commerce. bancassurance is a new buzzword in India. banks can act as an agent of one life and one non-life insurer. hire purchase. No insurance company dared to establish its own network in rural areas due to the requirement of huge capital outlay. the Indian banking system had undergone reforms in merchant banking. Indian rural market. only much closer forms of integration are likely to yield benefits in operation efficiency.Bancassurance-A Boost To Banking Sector. A few years ago. Currently bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India. As per the concept of Corporate Agency. capital markets. it’s new and untried but the potential is undoubtedly large. banks in India entered into the insurance market to augment their income from insurance business. After the Narsimham committee report. was still untapped by the insurance companies. Hence. etc. real estate finance. lease and term finance. It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian Banks to do insurance distribution. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations.
Eventually. Many private players started venturing into this new field to expand their market operations. Science & Commerce. insurance companies planned to capture potential markets. empanelled with one insurance company. with their reputation and market share. Under this agreement. The Indian insurance market comprises 20 private players and the public sector giant. to sell the products. LIC. The company plans to explore insurance business with the potential of State Bank of India’s 9000 plus branches spread across the country and also the 4000 branches of its associate banks. banks are appointed as corporate agents. companies that entered first into the market benefited by associating themselves with various other banks exclusively for bancassurance agreements. SBI Life Insurance Company plays a predominant role in bancassurance. Out of these. Bancassurance is expected to prosper in India because of the following reasons: • Indian economy is growing at 9% (in normal economic conditions and not during the recession period). Guru Nanak College Of Arts. in the form of lower premium rates to the clients. they came out with ‘bancassurance’ as this network helped the insurers to tap those markets that were left untapped at a much lower cost with the help of the banks. Banks. The competitive nature of the Indian market ensures that the reduction in costs would result in benefits. Bancassurance is a creative marketing approach that helps in converting bank customers into insurance policyholders. can convert their customers into policyholders. This certainly indicates a positive trend for bancassurance in the Indian banking sector.Bancassurance-A Boost To Banking Sector. Page 46 .
derivatives. in recent years. • Increasing purchasing power parity. • Huge banking infrastructure across urban. As India is being considered one of the fast developing economies among the emerging market economies. financial sector has also become more vibrant with the financial reforms. Science & Commerce..5 per cent for the last four years. 2006) and indications are that it may grow at even better rate in the near future provided there is good monsoon. are strongly Guru Nanak College Of Arts. with macroeconomic and financial stability (RBI. Experience also showed that economic growth had strongly supported the expansion of middle income class in most of the Asian countries. it is surmised that even the ‘global economic growth’ hinges on growth prospects of the emerging economies like China and India to a greater extent. Page 47 .Bancassurance-A Boost To Banking Sector. • Huge inflow of FDI. it has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates provision of more sophisticated and variety of financial and banking products and services. Experience reveals that at the initial growing stage of the economy the primary financial needs are met by the banking system and thereafter as the economy moves on to higher levels. Indian economy has recorded an average growth of over 8. • Expansion of middle income class Indians. In fact. etc. By now. semi-urban and rural India. and now it is the turn of India. Significantly. the need for the other nonbanking financial products including insurance.
For instance.Bancassurance-A Boost To Banking Sector. In UK about a third of policies are sold through banks.. There are 70324 bank offices in India and around 16000 people are served by each bank office. felt. economic and legislation prescription in that country. insurers and the customers. Moreover. as India has already more than 200 million middle class population coupled with vast banking network with largest depositor’s base. as at end March 2005. WORLDS PERSPECTIVE Banc assurance has given grown at a different shapes and forms in different pace and taken different shapes and forms in different countries depending on the demography.28 public sector banks (that is with the government of India holding a stake). there were more than 466 lakh bank accounts with scheduled commercial banks. bancassurance has taken deep roots in various countries. viz. In 2007. it is aptly put that bancassurance has promised to combine insurance companies’ competitive edge in the “production” of insurance products with banks’ edge in their distribution. semi urban & rural areas of nation. Science & Commerce. It’s a huge banking infrastructure and among the best banking network in the world. Guru Nanak College Of Arts. Altogether they have a combined network of over 53. 29 private banks (these do not have government stake. Bancassurance if taken in right spirit and implemented properly can be a win-win situation for the all the participants. In simple words. Page 48 . there is greater scope for use of bancassurance. especially in Europe. they may be publicly listed and traded on stock exchanges ) and 31 foreign banks. During the past two decades.000 branches and reach in urban. through their vast retail networks. banks. India has 88 scheduled commercial banks (SCBs) .
banks are limited to playing the role of tied agents to insurance companies. the country’s largest insurer. Guru Nanak College Of Arts. Page 49 . In the Asian markets. The Insurance Regulatory and Development authority (IRDA) established in 1999 Progressively attempted to lay down the ground rules in India. which can still provide a good platform for bancassurance to develop. In china. received an impetus by the Gramm-Leach-Bliley Act (GLBA). Historically. even after the purchase of Dresdner Bank in 2001 by Allianz. whereas in France it is 55%. In the US. It is a relatively new concept in Australia and Asia. bancassurance has become a favorite choice of bankers and insurers and as a result governments have been offering legislative support. target customers have not responded well. It had little success in Germany. France. there were regulatory hurdles as till recently banks were not allowed to do insurance business and vice versa.Bancassurance-A Boost To Banking Sector. Bancassurance recorded a huge growth in Europe but not in USA and Canada. apart from traditional banking. Science & Commerce. The spread of diversified financial firms offering various services such as insurance and securities underwriting. 1999 in the USA. Even after Gramm-Leach Bliley Act of 1999. Italy and Spain recorded a penetration of more than 60% due to large middle class population and favorable tax treatment. there are integrated organic and merger approaches to the growth of Bancassurance. In Spain 72% of premium income comes through bancassurance.
C. News Article Asian-Pacific Bank Insurance Sales Grow: Celen By NU ONLINE NEWS SERVICE Published 11/12/2010 Sales of insurance are growing in many Asian and western Pacific markets. Bancassurance in the Asia-Pacific Region. from consulting firm Celent L. according to the report. despite the dominance of the agent channel. the report finds. Page 50 . but banc assurance is growing quickly.Bancassurance-A Boost To Banking Sector. a new report says. Science & Commerce. Boston. The Asia-Pacific region is still agent-dominated in both life and non-life distribution. the bank insurance business has evolved in different ways in different countries sustained by deregulation of banking and insurance companies. Locally.L.. Guru Nanak College Of Arts.
banks are offering a range of insurance-related products. Science & Commerce. Indonesia and Thailand are among the countries considering this opportunity. Penetration in the life insurance market by banks ranges from 10% of sales in India. Malaysia. In countries where the Muslim population is high. known as Takaful. that meet Islamic religious restrictions. Celent found. -Trevor Thomas Guru Nanak College Of Arts. banks accounted for 27% of insurance sales in 2009. compared to 37% in the agent channel. Celent reports. including direct sales and aggregators as well as banks.Bancassurance-A Boost To Banking Sector.Celent expects the agent channel to decline in those markets and give way to nontraditional channels. Page 51 . and Thailand to as high as 50% to 70% of total insurance distribution in countries like Taiwan and Malaysia. In mainland China. Japan.
Page 52 .Bancassurance-A Boost To Banking Sector. Guru Nanak College Of Arts. the results you will get are HEADS: BANK WINS TAILS: INSURER WINS And If The Coin Had A Third Side Truly We Can Say That The Customer Also Wins. Science & Commerce. if you go for a toss. as everybody is a winner in this system. The bancassurance concept is so well designed that. Insurers and Customers to maximize their benefits at the same time. CONCLUSION Bancassurance is an important tool in the hands of Bankers.
1 Guru Nanak College Of Arts. Page 53 . Science & Commerce. References Business world Business today Economic times Irda journal-vol.Bancassurance-A Boost To Banking Sector.2.no.
com Guru Nanak College Of Arts. Page 54 .com www.docstoc.sbilife.Bancassurance-A Boost To Banking Sector.com www. Science & Commerce.google. www.scribid.com www.bancassurance.in www.co.
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