Post on 04-Apr-2018
7/31/2019 Ban Cass Urnace
1/29
1 | P a g e
BANCASSURANCE IN INDIA
Submitted by:
Shobhit Saxena
Roll No. 14108
7/31/2019 Ban Cass Urnace
2/29
2 | P a g e
Table of Contents
Introduction..3
What Is Bancassurance?............................................................................................................... ..............4
Meaning4
Origin5
Bancassurance Framework5
Scope For Bancassurance In India ...6
Why Should Banks Enter Insurance?.......................................................................................................7
Advantages To Insurers......8
Advantages To Consumers.9
Models Of Bancassurance...9
Existing Tie-Ups Between Insurance Companies And Banks ..12
Existing Relationship Between Insurance Companies And Banks ..12
RBI Norms For Banks..13
IRDA Norms For Insurance Companies.15
Reasons For Growing Phenomena Of Bancassurance...16
Growth In Some Of The Key Elements...17
Critical Success Factor..17
Distribution Channels18
Trends 20
Challenges...21
Swot Analysis.22
Recommendations.26
Example: Sbi Life Insurance....27
Conclusion..28
Bibliography.......29
7/31/2019 Ban Cass Urnace
3/29
3 | P a g e
INTRODUCTION
The Banking and Insurance industries have changed rapidly in th e c h a n g i n g a n d
cha l lenging economic environment th roughout the world . In th is
competitive and liberalized environment everyone is trying to do better than others and
consequently survival of the fittest has come into effect
The life insurance industry in India has been progressing at a rapid pace since opening
up of the sector in 2000. The size of the country, a diverse set of people combined with
problems of connectivity in rural areas, makes insurance selling in India a very difficult
proposition. Life insurance companies require immense distribution strength and
tremendous manpower to reach out to such a huge customer base.
This distribution will undergo a sea change as various insurance companies are
proposing to bring insurance products into the lives of the common man by making
them available at the most basic financial point, the local bank branch, through
Bancassurance. Simply put, Bancassurance is the process through which insurance
products are sold to customers at their local banks. Bancassurance - a term coined by
combining the two words bank and insurance (in French) - connotes distribution of
insurance products through banking channels. 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.
With banking network of 65,000 branches serving more than 300 million retail banking
customers, insurance can be available at affordable prices to people even in remote
corners of the country.
The relationship is symbiotic; but there are challenges. The most common challenges to
success are poor manpower management, lack of a sales culture within the bank, no
involvement by the branch manager, insufficient product promotions, failure to
integrate marketing plans, marginal database expertise, poor sales channel linkages,
inadequate incentives, resistance to change, negative attitudes toward insurance and
unwieldy marketing strategy. Even insurers and banks that seem ideally suited for a
Bancassurance partnership can run into problems during implementation.
One more important obstacle in development of Bancassurance in India has been a set
of regulatory barriers. Some of these have recently been cleared with the passage of theInsurance (Amendment) Act, 2002. Looking at the west where sales through the
banking network have been a roaring success, the Indian banking sector has far to go.
But one thing stands obvious. If insurance in India is to succeed, it can only be through
the Bancassurance channel.
7/31/2019 Ban Cass Urnace
4/29
4 | P a g e
WHAT IS BANCASSURANCE?
With the opening up of the insurance sector and with so many players entering the
Indian insurance industry, it is required by the insurance companies to come up with
innovative products, create more consumer awareness about their products and offer
them at a competitive price. Since the banking services, insurance and fundmanagement are all interrelated activities and have inherent synergies, selling of
insurance by banks would be mutually beneficial for banks and insurance companies.
With these developments and increased pressures in combating competition, companies
are forced to come up with innovative techniques to market their products and services.
At this juncture, banking sector with it's far and wide reach, was thought of as a
potential distribution channel, useful for the insurance companies. This union of the two
sectors is what is known as Bancassurance.
MEANING
Bancassurance is the distribution of insurance products through the bank's distribution
channel. It is a phenomenon wherein insurance products are offered through the
distribution channels of the banking services along with a complete range of banking
and investment products and services. To put it simply, Bancassurance, tries to exploit
synergies between both the insurance companies and banks.
Bancassurance can be important source of revenue. With the increased competition and
squeezing of interest rates spread, profits are likely to be under pressure. Fee based
income can be increased through hawking of risk products like insurance.
Bancassurance if taken in right spirit and implemented properly can be win-win
situation for the all the participants' viz., banks, insurers and the customer.
According to IRDA, Bancassurance refers to banks acting as corporate agents for
insurers to distribute insurance products. Literature on Bancassurance does not
differentiate if the Bancassurance refers to selling of lifeinsurance products or non-life
insurance products. Accordingly, Bancassuranceis defined to mean banks dealing in
insurance products of both life and non-life type in any forms.
It is also important to clarify that the term Bancassurance does not just refer specifically
to distribution alone. Other features, such as legal, fiscal, cultural and/or behavioural
aspects also form an integral part of the concept of Bancassurance (SCOR 2003).
7/31/2019 Ban Cass Urnace
5/29
5 | P a g e
ORIGIN
The banks taking over insurance is particularly well-documented with reference to the
experience in Europe. Across Europe in countries like Spain and UK, banks started the
process of selling life insurance decades ago and customers found the concept appealing
for various reasons.
Germany took the lead and it was called ALLFINANZ. The system of Bancassurance
was well received in Europe. France taking the lead, followed by Germany, UK, Spain
etc. In USA the practice was late to start (in 90s). It is also developing in Canada,
Mexico, and Australia.
In India, the concept of Bancassurance is very new. With the liberalization and
deregulation of the insurance industry, Bancassurance evolved in India around 2002.
BANCASSURANCE FRAMEWORK
7/31/2019 Ban Cass Urnace
6/29
6 | P a g e
SCOPE FOR BANCASSURANCE IN INDIA
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. As India is being considered one of the fast
developing economies among the emerging market economies, financial sector has alsobecome more vibrant with the financial reforms. In fact, in recent years, 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. Experience also showed that
economic growth had strongly supported the expansion of middle income class in most
of the Asian countries, and now it is the turn of India. 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, the need for the other
non-banking financial products including insurance, derivatives, etc., are strongly felt.
Moreover, as India has already more than 200 million middle class population coupled
with vast banking network with largest depositors base, there is greater scope for use of
Bancassurance. For instance, as at end March 2009, there were more than 543 lakh bank
accounts with scheduled commercial banks. In simple words, it is aptly put that
Bancassurance haspromised to combine insurance companies competitive edge in the
production of insurance products with banks edge in their distribution, through their
vast retail networks.
The prospects of Bancassurance in India are really bright because of following
reasons:
Increasing PPP (purchasing power parity). Huge inflow of FDI. Expansion of middle income class Indians. Though slowed down, Indian economy is still growing faster than most Huge banking infrastructure across urban, semi urban & rural India. BASEL NORM-II (2009).
India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with
the government of India holding a stake), 29 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges ) and 31foreign banks. Altogether they have a combined network of over 53,000 branches and
reach in urban, semi urban & rural areas of nation. There are 70324 bank offices in
India and around 16000 people are served by each bank office. Its a huge banking
infrastructure and among the best banking network in the world. Bancassurance if taken
in right spirit and implemented properly can be a win-win situation for the all the
participants, viz., banks, insurers and the customers.
7/31/2019 Ban Cass Urnace
7/29
7 | P a g e
WHY SHOULD BANKS ENTER INSURANCE?
There are several reasons why banks should seriously consider Bancassurance:
The most important of which is increased return on assets (ROA). One of thebest ways to increase ROA, assuming a constant asset base, is through feeincome. Banks that build fee income can cover more of their operating expenses,
and one way to build fee income is through the sale of insurance products.
Banks that effectively cross-sell financial products can leverage their
distribution and processing capabilities for profitable operating expense ratios.
By leveraging their strengths and finding ways to overcome their weaknesses,banks could change the face of insurance distribution. Sale of personal line
insurance products through banks meets an important set of consumer needs.
Most large retail banks engender a great deal of trust in broad segments of
consumers, which they can leverage in selling them personal line insuranceproducts. In addition, a banks branch network allows the face to face contact
that is so important in the sale of personal insurance.
Another advantage banks have over traditional insurance distributors is thelower cost per sales lead made possible by their sizable, loyal customer base.
Banks also enjoy significant brand awareness within their geographic regions,
again providing for a lower per-lead cost when advertising through print, radio
and/or television. Banks that make the most of these advantages are able to
penetrate their customer base and markets for above-average market share.
Other bank strengths are their marketing and processing capabilities. Banks haveextensive experience in marketing to both existing customers (for retention and
cross selling) and non-customers (for acquisition and awareness). They also
have access to multiple communications channels, such as statement inserts,
direct mail, ATMs, telemarketing, etc. Banks' proficiency in using technology
has resulted in improvements in transaction processing and customer service
By successfully mining their customer databases, leveraging their reputationand 'distribution systems (branch, phone, and mail) to make appointments, and
utilizing 'sales techniques and products tailored to the middle market, European
banks have more than doubled the conversion rates of insurance leads into salesand have increased sales productivity to a ratio which is more than enough to
make Bancassurance a highly profitable proposition.
7/31/2019 Ban Cass Urnace
8/29
8 | P a g e
ADVANTAGES TO INSURERS
The Insurance Company can increase their business through the bankingdistribution channels because the banks have so many customers.
By cutting cost Insurers can serve better to customers in terms lower premiumrate and better risk coverage through product diversification.
Insurers can exploit the banks' wide network of branches for distribution ofproducts. The penetration of banks' branches into the rural areas can be utilized
to sell products in those areas.
Customer database like customers' financial standing, spending habits,investment and purchase capability can be used to customize products and sell
accordingly.
Since banks have already established relationship with customers, conversionratio of leads to sales is likely to be high. Further service aspect can also be
tackled easily. The insurance companies can also get access to ATMs and other technology
being used by the banks.
The selling can be structured properly by selling insurance products throughbanks.
The product can be customized as per the needs of the customers
A Win-Win Situation
7/31/2019 Ban Cass Urnace
9/29
9 | P a g e
ADVANTAGES TO CONSUMERS
Product innovation and distribution activities are directed towards thesatisfaction of needs of the customer.
Bancassurance model assists customers in terms of reduction price, diversifiedproduct quality in time and at their doorstep service by banks.
Comprehensive financial advisory services under one roof. i.e., insuranceservices along with other financial services such as banking, mutual funds,
personal loans etc.
Easy accesses for claims, as banks are a regular visiting place for customers. Innovative and better product ranges and products designed as per the needs of
customers.
Any new insurance product routed through the Bancassurance Channel would bewell received by customers.
Customers could also get a share in the cost savings in the form of reducedpremium rate because of economies of scope, besides getting better financial
counseling at single point.
MODELS OF BANCASSURANCE
I. Structural Classification
a) Referral ModelBanks intending not to take risk could adopt referral model wherein they merely part
with their client data base for business lead of commission. The actual transaction with
the prospective client in referral model is done by the staff of the insurance company
either at the premises of the ban0k or elsewhere. Referral model is nothing but a simple
arrangement, wherein the bank, while controlling access to the clients data base, parts
with only the business leads to the agents/ sales staff of insurance company for a
referral fee or commission for every business lead that was passed on. In fact a
number of banks in India have already resorted to this strategy to begin with. This
model would be suitable for almost all types of banks including the RRBs /cooperative
banks and even cooperative societies both in rural and urban. There is greater scope in
the medium term for this model. For, banks to begin with can resort to this model andthen move on to the other models.
b) Corporate AgencyThe other form of non-sick participatory distribution channel is that of Corporate
Agency, wherein the bank staff as an institution acts as corporate agent for the
insurance product for a fee/commission. This seems to be more viable and appropriate
for most of the mid-sized banks in India as also the rate of commission would be
relatively higher than the referral arrangement. This, however, is prone to reputationalrisk of the marketing bank. There are also practical difficulties in the form of
7/31/2019 Ban Cass Urnace
10/29
10 | P a g e
professional knowledge about the insurance products. This could, however, be
overcome by intensive training to chosen staff, packaged with proper incentives in the
banks coupled with selling of simple insurance products in the initial stage. This model
is best suited for majority of banks including some major urban cooperative banks
because neither there is sharing of risk nor does it require huge investment in the form
of infrastructure and yet could be a good source of income. This model of
bancassurance worked well in the US, because consumers generally prefer to purchase
policies through broker banks that offer a wide range of products from competing
insurers.
c) Insurance as Fully Integrated Financial Service/ Joint venturesApart from the above two, the fully integrated financial service involves much more
comprehensive and intricate relationship between insurer and bank, where the bank
functions as fully universal in its operation and selling of insurance products is just one
more function within. This includes banks having wholly owned insurance subsidiaries
with or without foreign participation. The great advantage of this strategy being that the
bank could make use of its full potential to reap the benefit of synergy and therefore the
economies of scope. This may be suitable to relatively larger banks with sound
financials and has better infrastructure. As per the extant regulation of insurance sector
the foreign insurance company could enter the Indian insurance market only in the form
of joint venture, therefore, this type of bancassurance seems to have emerged out of
necessity in India to an extent. There is great scope for further growth both in life and
non-life insurance segments as GOI is reported have been actively considering toincrease the FDIs participation up to 49 per cent.
II. Product based classification
(a) Stand-alone Insurance ProductsIn this case bancassurance involves marketing of the insurance products through either
referral arrangement or corporate agency without mixing the insurance products with
any of the banks own products/ services. Insurance is sold as one more item in the
menu of products offered to the banks customer, however, the products of banks and
insurance will have their respective brands too.
7/31/2019 Ban Cass Urnace
11/29
11 | P a g e
(b) Blend of Insurance with Bank ProductsThis method aims at blending of insurance products as a value addition while
promoting the banks own products. Thus, banks could sell the insurance products
without any additional efforts. In most times, giving insurance cover at a nominal
premium/ fee or sometimes without explicit premium does act as an added attraction to
sell the banks own products, e.g., credit card, housing loans, education loans, etc. Many
banks in India, in recent years, has been aggressively marketing credit and debit card
business, whereas the cardholders get the insurance cover for a nominal fee or
(implicitly included in the annual fee) free from explicit charges/ premium. Similarly
the home loans / vehicle loans, etc., have also been packaged with the insurance cover
as an additional incentive.
III. Bank Referrals
There is also another method called 'Bank Referral'. Here the banks do not issue the
policies; they only give the database to the insurance companies. The companies issue
the policies and pay the commission to them. That is called referral basis. In this method
also there is a win-win situation every where as the banks get commission, the insurance
companies get databases of the customers and the customers get the benefits.
7/31/2019 Ban Cass Urnace
12/29
12 | P a g e
Existing Tie-Ups Between Insurance Companies And Banks
Existing Relationship Between Insurance Companies And Banks
7/31/2019 Ban Cass Urnace
13/29
13 | P a g e
RBI NORMS FOR BANKS
RBI Guidelines for the Banks to enter into Insurance Business
Following the issuance of Government of India Notification dated August 3, 2000,specifying Insurance as a permissible form of business that could be undertaken by
banks under Section 6(1) (o) of The Banking Regulation Act, 1949, RBI issued the
guidelines on Insurance business for banks.
1 Any scheduled commercial bank would be permitted to undertake insurance business
as agent of insurance companies on fee basis. Without any risk participation
2. Banks which satisfy the eligibility criteria given below will be permitted to set up a
joint venture company for undertaking insurance business with risk participation,
subject to safeguards. The maximum equity contribution such a bank can hold in the
Joint Venture Company will normally be 50% of the paid up capital of the insurance
company.
The eligibility criteria for joint venture participant are as under:
i. The net worth of the bank should not be less than Rs.500 crore;
ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level ofnon-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if any, of the concerned bank
should be satisfactory.
3. In cases where a foreign partner contributes 26% of the equity with the approval of
Insurance Regulatory and Development Authority/Foreign Investment Promotion
Board, more than one public sector bank or private sector bank may be allowed to
participate in the equity of the insurance joint venture. As such participants will also
assume insurance risk, only those banks which satisfy the criteria given in paragraph 2
above, would be eligible.
4. A subsidiary of a bank or of another bank will not normally be allowed to join the
insurance company on risk participation basis.
7/31/2019 Ban Cass Urnace
14/29
14 | P a g e
5. Banks which are not eligible for joint venture participant as above, can make
investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower,
in the insurance company for providing infrastructure and services support. Such
participation shall be treated as an investment and should be without any contingent
liability for the bank.
The eligibility criteria for these banks will be as under:
i. The CRAR of the bank should not be less than 10%;
ii. The level ofNPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive years.
6. All banks entering into insurance business will be required to obtain prior approval
of the Reserve Bank. The Reserve Bank will give permission to banks on case to case
basis keeping in view all relevant factors including the position in regard to the level of
non-performing assets of the applicant bank so as to ensure that non-performing assets
do not pose any future threat to the bank in its present or the proposed line of activity,
viz., insurance business. It should be ensured that risks involved in insurance business
do not get transferred to the bank. There should be arms length relations hip between
the bank and the insurance outfit.
7. Holding of equity by a promoter bank in an insurance company or participation in
any form in insurance business will be subject to compliance with any rules and
regulations laid down by the IRDA/Central Government. This will include
compliance with Section 6AA of the Insurance Act as amended by the IRDA Act,
1999, for divestment of equity in excess of 26 per cent of the paid up capital within a
prescribed period of time.
8. Latest audited balance sheet will be considered for reckoning the eligibility criteria.
7/31/2019 Ban Cass Urnace
15/29
15 | P a g e
IRDA NORMS FOR INSURANCE COMPANIES
The Insurance regulatory development & Authority has given certain guidelines for the
Bancassurance they are as follows
Chief Insurance Executive: Each bank that sells insurance must have a chiefInsurance Executive to handle all the insurance matters & activities.
Mandatory Training: All the people involved in selling the insurance shouldunder-go mandatory training at an institute determined (authorized) by IRDA &
pass the examination conducted by the authority.
Corporate agents: Commercial banks, including co-operative banks and RRBsmay become corporate agents for one insurance company.
Banks cannot become insurance brokers.Issues for regulation: Certain regulatory barriers have slowed the development of
Bancassurance in India down. Which have only recently been cleared with the passage
of the insurance (amendment) Act 2002. Prior it was clearly an impractical necessityand had held up the implementation of Bancassurance in the country. As the current
legislation places the following:-
Training and examination requirements: upon the corporate insuranceexecutive within the corporate agency, this barrier has effectively been removed.
Another regulatory change is published in recent publication of IRDA regulation
relating to the Licensing of Corporate agents
Specified person to satisfy the training & examination: According to newregulation of IRDA only the specific persons have to satisfy the training &
examination requirement as insurance agent.
7/31/2019 Ban Cass Urnace
16/29
16 | P a g e
REASONS FOR GROWING PHENOMENA OF BANCASSURANCE
Life insurance premium represents 55% of the world insurance premiumand life insurance is basically a saving market. So it is one of the methods to
increase deposits of banks.
In Non life insurance business banks are looking to provide additional flow ofrevenues from the same customers through the same channel of distribution and
with the same people.
Insurers have been turning in ever greater numbers to alternative modes ofdistribution because of the high costs they have paid for agent services.
These costs became too much of a burden for many insurers compared to the
returns they generated.
Insurers operating through bancassurance hone and control relationships withcustomers. Insurers found that direct relationships with customers gave
them greater control of their business at a lower cost . Insurers who operate
through the agency relationships hardly have any control on their relationship
with their clients.
The ratio of expenses to premiums, as an important efficiency factor, is noticedvery well that expenses ratio in insurance activities through bancassurance
is extensively low as the bank and the insurance company is benefiting from thesame distribution channels and people.
The prospects for increased consolidation between banking and insurance ismore likely dominated and derived by the marketing innovations that are likely
to follow from financial service modernization. Such innovations would
include cross selling of banking, insurance and brokerage products and
services; the increased use of the Internet by consumers and a blending ofinsurance and banking corporate cultures.
7/31/2019 Ban Cass Urnace
17/29
17 | P a g e
CRITICAL SUCCESS FACTOR
7/31/2019 Ban Cass Urnace
18/29
18 | P a g e
DISTRIBUTION CHANNELS
Traditionally, insurance products were promoted and sold principally through agency
systems only. The reliance of insurance industry was totally on the agents. Moreover
with the monopoly of public sector insurance companies there was very slow growth in
the insurance sector because of lack of competition. The need for innovative distribution
channels was not felt because all the companies relied only upon the agents and
aggressive marketing of the products was also not done. But with new developments in
consumers behaviours, evolution of technology and deregulation, new distribution
channels have been developed successfully and rapidly in recent years.
Recently Bancassurers have been making use of various distribution channels, they are:
a. Career Agents
Career Agents are full-time commissioned sales personnel holding an agency contract.They are generally considered to be independent contractors. Consequently an insurance
company can exercise control only over the activities of the agent which are specified in
the contract. Many bancassurers, however avoid this channel, believing that agents
might oversell out of their interest in quantity and not quality. Such problems with
career agents usually arise, not due to the nature of this channel, but rather due to the
use of improperly designed remuneration and incentive packages.
b. Special Advisers
Special Advisers are highly trained employees usually belonging to the insurance
partner, who distribute insurance products to the bank's corporate clients. The Clientsmostly include affluent population who require personalised and high quality service.
Usually Special advisors are paid on a salary basis and they receive incentive
compensation based on their sales.
c. Salaried Agents
Salaried Agents are an advantage for the bancassurers because they are under the
control and supervision of bancassurers. These agents share the mission and objectives
of the bancassurers. These are similar to career agents, the only difference is in terms of
their remuneration is that they are paid on a salary basis and career agents receive
incentive compensation based on their sales.
d. Bank Employees / Platform Banking
Platform Bankers are bank employees who spot the leads in the banks and gently
suggest the customer to walk over and speak with appropriate representative within the
bank. The platform banker may be a teller or a personal loan assistant. A restriction on
the effectiveness of bank employees in generating insurance business is that they have a
limited target market, i.e. those customers who actually visit the branch during the
opening hours.
7/31/2019 Ban Cass Urnace
19/29
19 | P a g e
e. Corporate Agencies and Brokerage Firms
There are a number of banks who cooperate with independent agencies or brokerage
firms while some other banks have found corporate agencies. The advantage of such
arrangements is the availability of specialists needed for complex insurance matters and
through these arrangements the customers get good quality of services.
f. Direct Response
In this channel no salesperson visits the customer to induce a sale and no face-to-face
contact between consumer and seller occurs. The consumer purchases products directly
from the bancassurer by responding to the company's advertisement, mailing or
telephone offers. This channel can be used for simple packaged products which can be
easily understood by the consumer without explanation.
g. Internet
Internet banking is already securely established as an effective and profitable basis for
conducting banking operations. Bancassurers can feel confident that Internet banking
will also prove an efficient vehicle for cross selling of insurance savings and protection
products. Functions requiring user input (check ordering, what-if calculations, credit
and account applications) should be immediately added with links to the insurer. Such
an arrangement can also provide a vehicle for insurance sales, service and leads.
h. Brokerage
Banks can open or acquire an e-Brokerage arm and sell insurance products from
multiple insurers. The changed legislative climate across the world should help
migration of bancassurance in this direction. The advantage of this medium is scale of
operation, strong brands, easy distribution and excellent synergy with the internet
capabilities.
i. Outside Lead Generating Techniques
One last method for developing bancassurance eyes involves "outside" lead generating
techniques, such as seminars, direct mail and statement inserts. Great opportunities
await bancassurance partners today and, in most cases, success or failure depends on
precisely how the process is developed and managed inside each financial institution.
7/31/2019 Ban Cass Urnace
20/29
20 | P a g e
TRENDS
Though bancassurance has traditionally targeted the mass market, but bancassurershave begun to finely segment the market, which has resulted in tailor-madeproducts for each segment.
Some bancassurers are also beginning to focus exclusively on distribution. In somemarkets, face-to-face contact is preferred, which tends to favour bancassurance
development.
Nevertheless, banks are starting to embrace direct marketing and Internet bankingas tools to distribute insurance products. New and emerging channels are becoming
increasingly competitive, due to the tangible cost benefits embedded in productpricing or through the appeal of convenience and innovation.
Bancassurance proper is still evolving in Asia and this is still in infancy in Indiaand it is too early to assess the exact position. However, a quick survey revealed
that a large number of banks cutting across public and private and including foreign
banks have made use of the bancassurance channel in one form or the other in
India.
Banks by and large are resorting to either referral models or Corporate agencymodel to begin with.
Banks even offer space in their own premises to accommodate the insurance stafffor selling the insurance products or giving access to their clients database for the
use of the insurance companies.
As number of banks in India have begun to act as corporate agents to one or theother insurance company, it is a common sight that banks canvassing and
marketing the insurance products across the counters.
7/31/2019 Ban Cass Urnace
21/29
21 | P a g e
CHALLENGES
Increasing sales of non-life products, to the extent those risks are retained by thebanks, require sophisticated products and risk management. The sale of non-lifeproducts should be weighted against the higher cost of servicing those policies.
Bank employees are traditionally low on motivation. Lack of sales culture itself isbigger roadblock than the lack of sales skills in the employees. Banks are generally
used to only product packaged selling and hence selling insurance products do not
seem to fit naturally in their system.
Human Resource Management has experienced some difficulty due to suchalliances in financial industry. Poaching for employees, increased work-load,additional training, maintaining the motivation level are some issues that has
cropped up quite occasionally. So, before entering into a bancassurance alliance,
just like any merger, cultural due diligence should be done and human resource
issues should be adequately prioritized.
Private sector insurance firms are finding change management in the publicsector, a major challenge. State-owned banks get a new chairman, often from
another bank, almost every two years, resulting in the distribution strategy
undergoing a complete change. So because of this there is distinction created
between public and private sector banks.
The banks also have fear that at some point of time the insurance partner may endup cross-selling banking products to their policyholders. If the insurer is selling the
products by agents as well as banks, there is a possibility of conflict if both the
banks and the agent target the same customers.
7/31/2019 Ban Cass Urnace
22/29
22 | P a g e
SWOT ANALYSIS
Banking and Insurance are very different businesses. Banks have less risk but the
insurance has a greater risk. Even though, banks and insurance companies in India are
yet to exchange their wedding rings, Bancassurance as a means of distribution of
insurance products is already in force in some form or the other.
Banks are selling Personal Accident and Baggage Insurance directly to their Credit Card
members as a value addition to their products. Banks can straightaway leverage their
existing capabilities in terms of database and face-to face contact to market insurance
products to generate some income for themselves, which previously was not thought of.
The sale of insurance products can earn banks very significant commissions
(particularly for regular premium products). In addition, one of the major strategic gains
from implementing bancassurance successfully is the development of a sales culture
within the bank. This can be used by the bank to promote traditional banking products
and other financial services as well. Bancassurance enables banks and insurance
companies to complement each others strengths as well.
STRENGTHS:
In a country like India of one billion people where sky is the limit there is a vastuntapped potential waiting for life insurance products. Our other strength lies in
a huge pool of skilled professionals whether it is banks or insurance companies
who may be easily relocated for any bancassurance venture.
Banks have the credibility established with their constituents because of avariety of services and schemes provided by them. They also enjoy pride of
place in the hearts of people because of their long presence and sustained image.
Banks also enjoy a wide network of branches, even in the remotest areas that canfacilitate taking up the task on a large and massive scale, simultaneously.
Banks are very well aware with the psychology of the customers because of theirinteraction with the customers on regular basis. Because of this the bankers can
guess the attitude and diverse needs of the customers and could change the face
of insurance distribution to personal line insurance.
7/31/2019 Ban Cass Urnace
23/29
23 | P a g e
People rely more upon LIC and GIC for taking insurance. If the products of LICand GIC are provided through bancassurance it would be an added advantage to
the insurance companies.
With the help of banks trained staff, its brand name and the confidence andreliability of people on the banks, the selling of insurance products can be donein a more proper way.
Other than all these things there is a huge potential for insurance sector, as thepopulation of India is high and a large part of it has remained untapped till now.
So this can create an added advantage for both banks and insurers.
WEAKNESSES In spite of growing emphasis on total branch mechanism and full
computerization of bank branches, the rural and semi-urban banks have still to
see information technology as an enabler. The IT culture is unfortunately
missing completely in all of the future collaborations. The internet connections
are also not properly provided to the staff.
To undertake the distribution of the insurance products, the bank employeeshave to undergo certain minimum period of training, followed by a test and then
get themselves licensed. Moreover the standards of the examination have beenraised in the recent past making it difficult for many examinees to clear the
same.
There is lack of personalized services because the traditional insurance agent isconsidered a member of the family and hence is able to render a personalized
service during and after the sales process. However that may not be the case in
regards to a bank employee.
There are many differences in the way of thinking and business approaches ofbankers and the managers of insurance companies. Banks are traditionally
demand-driven organizations with a reactive selling philosophy. Insurance
organizations are usually need-driven and have an aggressive selling
philosophy.
The visit of a customer to the bank is to have a simple transaction like deposit orwithdrawal. Busy customers will have no time to have a discussion on a long-
term durable purchase like insurance across the counter. Also, the visits in urban
or metro branches are going to be fewer because of ATMs and e-banking.
7/31/2019 Ban Cass Urnace
24/29
24 | P a g e
Another drawback is the inflexibility of the products i.e. it cannot be tailor madeto the requirements of the customer. For a bancassurance venture to succeed it is
extremely essential to have in-built flexibility so as to make the product
attractive to the customers.
OPPORTUNITIES:
There is a vast untapped potential waiting to be mined particularly for lifeinsurance products. There are more than 900 million lives waiting to be given a
life cover (total number of individual life policies sold in 1998-99 was just 91.73
million).
There are many people in many areas that are still unaware about the insuranceand its various products and are waiting that somebody should come and givethem the information about it.
In urban and metro areas, where the customers are willing to get many serviceslike lockers and safe deposit systems and other products and services from
banks, there is a good opportunity to market many property related general
insurance policies like fire insurance, burglary insurance and medi-claim
insurance etc.
Banks' database is enormous even though the goodwill may not be the same.This database has to be dissected and various homogeneous groups are to be
churned out in order to position the Bancassurance products. With a good IT
infrastructure, this can really do wonders.
Banks in their normal course of functions lend finance in the form of loans forcars, or for buying a house to clients etc. They can take advantage of this by
cross-selling the insurance products and combine it as a package.
Another area that could be of interest to bankers to sell insurance is exploitingthe corporate customers and tying up for insurance of the employees of
corporate clients, which would be an avenue with easy access. In most cases
banks provide salary disbursement and loan facilities but here they can provide
insurance cover as well.
7/31/2019 Ban Cass Urnace
25/29
25 | P a g e
Threats:
Success of a Bancassurance venture requires change in approach, thinking andwork culture on the part of everybody involved. The work force at every levelare so well entrenched in their classical way of working that there is a definitethreat of resistance to any change that Bancassurance may set in. Any relocation
to a new company or subsidiary or change from one work to a different kind of
work will not be easily acceptable by the employees.
Another possible threat may come from non-response from the targetedcustomers. If many joint ventures took place between banks and insurance
companies then it may happen that the customers may not respond to such
ventures as happened in U.S.
Insurance in India is perceived more as a saving option than providing riskcover. So this may create an adverse feeling in the minds of the bankers that
such products may lessen the sales of regular bank saving products. Also selling
of investment and good return products may affect the FD Portfolio of the
banks.
There would be a problem of Reputational Contagion i.e. loss of marketconfidence towards one in a venture leading to loss of confidence on the other
because of identical brand recognition, similar management and consolidated
financial reporting etc.
If no strict norms are there for such ventures then many unholy ventures maytake place which may give rise to tough competition between bancassurers
resulting in lower prices and the Bancassurance venture may never break
because of such situations.
The most common obstacles to success of Bancassurance are poor manpowermanagement, lack of a sales culture within the bank, no involvement by the
branch manager, insufficient product promotions, failure to integrate marketing
plans, marginal database expertise, poor sales channel linkages, inadequate
incentives, resistance to change, negative attitudes toward insurance and
unwieldy marketing strategy.
7/31/2019 Ban Cass Urnace
26/29
26 | P a g e
RECOMMENDATIONS
The Insurance companies need to design products specifically for distributingthrough banks. Trying to sell traditional products may not work so effectively.
The employees of the banks who are selling insurance products must be givenproper training so that they can answer to any queries of the customers and can
provide them products according to their needs.
Banks should also provide after sales services and they should be moreaggressive in selling the insurance products.
Banks should also do the settlement of claims which will increase the trust andreliability of the customers on the banks.
In India, since the majority of the banking sector is in public sector which hasbeen widely responsible for the lethargic attitude and poor quality of customer
service, it needs to rebuild the blemished image. Else, the bancassurance would
be difficult to succeed in these banks.
A formal and standard agreement between these banks and the insurancecompanies should be taken up and drafted by a national regulatory body. These
agreements must have necessary clauses of revenue sharing. In case of possible
conflicts, the bank management and the management of the insurance company
should be able to resolve conflicts arising in future.
For bancassurance to succeed, products and processes will need to be tailored tobank markets, rather than adjusted to insurers specifications.
Banks and Insurance companies should apply all the skills and potential in thisarea and take advantage of the same and they should improve the products from
time to time according to the needs of the customers.
7/31/2019 Ban Cass Urnace
27/29
27 | P a g e
EXAMPLE: SBI LIFE INSURANCE
SBI Life insurance, a joint venture between State Bank of India, the largest bank in the
country and bancassurance major Cardiff of France. SBIs stake in the venture is 74%
whereas Cardiff has 26% share. They have launched many products so far incorporating
certain features that are introduced for the first time in the country. SBI -Life is bankingon the bancassurance model on the strength of the SBI Groups 10000 plus bank
branches and its vast customer base. In addition it is also tapping other. banks corporate
agents and the traditional agency route to penetrate the insurance market SBI Life is
planning to introduce more novel and user friendly products to cater to the requirements
of the consumers in different segments.
SBI has the largest banking network in the county. The bank is looking for business
from every customer segment of the bank rural and urban segments, upper, middle and
lower income segments /groups and corporate segment. Besides their own channels they
are planning to distribute products through other interested banking channels also. It is
expected that 2/3 rd of the premium income in expected to come by way ofbancassurance and the rest from the traditional agency channel as well as ties up with
corporate agents (Sundaram Finance). SBI has also introduced group insurance to some
well managed corporate staffs.
Technology is an integral part of this operation. Cardiff provided the technology
required. The project was initiated in April 2004, and the initial roll-out was completed
by August 2004. SBI Life has implemented an Internet-centric IT system with browser-
based front-office and back-office systems, channel management, policy product details,
online premium calculator and facility for group insurance customers to view their
individual savings status on the Web. The organization has the facility to pay premiums
through credit cards, Net banking, standing instructions, etc. This is fully integratedwith the core systems through industry standards such as XML, EDI, etc.
SBI Life Insurance Company is the first among the 14 life insurance companies in the
private sector to consistently reporting profits. There are life insurance players much
more aggressive than SBI and they have still not been able to break the record of SBI.
Their success is largely on the channel strategy and product strategy. The another aspect
is their superior investment performance. They have consistently, over the last two
years, generated 11-12 per cent earnings from the investments.
SBI Life Insurance is uniquely placed as a pioneer to usher bancassurance into India.The company hopes to extensively utilize the SBI Group as a platform for cross-selling
insurance products along with its numerous banking product packages such as housing
loans, personal loans and credit cards. SBIs access to over 100 million accounts
provides a vibrant base to build insurance selling across every region and economic
strata in the country
7/31/2019 Ban Cass Urnace
28/29
28 | P a g e
CONCLUSION
The creation of Bancassurance operations has a material impact on the financial services
industry at large. Banks, insurance companies and traditional fund management houses
are converging towards a model of global retail financial institution offering a wide
array of products. It leads to the creation of 'one-stop shop' where a customer can applyfor mortgages, pensions, savings and insurance products.
Where legislation has allowed, bancassurance has mostly been a phenomenal success and,
although slow to gain pace, is now taking off across Asia, especially now that banks are starting
to become more diverse financial institutions, and the concept of universal banking is being
accepted. In India, the signs of initial success are already there despite the fact that it is a
completely new phenomenon. The factors and principles of why it is a success elsewhere exist
in India, and there is no doubt that banks are set to become a significant distributor of insurance
related products and services in the years to come.
The success of bancassurance greatly hinges on banks ensuring excellent customers
relationship; therefore, banks need to strive towards that direction. Regulators could explore the
possibility of allowing banks having tie-up arrangements with more than one insurance
company, giving wider choice for the customers. In addition to acting as distributors, banks
have recognised the potential of bancassurance in India and will take equity stakes in insurance
companies, in the long run. Going by the present pace, bancassurance would turn out to be a
norm rather than an exception in future in India. Adequate training coupled with sufficient
incentive system could avert the banks staff resistance if any. In sum, bancassurance strategywould be a win-win situation for all the parties involved - the customer, the insurance
companies and the banks.
7/31/2019 Ban Cass Urnace
29/29
29 | P a g e
BIBLIOGRPAHY
http://www.einsuranceprofessional.com/artbuzz.html
https://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdf
http://www.ibexi.com/papers/Bancassurance.pdf http://tips.thinkrupee.com/articles/bancassurance-in-india.php
http://www.einsuranceprofessional.com/artbuzz.htmlhttp://www.einsuranceprofessional.com/artbuzz.htmlhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttp://www.ibexi.com/papers/Bancassurance.pdfhttp://www.ibexi.com/papers/Bancassurance.pdfhttp://tips.thinkrupee.com/articles/bancassurance-in-india.phphttp://tips.thinkrupee.com/articles/bancassurance-in-india.phphttp://tips.thinkrupee.com/articles/bancassurance-in-india.phphttp://www.ibexi.com/papers/Bancassurance.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttp://www.einsuranceprofessional.com/artbuzz.html