Anuradha Finance Bank Assurance

8/9/2019 Anuradha Finance Bank Assurance

1/80

Public awareness of BANKASSURANCE products-Chandigarh

Chapter 1

INTRODUCTION

,MBA 1Project Report ,09


2/80


1.1 INTRODUCTION TO BANKING

Banking as per the Banking Regulation Act, Banking is defined as:

Accepting for the purpose of lending of deposits of money from the public for the purpose of lending or investment, repayable on demand through cheques, draftsor order.

A sound and effective banking system is necessary for a healthy economy. The banking system of India should not only be hassle free but it should be able tomeet new challenges posed by the technology and any other external andinternal factors. Many new things have come up in the banking sector in therecent years. Banks have adopted the new technology because banking has not

remained up to accepting and lending but now it is all about satisfying the needsof the customers.

The development of the Indian banking sector has been accompanied by theintroduction of new norms. New services are the order of the day, in order to stayahead in the rat race. Banks are now foraying into net banking, securities, andconsumer finance, housing finance, treasury market, merchant banking etc.Theyare trying to provide ever y kind of service which can satisfy or rather we shouldsay that it can delight the customers.

Entry of private and foreign banks in the segment has provided healthycompetition and is likely to bring more operational efficiency into the sector.Banks are also coping and adapting with time and are trying to become one-stopfinancial supermarkets. The market focus is shifting from mass banking productsto class banking with the introduction of value added and custom ized products.



3/80


With years, banks are also adding services to their custom ers. The Indian banking industry is passing through a phase of customers market. Thecustomers have more choices in choosing their banks.A competition has beenestablished within the banks operating in India. With stiff com petition andadvancement of technology, the services provided by banks have become moreeasy and convenient. The past days are witness to an hour wait beforewithdrawing cash from accounts or a cheque from north of the country beingcleared in one month in the south.This section of banking deals with the latest discovery in the banking instrumentsalong with the polished version of their old systems.A competition has been established within the banks operating in India. With stiff competition and advancement of technology, the services provided by bankshave become more easy and convenient. The past days are witness to an hour wait before withdrawing cash from accounts or a cheque from north of thecountry being cleared in one month in the south.This section of banking deals with the latest discovery in the banking instrumentsalong with the polished version of their old systems.Today banks provided many services other that accepting deposits and lendingmoney. In this globalize world banks providing quick services to their customer for transfer of fund and many more for that bank provide services like Internet

banking, mobile banking, NEFT, RTGS and many more.



4/80


1.2 NATURE AND SCOPE OF BANKING ACTIVITIES

Banking activities are considered to be the life blood of the national economy.Without banking services, trading and business activities cannot be carried onsmoothly. Banks are the distributors and protectors of liquid capital which is of vital significance to a developing country.

Efficient administration of the banking system helps in the economic growth of the nation. Banking is useful to trade and commerce. Banking activities areuseful to trade and industry in the following ways.

Money deposited in a bank remains safe. Precious articles too can be keptin the safe custody of banks in lockers.

Banks provide credit facilities to their customers. Customers with bank accounts also enjoy better credit in the business world.

Banks encourage the habit of saving and thrift among people.They mobilize savings and invest them in productive activities.Thus, they help in increasing the rate of savings and investment in the

country.Banks provide a convenient and safe means of transferring money from

one place to another and facilitate business dealings/ Transactions.Banks collect and realize bills, cheques, interest and dividend warrants

etc. on behalf of their customers.Foreign trade is facilitated considerably with the help of banks which

receive and make payments, provide credit and deal in foreign exchange.They protect importers from the risk of loss on account of exchange ratefluctuations. They issue letter of credit and provide information on the



5/80


credit worthiness of importers. They also act as referees of their customers.

Banks meet the financial needs of small-scale business units which arelocated in econom ically backward areas.

Farmers and artisans in rural areas can also avail of bank credit for financing their activities.

Commercial banks provide many other services to the general publicwhich includes locker facility, issue of travellers cheques and giftcheques, payment of insurance prem ium, etc.



6/80


7/80


Acceptance of bills of exchange on behalf of customers.Underwriting loans floated by government and public bodies.

1.4 INTRODUCTION TO INSURANCE SECTOR

Insurance may be defined as

It is a contract between two parties where by one party undertakes tocompensate another party for the loss arising due to an uncertain events for which the party agrees to pay a certain amount regularly.In India, insurance has a deep-rooted history. Insurance in India has evolvedover time heavily drawing from other countries, England in particular.Theinsurance sector in India has come a full circle from being an open competitivemarket to nationalization and back to a liberalized m arket again. The business of

life insurance in India in its existing form started in India in the year 1818 with theestablishment of the Oriental Life Insurance Company in Calcutta.The Insurance Act, 1938 was the first legislation governing all forms of insuranceto provide strict state control over insurance business.Today there are 14 generalinsurance companies and 14 life insurance companies operating in the country.But today also the insurance companies are trying to capture Indian markets asnot many people are aware of it.Theinsurance sector is a colossal oneand is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to thecountrys GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructuredevelopment at the same time strengthening the risk taking ability of the country.



8/80


1.5 NATURE AND CHARACTERISTICS OF INSURANCE

The characteristics of insurance are as under

A co-operative device:-All for one and one for all is at basis for a co-operative device. Theinsurance is a method wherein large numbers of persons exposed to asimilar risk are covered and risk is spread over among the larger insurable

public. Therefore, insurance is a social or co-operative method where inlosses of one is borne by the society.

Insurance is a contract:Insurance is a valid contract between the insured on the one side and theinsurer on the other side. It has all the essential elements of a validcontract & is enforceable in the court of law.

Consideration:Like other contracts there must be lawful consideration in Insurance also.This consideration is in the form of premium, which the insured agrees to

pay to the insurer. Protection against the risk:

The insurer agrees to indemnify the insured upon the happening of a particular event. Thus, insurance is a protection against risk.

Based upon certain principle:-The insurance is based upon certain principles. They are insurableinterest, utmost good faith, indemnity, subrogation, contribution etc.

It is regulated by law:



9/80


10/80


1.7 INTRODUCTION TO BANKASSURANCE

BANKASSURANCE as term itself tells us what does it means. Its a combinationof the term Bank and Insurance. It means that insurance have started sellingthere product through banks. Its a new concept to Indian market but it is verywidely used in western and developed countries. It is profitable both to Banksand Insurance companies and has a very bright future to be the most developand efficient means of distribution of Insurance product in very near future.Insurance company can sell both life and non-life policies through banks. Theshare of premium collected by banks is increasing in a decent manner from thetime it was introduce to the Indian market. In India Bankassurance in guide byInsurance Regulatory and Development Authority Act (IRDA), 1999 and ReserveBank of India. All banks and insurance company have to meet particular requirement to get into Bankassurance business.It is predicted by experts that in future 90% of share of premium will come fromBankassurance business only. Currently there are more and more banking andInsurance Company and venturing into Bankassurance 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 whichincrease there profits and better reputation for the banks as there service basealso increase and are able to provide more service to customers and even morecustomer are attracted toward bank.It is even profitable for Insurance Company as they receive more and more salesand higher customer base for the company. And they have to directly deal withan organization which reduce there pressure to deal with each customer face to



11/80


face.In all Bankassurance has proved to be boom in whole Banking andInsurance arena.Bankassurance is defined as Selling Insurance products through banks. Theword is a combination of two words Bank and assurance signifying that both

banking and insurance products and service are provided by one commoncorporate entity or by banking company with collaboration with any particular Insurance company. In concrete term s Bankassurance, which is also known asAllfinanz - describes a package of financial services that can fulfill both bankingand insurance needs at the same time.

Financial Services

Banking Insurance

BankassuranceBancassurance

The usage of the word picked up as banking and insurance companiesmerged together and banks sought to provide insurance, in the marketwhich has been liberalized recently. But it is a controversial issue as manyexperts feels that this ides gives banking sector too great a control over financial market in that country. Therefore it has also been restricted inmany countries too. But, still which countries have permittedBankassurance in their market has seen a tremendous boom in that



12/80


sector. The share of premium collected by them has increased in constantand decent manner. This success coincided with a favorable taxation for life insurance products, as well as with the consumers' growing needs, interms of middle and long term savings, which is due to an inadequacy of the pension schemes in India.

The links between bank and insurance takes place through various ways(distribution agreements, joint ventures, creation of a company newcompany) which gives rise to a complete upheaval concerning m arketingstrategies and the setting up of insurance products' distribution. More and

better insurance starts coming in market.

This stream of market has just been opened very recently for the Indianmarket and there is lot of development left to be done by the governmentand regulatory authority. But this has proven to be a boom for theInsurance and Banking companies together and both the different sector

of the industry has shown better result and improvement in their own fielddue coming of the whole new concept of Bankassurance.

Bankassurance in its simplest form is the distribution of insurance products through a banks distribution channels. It is the provision of insurance and banking products and service through a commondistribution channel or through a com mon base.

Banks, with their geographical spreading penetration in terms of customers reach of all segments, have emerged as viable source for thedistribution of insurance products. It takes various form s in variouscountries depending upon the demography and economic and legislativeclimate of that country. This concept gained importance in the growingglobal insurance industry and its search for new channels of distribution.



13/80


However, the evolution of Bankassurance as a concept and its practicalimplementation in various parts of the world, have thrown up a num ber of opportunities and challenges.

The motives behind Bankassurance also vary. For Banks, it is n means of product diversification and source of additional fee incom e. Insurancecompanies see Bankassurance as a tool for increasing their market

penetration and premium turnover. The customer sees Bankassurance asa bonanza in terms of reduced price, high quality products and delivery atthe doorsteps.

With the liberalization of the insurance sector and competition tougher than ever before, companies are increasingly trying to come out with

better innovations to stay that one-step ahead.

Progress has definitely been made as can be seen by the number of

advanced products flooding the market today - products with attractive prem iums, unitized products, unit-linked products and innovative riders.But a hitherto untapped field is the one involving the distribution of theseinsurance products.

Currently, insurance agents are still the main vehicles through whichinsurance products are sold. But in a huge country like India, one cannever be too sure about the levels of penetration of a product. It thereforemakes sense to look at well-balanced, alternative channels of distribution.

Nationalized insurers are already well established and have an extensivereach and presence. New players may find it expensive and timeconsuming to bring up a distribution network to such standards. Yet, if they want to make the most of India's large population base and reach outto a worthwhile number of customers, making use of other distribution



14/80


avenues becomes a must. Alternate channels will help to bring down thecosts of distribution and thus benefit the custom ers.

WHAT IS BANK ASSURANCE ?

Bankassurance is the distribution of insurance products through a bank'sdistribution channels. It is a service that can fulfill both banking and insuranceneeds at the same time. Bankassurance as a concept first began in India whenthe insurance industry opened up to private participation in December 1999.There are basically four models of Bankassurance:

Distribution alliance between the insurance company and the bank.Joint venture between the two com panies.Mergers between a bank and insurer.Bank builds or buys own insurance products.



15/80


16/80


MODELS OFBANKASSURANCE

I. STRUCTURAL CLASSIFICATION

a) Referral Model

Banks intending not to take risk could adopt referral model wherein theymerely part with their client data base for business lead of commission. Theactual 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, whilecontrolling access to the clients data base, parts with only the business leads tothe 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 havealready resorted to this strategy to begin with. This model would be suitable for almost all types of banks including the RRBs /cooperative banks and evencooperative societies both in rural and urban. There is greater scope in themedium term for this model. For, banks to begin with can resort to this model andthen move on to the other models.

b) Corporate Agency

The other form of non-sick participatory distribution channel is that of Corporate Agency, wherein the bank staff as an institution acts as corporateagent for the insurance product for a fee/commission. This seems to be moreviable 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,



17/80


however, is prone to reputational risk of the marketing bank. There are also practical difficulties in the form of professional knowledge about the insurance products. This could, however, be overcome by intensive training to chosen staff, packaged with proper incentives in the banks coupled with selling of simpleinsurance products in the initial stage. This model is best suited for majority of

banks including some major urban cooperative banks because neither there issharing of risk nor does it require huge investment in the form of infrastructureand yet could be a good source of income. This model of Bankassurance workedwell in the US, because consumers generally prefer to purchase policies through

broker banks that offer a wide range of products from competing insurers.

c) Insurance as Fully Integrated Financial Service/ Joint ventures

Apart from the above two, the fully integrated financial service involvesmuch 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 havingwholly owned insurance subsidiaries with or without foreign participation. Thegreat 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 andhas better infrastructure. As per the extant regulation of insurance sector theforeign insurance company could enter the Indian insurance market only in theform of joint venture, therefore, this type of Bankassurance seems to haveemerged out of necessity in India to an extent.

There is great scope for further growth both in life and non-life insurancesegments as GOI is reported have been actively considering to increase theFDIs participation up to 49 per cent.



18/80


II. PRODUCT BASED CLASSIFICATION

(a)Stand-alone Insurance ProductsIn this case Bankassurance involves marketing of the insurance

products through either referral arrangement or corporate agency without mixingthe insurance products with any of the banks own products/ services. Insuranceis 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 brandstoo.

(b)Blend of Insurance with Bank Products

This method aims at blending of insurance products as a valueaddition while promoting the banks own products. Thus, banks could sell theinsurance products without any additional efforts. In m ost times, giving insurancecover at a nominal prem ium/ fee or som etimes without explicit premium does actas an added attraction to sell the banks own products,e.g.,credit card, housingloans, education loans,etc.Many banks in India, in recent years, has beenaggressively marketing credit and debit card business, whereas the cardholdersget the insurance cover for a nominal fee or (implicitly included in the annualfee) free from explicit charges/ premium. Similarly the hom e loans / vehicle loans,etc.,have also been packaged with the insurance cover as an additionalincentive.



19/80


BANK REFERRALSIII.

There is also another method called 'Bank Referral'. Here the banks donot 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 calledreferral 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 customersand the customers get the benefits.



20/80


CHAPTER 2

Review of literatureReview of literatureReview of literature

Review of literature



21/80


22/80


Insurance CompaniesBanks

Birla Sun Life Co. Ltd. Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank,Deutsche Bank

Dabur CGU Life Insurance CompanyCanara Bank, American Express Bank Pvt. Ltd. and ABN AMRO bank.HDFC Standard Life Insurance Co. Ltd. Union Bank of IndiaICICI Prudential Life Isurance Co. Ltd Lord Krishna Bank, ICICI Bank, Bank

of India, Citibank, Allahabad Bank,Federal Bank.

Life Insurance Corporation of India Corporation Bank, Indian OverseasBank, Centurion Bank, Yeotmal MahilaSahkari Bank, Vijay Bank, Oriental

Bank of CommerceMet Life India Insurance Co. Ltd. Karnataka Bank, Dhanalakshmi Bank &J& K Bank

SBI Life Insurance Company Ltd. State Bank of IndiaBajaj Allianz general Insurance Co. Ltd. Karur Vysya Bank and Lord kishna

Bank National Insurance Co Ltd. City Union Bank Royal Sundaram General InsuranceStandard Chartered Bank, ABN AMROCompany Bank, Citi Bank United India Insurance Co. Ltd. South Indian Bank.

Banks have got a wide retail network, which can be exclusively us ed bythere insurance companies to sell their products. Indias 27 public sector banksaccounts for approximately 92% of the total network. Among other things, the



23/80


network involves 33000 rural branches and 14000 semi- urban branches whereinsurance penetration largely untapped.In this competitive world there are utilities of Bankassurance for Bank &Insurance Company which is as follows:

FOR BANKS

As a source of fee income

Banks traditional sources of fee incom e have been the fixed charges leviedon loans and advances, credit cards, merchant fee on point of sale transactionsfor debit and credit cards, letter of credits and other operations. This kind of revenue stream has been more or less steady over a period of time and growthhas been fairly predictable. However shrinking interest rate, growing competitionand increased horizontal m obility of customers have forced bankers to look elsewhere to compensate for the declining profit margins and Bankassurancehas come in handy for them. Fee income from the distribution of insurance

products has opened new horizons for the banks and they seem to love it.From the banks point of view, opportunities and possibilities to earn fee

income via Bankassurance route are endless. A typical commercial bank has the potential of maximizing fee income from Bankassurance up to 50% of their totalfee income from all sources combined. Fee Income from Bankassurance alsoreduces the overall customer acquisition cost from the banks point of view. Atthe end of the day, it is easy money for the banks as there are no risks and onlygains.



24/80


Product Diversification

In terms of products, there are endless opportunities for the banks. Simpleterm life insurance, endowm ent policies, annuities, education plans, depositorsinsurance and credit shield are the policies conventionally sold through theBankassurance channels. Medical insurance, car insurance, home and contentsinsurance and travel insurance are also the products which are being distributed

by the banks. However, quite a lot of innovations have taken place in theinsurance market recently to provide m ore and more Bankassurance-centric

products to satisfy the increasing appetite of the banks for such products.Insurers who are generally accused of being inflexible in the pricing and

structuring of the products have been responding too well to the challenges (sayopportunities) thrown open by the spread of Bankassurance. They are ready toinnovate and experiment and have set up specialized Bankassurance units withintheir fold. Examples of some new and innovative Bankassurance products areincome builder plan, critical illness cover, return of prem ium and Tactful productswhich are doing well in the market. The traditional products that the

Building close relations with the customers

Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. Providingmultiple services at one place to the customers means enhanced customer satisfaction. For example, through Bankassurance a customer gets home loansalong with insurance at one single place as a combined product. Another important advantage that Bankassurance brings about in banks is developmentof sales culture in their employees. Also, banking in India is mainly done in the'brick and mortar' model, which means that m ost of the customers still walk intothe bank branches. This enables the bank staff to have a personal contact withtheir customers. In a typical Bankassurance model, the consumer will have



25/80


access to a wider product mix - a rather comprehensive financial services package, encompassing banking and insurance products.

FOR INSURANCE COMPANIES

Stiff Competition

At present there are 15 life insurance companies and 14 generalinsurance companies in India. Because of the Liberalization of the economy it

became easy for the private insurance companies to enter into the battle fieldwhich resulted in an urgent need to outwit one another. Even the oldest publicinsurance companies started facing the tough competition. Hence in order tocompete with each other and to stay a step ahead there was a need for a newstrategy in the form of Bankassurance. It would also benefit the customers interms of wide product diversification.

High cost of agentsInsurers have been tuning into different modes of distribution because

of the high cost of the agencies services provided by the insurance companies.These costs became too much of a burden for many insurers compared to thereturns they generate from the business. Hence there was a need felt for a Cost-Effective Distribution channel. This gave rise to Bankassurance as a channel for distribution of the insurance products.

Rural Penetration

Insurance industry has not been much successful in rural penetration of insurance so far. People there are still unaware about the insurance as a tool toinsure their life. However this gap can be bridged with the help of Bankassurance. The branch network of banks can help make the rural people



26/80


aware about insurance and there is also a wide scope of business for theinsurers. In order to fulfill all the needs Bankassurance is needed.

Multi channel Distribution Now days the insurance companies are trying to exploit each and every

way to sell the insurance products. For this they are using various distributionchannels. The insurance is sold through agents, brokers through subsidiaries etc.In order to make the most out of Indias large population base and reach out to aworthwhile number of customers there was a need for Bankassurance as adistribution model.

Targeting Middle income CustomersIn previous there was lack of awareness about insurance. The agents

sold insurance policies to a more upscale client base. The middle income group people got very less attention from the agents. So through the venture with banks, the insurance companies can recapture m uch of the under served market.

So in order to utilize the database of the banks middle income customers, therewas a need felt for Bankassurance.There are several reasons why banks should seriously consider

Bankassurance, the most important of which is increased return on assets(ROA). One of the best ways to increase ROA, assuming a constant asset base,is through fee income. 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 those effectively cross-sell financial products canleverage their distribution and processing capabilities for profitable operatingexpense ratios.



27/80


28/80


TO INSURERS

From the Insurer Point of view:The Insurance Company can increase their business through the bankingdistribution channels because the banks have so many customers. By cuttingcost Insurers can serve better to customers in terms lower premium rate and

better risk coverage through product diversification.Insurers can exploit the banks' wide network of branches for distribution of

products. The penetration of banks' branches into the rural areas can be utilizedto sell products in those areas. Customer database like customers' financialstanding, spending habits, investment and purchase capability can be used tocustomize products and sell accordingly. Since banks have already establishedrelationship with customers, conversion ratio 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 sellinginsurance products through banks. The product can be customized as per theneeds of the customers.CUSTOMERS

From the customers' point of view:Product innovation and distribution activities are directed towards the satisfactionof needs of the customer.Bankassurance m odel assists customers in terms of reduction price, diversified

product quality in time and at their doorstep service by banks.



29/80


Comprehensive financial advisory services under one roof. i.e., insuranceservices along with other financial services such as banking, mutual funds,

personal loans etc.

Banks Insurance

Revenues and channelCustomer retention of diversificationSatisfaction of more Quality customer financial need under access.same roof.

Establish a low costRevenue diversification acquisition channel.More Profitable Creation of Brand

resources utilization. Image.Establish sales Quicker Geographical

orientated culture. reach.Enrich work Leverage service

environment. synergies with Bank.



30/80


RBI Guidelines for the Banks to enter into Insurance Business

Following the issuance of Governm ent of India Notification datedAugust 3, 2000, specifying Insurance as a permissible form of business thatcould be undertaken by banks under Section 6(1) (o) of The Banking RegulationAct, 1949, RBI issued the guidelines on Insurance business for banks.

Any scheduled commercial bank would be permitted to undertakeinsurance business asagent of insurance companies on fee basis.Without any risk participation

Banks which satisfy the eligibility criteria given below will be permitted toset up a joint venture company for undertaking insurance business withrisk participation, subject to safeguards. The maximum equity contributionsuch 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 thanRs.500 crore;ii. The CRAR of the bank should not beless than 10 per cent;iii. The level of non-performing assetsshould be reasonable;iv. The bank should havenet profit for the last three consecutive years;v. The track record of the performance of the subsidiaries, if any, of theconcerned bank should besatisfactory.



31/80


In cases where a foreign partner contributes26%of the equity with theapproval of Insurance Regulatory and Development Authority/ForeignInvestment Promotion Board, more than one public sector bank or privatesector bank may be allowed to participate in the equity of the insurance

joint venture. As such participants will also assume insurance risk, onlythose banks which satisfy the criteria given in paragraph 2 above, would

be eligible.

A subsidiary of a bank or of another bank will not normally be allowed to join the insurance company onrisk participation basis.

Banks which are not eligible for joint venture participant as above, canmake investments up to10%of the net worth of the bank or Rs.50 crore,whichever is lower, in the insurance company for providing infrastructureand services support. Such participation shall be treated as an investm entand should be without any contingent liability for the bank.

The eligibility criteria for these banks will be as under:i. TheCRAR of the bank should not beless than 10%;ii. The level of NPAsshould be reasonable;iii. The bank shouldhave net profitfor the last three consecutive years.

All banks entering into insurance business will be required to obtainpriorapproval of the Reserve Bank . The Reserve Bank will give permission to

banks on case to case basis keeping in view all relevant factors includingthe 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 futurethreat 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 lengthrelationship between the bank and the insurance outfit.



32/80


Holding of equity by a promoter bank in an insurance company or participation in any form in insurance business will be subject tocompliance with any rules and regulations laid down by theIRDA/CentralGovernment. This will include compliance with Section6AAof theInsurance Act as amended by theIRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed

period of time.

Latest audited balance sheet will be considered for reckoning the eligibilitycriteria.

IRDA NORMS FOR INSURANCE COMPANIES

The Insurance regulatory development & Authority has given certainguidelines for the Bankassurance they are as follows: -

Chief Insurance Executive: Each bank that sells insurance must have achief Insurance 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) byIRDA & pass the examination conducted by the authority.

Corporate agents: Commercial banks, including co-operative banks andRRBs may become corporate agents for one insurance company.

Banks cannot become insurance brokers.Issues for regulation:Certain regulatory barriers have slowed the development of Bankassurance inIndia down. Which have only recently been cleared with the passage of theinsurance (amendment) Act 2002. Prior it was clearly an impractical necessity



33/80


and had held up the im plem entation of Bankassurance in the country. As thecurrent legislation places the following:-

Training and examination requirements: upon the corporate insuranceexecutive within the corporate agency, this barrier has effectively beenremoved.

Another regulatory change is published in recent publication of IRDAregulation 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.

DISTRIBUTION CHANNELS

One of the most significant changes in the financial services sector over the past few years has been the growth & development of Bankassurance.Banking institutions and insurance companies have found Bankassurance to beattractive and profitable complement to their existing activities. Distribution is thekey issue in Bankassurance and is closely linked to the regulatory climate of thecountry. Over the years, a regulatory barrier between banking and insurance hasdiminished and has created a clim ate increasingly friendly to Bankassurance.

Bankassurance experience in Europe as well as in other select countriesoffers valuable guidance for those interested in insurance distribution through the

banking.Traditionally, insurance products were promoted and sold principallythrough agency systems only. The reliance of insurance industry was totally onthe agents. Moreover with the monopoly of public sector insurance companiesthere was very slow growth in the insurance sector because of lack of competition. The need for innovative distribution channels was not felt because



34/80


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 channelshave been developed successfully and rapidly in recent years.

Recently Bankassurers have been making use of various distributionchannels, they are:

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

Special Advisers:Special Advisers are highly trained employees usually belonging to the

insurance partner, who distribute insurance products to the bank's corporateclients. The Clients mostly include affluent population who require personalisedand high quality service. Usually Special advisors are paid on a salary basis andthey receive incentive compensation based on their sales.

Salaried Agents:Salaried Agents are an advantage for the Bankassurers because they are

under the control and supervision of Bankassurers. These agents share themission and objectives of the Bankassurers. These are similar to career agents,the only difference is in terms of their remuneration is that they are paid on a



35/80


salary basis and career agents receive incentive compensation based on their sales.

Bank Employees / Platform Banking:Platform Bankers are bank employees who spot the leads in the banks

and gently suggest the customer to walk over and speak with appropriaterepresentative within the bank. The platform banker may be a teller or a personalloan assistant. A restriction on the effectiveness of bank employees in generatinginsurance business is that they have a lim ited target market, i.e. those custom erswho actually visit the branch during the opening hours.

Corporate Agencies and Brokerage Firms:

There are a number of banks who cooperate with independent agenciesor brokerage firms while some other banks have found corporate agencies. Theadvantage of such arrangements is the availability of specialists needed for complex insurance matters and through these arrangem ents the customers getgood quality of services.

Direct Response:In this channel no salesperson visits the customer to induce a sale andno face-to-face contact between consumer and seller occurs. The consumer

purchases products directly from the Bankassurer by responding to thecompany's advertisement, mailing or telephone offers. This channel can be usedfor simple packaged products which can be easily understood by the consumer without explanation.

Internet:



36/80


Internet banking is already securely established as an effective and profitable basis for conducting banking operations. Bankassurers can feelconfident that Internet banking will also prove an efficient vehicle for cross sellingof insurance savings and protection products. Functions requiring user input(check ordering, what-if calculations, credit and account applications) should beimmediately added with links to the insurer. Such an arrangement can also

provide a vehicle for insurance sales, service and leads.E-Brokerage:Banks can open or acquire an e-Brokerage arm and sell insurance

products from multiple insurers. The changed legislative clim ate across the worldshould help migration of Bankassurance in this direction. The advantage of thismedium is scale of operation, strong brands, easy distribution and excellentsynergy with the internet capabilities.

Outside Lead Generating Techniques:

One last method for developing Bankassurance eyes involves "outside"lead generating techniques, such as seminars, direct mail and statement inserts.Great opportunities await Bankassurance partners today and, in most cases,success or failure depends on precisely how the process is developed andmanaged inside each financial institution.



37/80


STATE BANK OF INDIA LIFE INSURANCE

SBI Life Insurance is a joint venture between the State Bank of India andCardif SA of France. SBI Life Insurance is registered with an authorized capital of Rs 1000 crore and a paid up capital of Rs 500 crores. SBI owns 74% of the totalcapital and Cardif the rem aining 26%.

State Bank of India enjoys the largest banking franchise in India. Alongwith its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,500

branches across the country, arguably the largest in the world. Cardif is a whollyowned subsidiary of BNP Paribas, which is the Euro Zones leading Bank. BNPParibas is one of the oldest foreign banks with a presence in India dating back to1860. Cardif is ranked 2nd worldwide in creditors insurance offering protection toover 35 million policyholders and net income in excess of Euro 1 billion. Cardif has also been a pioneer in the art of selling insurance products throughcommercial banks in France and in 35 more countries.

SBI Life Insurances mission is to emerge as the leading companyoffering a comprehensive range of Life Insurance and pension products atcompetitive prices, ensuring high standards of customer service and world classoperating efficiency. SBI Life has a unique multi-distribution model encompassingBankassurance, Agency and Group Corporate.

SBI Life extensively leverages the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packagessuch as housing loans and personal loans. SBIs access to over 100 millionaccounts across the country provides a vibrant base for insurance penetrationacross every region and economic strata in the country ensuring true financialinclusion.Agency Channel, comprising of the most productive force of more than25,000 Insurance Advisors, offers door to door insurance solutions to customers.



38/80


PRODUCTS OFFERED BYSBI

INDIVIDUAL PRODUCTS

A.Unit Linked Poducts:

1)SBI Life - Horizon II:

SBI Life-Horizon II is a unique, non participating Unit Linked InsurancePlan in Indian Insurance Industry, where you need to be a financial marketexpert. This plan offers the flexibility of Unit Linked Plan along with AutomaticAsset Allocation which provides relatively higher returns on your money where as

increasing death benefits provide higher security to your family2) SBI Life - Unit Plus II:

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

3) SBI life- unit plus child plan:

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



39/80


4)SBI Life Unit Plus Elite:

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

B. Pension Products:

SBI Life - Horizon II Pension:

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

SBI Life - Unit Plus II Pension:

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



40/80


1)SBI Life - Lifelong Pensions:It is a pension plan wherein the policyholder gets the flexibility to meet the

post retirement financial needs. It also provides tax benefits. The policyholder also has the option of withdrawing a lump sum amount up to particular limit.

2)SBI Life - Immediate Annuity:

SBI Life - Immediate Annuity Plan is introduced for PensionPolicyholders. This product provides annuity payments immediately from

payment of purchase price. It has been specially designed to cater to the annuityneeds of existing policyholders (SBI Life - Lifelong Pensions, SBI Life - Horizon IIPension, SBI Life - Unit Plus II Pension) at the vesting age.

C . Pure Protection Products:

1)SBI Life - Swadhan:

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

prem ium paying mode.

2)SBI Life - Shield:

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

prem ium payment.



41/80


3)SBI Life Shield as a Keyman Insurance Policy:

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

D.Protection cum Savings Products:

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

2)SBI Life - Scholar II:

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



42/80


E .Money back scheme products:

1)SBI Life - Money Back :It is a Traditional Saving Plan with added advantage of life cover and

guaranteed cash inflow at regular intervals. The plan has a number of money back options specially suited to the customers needs. The cover is available atcompetitive premium rates.

2)SBI Life - Sanjeevan Supreme:It is a Traditional Saving Plan which offers a life cover for the term of the

customers choice at the same time does not burden him with liability to pay prem iums for the entire term and also provides cash flows at regular intervals.

F .For Brokers:

1)SBI Life - SARAL ULIP:It is a sim ple Unit Linked Non-Participating Insurance Plan. The sum

assured is based on Term and Premium amount. There is also flexibility toincrease or decrease regular premium and it also provides tax benefits.



43/80


GROUP PRODUCTSA. Group Employee Benefit Products

I.Retirement Solutions:

1) SBI Life - CapAssure Gratuity Scheme:It is a Non-Participating yearly renewable traditional Group Gratuity

Scheme. Under this scheme, the contributions paid continue to accumulate ontraditional platform of investments and at the end of the financial year; aninvestment income earned on your contributions is credited to your gratuity fundaccount.2) SBI Life - CapAssure Superannuation Scheme:

It is a Non-Participating yearly renewable traditional group superannuationscheme. The object of this scheme is to ensure that the underlying fund isaccumulated in such a manner so that the fund will be sufficient to purchase anexpected amount of annuity to an employee upon his retirement / to the legal heir in the event of an unfortunate death during service. The scheme would alsoentitle the employee for some benefit, defined as per the scheme rules, on hisresignation, retirement, permanent total disability whilst in service, death whilst inservice.3) SBI Life Cap Assure Leave Encashment Scheme:

It is a Non-Participating yearly renewable traditional group leaveencashment scheme. Under this scheme, the contributions paid continue toaccumulate on traditional platform of investm ents and at the end of the financialyear; an investment income earned on your contributions is credited to your CA-LE fund account.



44/80


4) SBI Life - Group Immediate Annuity:t is a scheme wherein life annuity is payable at a constant rate through outthe life time. Employees can choose the periodicity of the annuity dependingupon the needs.

5) SBI Life - Golden Gratuit y:It is a yearly renewable unit linked group gratuity plan. Along with

managing the gratuity fund a life cover on the employees life protect their familyfinancially in case of unfortunate event.6) SBI Life - Dhanrashi:It is a traditional non participating Group Savings Linked Insurancescheme. This scheme is applicable for both employer-employee and non-employer employee groups. It has attractive returns on savings with twin

benefits. It also provides protection at low cost with no medical examination andalso hassle free joining process with no entry charges.

7) SBI Life - Swarna Jeevan:It is a Group Immediate Annuity Plan for Corporate Clients (ie.Employer-Employee groups) and other Group Administrators. It provides Attractive Annuityrates due to group effect. It also gives customized annuity options to customers.It gives the option to choose the periodicity of annuity payment.8) SBI Life - Group Gratuity cum Life Cover Scheme:

It is a Participating yearly renewable traditional Group Gratuity Scheme.Under this scheme, the contributions paid continue to accum ulate on traditional

platform of investments. It also provides tax benefits.

9) SBI Life - Group Superannuating Scheme:SBI Life provides two types of Superannuation schemes:1.Defined Benefit Scheme: It defines the amount of benefit that anemployee receives at retirement.



45/80


2. Defined Contribution Scheme: It defines the annual contribution that theemployer will deposit into the scheme for each employee.

10) SBI Life provides SBI Life - Group Leave Encashment cum Life CoverScheme:It is a Non-Participating yearly r enewable traditional group leaveencashment scheme. Under this scheme, the contributions paid continue toaccumulate on traditional platform of investments.11) SBI Life - SWARNA GANGA:It is a unique product that offers life cover, with an advantage of accumulating savings at attractive rates, to group of persons who share acommon identity or affinity

II. Group Protection Plans

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

2) SBI Life Super Suraksha:It is group term assurance non-participating plan. The Product providescover at an affordable premium due to the benefits of coverage of a wide section,and the administered savings achieved. There is a possibility of profit sharing

based on the mortality experience of the group.



46/80


3) SBI Life - Super Suraksha in Lieu of EDLI:Life cover available to employees irrespective of their Provident FundBalance. Lower premium rates are also available. No medical evidence isrequired and also there accident death benefit.

4) SBI Life - Credit Guard:It is a Non Participating Group Term Insurance Plan. It is a sim ple andeasy solution to cover the cardholders of a bank/other Financing entity, through aGroup Master Policy.III.Specialized Term Insurance

1) SBI Life - Shield used as Keyman:

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

B. Group Term with ROP

1) SBI Life -Swadhan(Group):

It is a Non Participating Group Term Insurance Plan with Return of Premium. It is a sim ple and easy solution which offers dual benefits of life cover

protection in the event of death and refund of premium in case of survival up tothe end of the cover term.



47/80

Public awareness of BANKASSURANCE products-ChandigarhC. Group Loan Protection Products

1) SBI Life - Dhanaraksha Plus SP:It provides decreasing term cover at a very low cost. Available for varioustypes of individual loans for borrowers of a lending institution through a GroupMaster Policy. There is only one time paym ent of premium.

2) SBI Life - Dhanaraksha Plus LPPT:It provides decreasing term cover at a very low cost. Available for varioustypes of individual loan for borrowers of a lending institution through a GroupMaster Policy. There is Limited Premium Payment Term.3) SBI Life - Dhanaraksha Plus RP:It provides decreasing term cover at a very low cost. Available for varioustypes of individual loan for borrowers of a lending institution through a Group

Master Policy. There are two options for premium payment i.e. throughout thecover term or 2/3rd of the cover term.D. Group Savings Protection

1) SBI Life - Nidhi Raksha RP:It is a unique Plan which will help protect and grow the customerssavings. It is offered to deposit holders of the master policyholder (bank/financialinstitution). It is a transparent plan, where the benefit available at any point of time is clearly defined in the Certificate of Insurance (COI) issued to the insuredgroup member.



48/80

Public awareness of BANKASSURANCE products-ChandigarhE. Group Micro Insurance

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

2) SBI Life - Grameen Super Suraksha:The purpose of this Product is to provide life cover at low costs to groupsof economically weaker sections of Society. It is a low cost Group termassurance plan for rural people who can seek life insurance protection withoutmaturity benefit.

SBI LIFE INSURANCE COMPANY (PERSPECTIVE)

SBI Life insurance, a joint venture between State Bank of India, thelargest bank in the country and Bankassurance major Cardiff of France. SBIsstake in the venture is 74% whereas Cardiff has 26% share. They have launchedmany products so far incorporating certain features that are introduced for thefirst time in the country. SBI -Life is banking on the Bankassurance model on thestrength of the SBI Groups 10000 plus bank branches and its vast customer

base. In addition it is also tapping other. banks corporate agents and thetraditional agency route to penetrate the insurance market SBI Life is planning tointroduce 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 lookingfor business from ever y customer segment of the bank rural and urbansegments, upper, middle and lower income segm ents /groups and corporate



49/80


segment. Besides their own channels they are planning to distribute productsthrough other interested banking channels also. It is expected that 2/3 rd of the

prem ium income in expected to come by way of Bankassurance and the restfrom the traditional agency channel as well as ties up with corporate agents(Sundaram Finance). SBI has also introduced group insurance to som e wellmanaged corporate staffs.Technology is an integral part of this operation. Cardiff provided thetechnology required. The project was initiated in April 2004, and the initial roll-outwas completed by August 2004. SBI Life has implemented an Internet-centric ITsystem with browser-based front-office and back-office systems, channelmanagement, policy product details, online premium calculator and facility for group insurance customers to view their individual savings status on the Web.The organization has the facility to pay premiums through credit cards, Net

banking, standing instructions, etc. This is fully integrated with the core systemsthrough industry standards such as XML, EDI, etc.

Even as it plans to scale up operations shortly, SBI Life InsuranceCompany Ltd is looking at tripling its gross premium income in the new financialyear.In 2007-08, SBI Life earned a total premium income of Rs 5,622 crore, of which income from new policy sales was Rs 4,800 crore. For the current financialyear, their target is to achieve a total premium income of Rs 10,500 crore and afirst year premium income of Rs 8,500 crore. The SBI Life ranks second in termsof market share among private life insurers in the country.

SBI Life Insurance Company is the first among the 14 life insurancecompanies in the private sector to post a net profit in 2005-06. There are lifeinsurance players much more aggressive than SBI and they have still not beenable to break the record of SBI. Their success is largely on the channel strategyand 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.



50/80


SBI Life Insurance is uniquely placed as a pioneer to usher Bankassuranceinto India. The company hopes to extensively utilize the SBI Group as a platformfor cross-selling insurance products along with its numerous banking product

packages such as housing loans, personal loans and credit cards. SBIs accessto over 100 million accounts provides a vibr ant base to build insurance sellingacross every region and economic strata in the country.

TRENDS ANDCHALLENGES

TRENDS

Though Bankassurance has traditionally targeted the mass market, butBankassurers have begun to finely segment the market, which hasresulted in tailor-made products for each segm ent.

Some Bankassurers are also beginning to focus exclusively ondistribution. In some markets, face-to-face contact is preferred, whichtends to favour Bankassurance development.

Nevertheless, banks are starting to embrace direct marketing and Internet banking as tools to distribute insurance products. New and emergingchannels are becom ing increasingly competitive, due to the tangible cost

benefits embedded in product pricing or through the appeal of convenience and innovation.

Bankassurance proper is still evolving in Asia and this is still in infancy inIndia and it is too early to assess the exact position. However, a quick survey revealed that a large number of banks cutting across public and



51/80


private and including foreign banks have made use of the Bankassurancechannel in one form or the other in India

Banks by and large are resorting to either referral models or Corporate agency m odel to begin with.

Banks even offer space in their own premises to accommodate theinsurance staff for selling the insurance products or giving access to their clients database for the use of the insurance companies.

As number of banks in India have begun to act as corporate agents toone or the other insurance company, it is a common sight that bankscanvassing and marketing the insurance products across the counters.

CHALLENGES

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

Bank em ployees are traditionally low on motivation. Lack of sales cultureitself is bigger roadblock than the lack of sales skills in the employees.Banks are generally used to only product packaged selling and henceselling insurance products do not seem to fit naturally in their system.

Human Resource Management has experienced some difficulty due tosuch alliances in financial industry. Poaching for employees, increasedwork-load, additional training, maintaining the motivation level are someissues that has cropped up quite occasionally. So, before entering into a



52/80


Bankassurance alliance, just like any merger, cultural due diligence should be done and human resource issues should be adequately prioritized.

Private sector insurance firms are finding change management in the public sector, a major challenge. State-owned banks get a new chairman,often from another bank, almost every two years, resulting in thedistribution strategy undergoing a complete change. So because of thisthere is distinction created between public and private sector banks.

The banks also have fear that at some point of time the insurance partner may end up cross-selling banking products to their policyholders. If theinsurer 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 samecustomers.

SWOT ANALYSIS

Banking and Insurance are very different businesses. Banks have lessrisk but the insurance has a greater risk. Even though, banks and insurancecompanies in India are yet to exchange their wedding rings, Bankassurance as ameans of distribution of insurance products is already in force in some form or the other.Banks are selling Personal Accident and Baggage Insurance directlyto their Credit Card members as a value addition to their products. Banks canstraightaway leverage their existing capabilities in terms of database and face-toface 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 s ignificantcommissions (particularly for regular premium products). In addition, one of themajor strategic gains from implementing Bankassurance successfully is the



53/80


54/80


With the help of banks trained staff, its brand name and the confidenceand reliability of people on the banks, the selling of insurance productscan be done in a more proper way.

Other than all these things there is a huge potential for insurance sector,as the population of India is high and a large part of it has remaineduntapped till now. So this can create an added advantage for both banksand insurers.

WEAKNESSES:In spite of growing emphasis on total branch mechanism and fullcomputerization of bank branches, the rural and semi-urban banks havestill to see information technology as an enabler. The IT culture isunfortunately missing completely in all of the future collaborations. Theinternet connections are also not properly provided to the staff.

To undertake the distribution of the insurance products, the bank employees have to undergo certain minimum period of training, followed by a test and then get themselves licensed. Moreover the standards of theexamination have been raised in the recent past m aking it difficult for many examinees to clear the sam e.

There is lack of personalized services because the traditional insuranceagent is considered a member of the family and hence is able to render a

personalized service during and after the sales process. However thatmay not be the case in regards to a bank employee.

There are many differences in the way of thinking and businessapproaches of bankers and the managers of insurance companies. Banksare traditionally demand-driven organizations with a reactive selling

philosophy. Insurance organizations are usually need-driven and havean aggressive selling philosophy.

The visit of a customer to the bank is to have a simple transaction likedeposit or withdrawal. Busy customers will have no time to have a



55/80


discussion on a long-term durable purchase like insurance across thecounter. Also, the visits in urban or metro branches are going to be fewer

because of ATMs and e-banking.Another drawback is the inflexibility of the products i.e. it cannot be tailor made to the requirements of the customer. For a Bankassurance ventureto succeed it is extremely essential to have in-built flexibility so as to makethe 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 begiven a life cover (total number of individual life policies sold in 1998-99was just 91.73 million).

There are many people in many areas that are still unaware about theinsurance and its various products and are waiting that somebody shouldcome and give them the information about it.

In urban and metro areas, where the customers are willing to get manyservices like lockers and safe deposit systems and other products andservices from banks, there is a good opportunity to market many propertyrelated general insurance policies like fire insurance, burglary insuranceand m edi-claim insurance etc.

Banks' database is enormous even though the goodwill may not be thesame. This database has to be dissected and various homogeneousgroups are to be churned out in order to position the Bankassurance

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

Another area that could be of interest to bankers to sell insurance isexploiting the corporate customers and tying up for insurance of theemployees of corporate clients, which would be an avenue with easy



56/80


access. In most cases banks provide salary disbursement and loanfacilities but here they can provide insurance cover as well.

THREATS:Success of a Bankassurance venture requires change in approach,thinking and work culture onthe part of everybody involved. The work force at every level are so well entrenched in their classical way of workingthat there is a definite threat of resistance to any change thatBankassurance may set in. Any relocation to a new company or subsidiaryor change from one work to a different kind of work will not be easilyacceptable by the employees.

Another possible threat may come from non-response from the targetedcustomers. If many joint ventures took place between banks andinsurance companies then it may happen that the customers may notrespond to such ventures as happened in U.S.

Insurance in India is perceived m ore as a saving option than providing risk cover. So this may create an adverse feeling in the minds of the bankersthat such products may lessen the sales of regular bank saving products.Also selling of investment and good return products may affect the FDPortfolio 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 theother because of identical brand recognition, similar m anagement andconsolidated financial reporting etc.

If no strict norms are there for such ventures then many unholy venturesmay take place which may give rise to tough competition betweenBankassurers resulting in lower prices and the Bankassurance venturemay never break because of such situations.



57/80


The most common obstacles to success of Bankassurance are poor manpower m anagement, lack of a sales culture within the bank, noinvolvement 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.

INDIAN SCENARIO

The business of banking around the globe is changing due tointegration of global financial markets, development of new technologies,universalization of banking operations and diversification in non-bankingactivities. Due to all these movements, the boundaries that have kept variousfinancial services separate from each other have vanished. The coming together of different financial services has provided synergies in operations anddevelopment of new concepts. One of these is Bankassurance.

Bankassurance is a new buzzword in India. It originated in Indiain the year 2000 when the Government issued notification under BankingRegulation Act which allowed Indian Banks to do insurance distribution. It started

picking up after Insurance Regulatory and Development Authority (IRDA) passeda notification in October 2002 on 'Corporate Agency' regulations. As per theconcept of Corporate Agency, banks can act as an agent of one life and onenon-life insurer. Currently Bankassurance accounts for a share of almost 25-30%of the premium income amongst the private players in India.



58/80


Bankassurance provides various advantages to banks, insurersand the custom ers. For the banks, income from Bankassurance is the only noninterest based income. Interest is market driven and fluctuating and quitenarrowing these days. Banks do not get great margins because of thecompetition This is why more and more banks are getting into Bankassurance soas to im prove their incomes. Increased com petition also makes it difficult for

banks to retain their customers. Bankassurance comes as a help in this directionalso. Providing multiple services at one place to the customers m eans enhancedcustomer satisfaction. As for the insurance company the advantage thatBankassurance provides is evident. The insurance company gets improvedgeographical reach without additional costs. In India around 67,000 branches arethere for PSU banks alone. If all 67,000 branches sell the insurance products onecan see the reach. This is one method of penetrating the market.India's rural market has huge potential that is still untapped by theinsurance companies. Setting up their own networks entails such a huge cost,that no company would be interested in doing so. Bankassurance again comesas an answer. It helps the insurance companies to tap the market at a muchlower cost. As for the customer the competitive nature of the Indian marketensures that the reduction in costs would result in benefits in terms of lower

prem ium rates being passed on to him. The penetration level of life insurance inthe Indian market is considerably low at 2.3% of GDP with only 8% of the total

population currently insured.Thus, Bankassurance provide an apparently viable model for

product diversification by banks and a cost-effective distribution channel for insurers. The success of the partnership between the two entities depends on theright model partnership. Given these changes, Bankassurance and collaboration

between banks and insurers has a long way to go in India.With almost half of the population likely to be in the 'wage earner' bracket by 2010, there is every reasonto be optim istic that Bankassurance in India will play a long inning.



59/80


GLOBAL SCENARIO

Bankassurance has grown at different pace and taken different shapesand forms in different countries depending on the demography, economic andlegislations in that country. During the last two decades, Bankassurance hastaken deep roots in various countries, especially in Europe. Bnacassurance, sofar, has been basically European.Bankassurance has seen tremendous acceptance and growth acrossnations. Although it enjoys a penetration rate in excess of 50% in France, Spain,Italy and Belgium, other countries have opted for more traditional networks. TheLife insurance market in the UK is largely in the hands of the brokers. Withadvent of Bankassurance, their market share has increased from 40% in 1992 to54% in 1999. Sales agents also play an important role on a market entirelyregulated by the Financial Services & Markets Act (FSMA) which imposes verystrict marketing conditions. In Germany, the market continues to be dom inated bygeneral sales agents, even if their market share has declined from 85% in 1992to 54% in 1999.Bankassurance recorded huge growth in Europe but not in USA andCanada. In the US, there were hurdles till recently banks were not allowed to doinsurance business and vice versa. In several countries in LatinAmerica, bankshave benefited from recent reforms financial deregulation, among others byselling insurance products across the counter. In China, banks are limited to

playing the role of tide agents to insurance companies, which can still provide agood platform for Bankassurance to develop.In Hong Kong, when a Swiss bank introduced Bankassurance, the lifeinsurance sales went up by 240%. Japan has to make a remarkable headway in



60/80


Bankassurance. In the Philippines, banks are permitted to own 100% of theinsurance company. Bankassurance is yet to be exploited in Singapore. There isa huge market potential out there in many countries and especially in India whencompared to the global benchmark. It is a good news to Bankassurers that onlyabout 25% of the global insurable population is insured, and even among themmost are underinsured.

FUTURE SCOPE FOR BANKASSURANCE

By now, it has become clear that as economy grows it not only demandsstronger and vibrant financial sector but also necessitates to provide with moresophisticated and variety of financial and banking products and services. Theoutlook for Bankassurance remains positive. While development in individualmarkets will continue to depend heavily on each countrys regulatory and

business environment, Bankassurers could profit from the tendency of governments to privatize health care and pension liabilities.

India has already more than 200 million middle class population coupledwith vast banking network with largest depositors base, there is greater scope for use of Bankassurance. In emerging markets, new entrants have successfullyemployed Bankassurance to compete with incumbent com panies. Given thecurrent relatively low Bankassurance penetration in emerging markets,



61/80


Bankassurance will likely see further significant development in the comingyears.In India the Bankassurance model is still in its nascent stages, but thetremendous growth and acceptability in the last three years reflects green

pasture in future. The deregulation of the insurance sector in India has resulted ina phase where innovative distribution channels are being explored. In this phase,Bankassurance has simply outshined other alternate channels of distribution witha share of almost 25-30% of the premium income amongst the private players.To be fruitful, it is vital for Bankassurance to ensure that banks remainfully committed to promoting and distributing insurance products. Thiscommitment has to come from both senior management in terms of strategicinputs and the operations staff who would provide the front-end for these

products. In India, the signs of initial success are already there despite the factthat it is a completely new phenomenon. There is no doubt that banks are set to

become a significant distributor of insurance related products and services in theyears to come.



62/80


Chapter 3Chapter 3Chapter 3Chapter 3ResearchResearchResearchResearchMethodologyMethodologyMethodologyMethodology



63/80


Research Methodology

The Research and Methodology adopted for the present study has beensystematic and was done in accordance to the objectives set which has beendetailed as below.

Research Definition

Research is a process in which the researcher wishers to find out the endresult for a given problem and thus the solution helps in future course of action.

According to Redman & Mory research is defined as a Systemized effortto gain new knowledge.

Research Design

According to Claire Seltiz, a research design is the arrangement of condition and analysis of data in manner that aims to combine relevance to theresearch purpose with economy in procedure.

Nature of Research

Research is basically of two types.



64/80


1. Descriptive research2. Explorative research

1. Descriptive Research:These studies are concerned with describing thecharacteristic of a particular individual or a group.

Determ ining sources of Data:

There are two main sources of data

1. Primary data2. Secondary data

Primary Data:It consists of original information collected for specific research.Primary data for this research study was collected through a direct survey toobtain this primary data a well structured questionnaire was prepared by theresearcher.Secondary Data:It consists of inform ation that already exists somewhereand has been collected for some specific purpose in the study. The secondarydata for this study is collected from various Japanese Management books .Questionnaire:A set of questions containing a few Technical questions andmore number of Opinionated questions are prepared for the employees of both

.Centralized and Decentralized sections of HR Department

Sample Size:Total sample size is 90



65/80


Questionnaire Development:

Questionnaire is the most common instrument in collecting primary data. In order to gather primary data from viewers.

The present questionnaire consists of following type of questions.Open ended questionsClosed ended questionsDichotomous questionsMultiple choice questionsRanking question.

Open ended questions: It has no fixed alternatives to which the answer must conform. Thus, respondent answer in his/her own words at any length theychoose.

Closed ended questions:Closed ended questions have no other optionsother than the selecting the one that close m atches the respondents opinion or attitude.

Dichotomous questions: A dichotomous questions refers to one, whichoffers the respondents a choice between only two alternatives.

Multiple Questions:A multiple choice question refers to one, which providesseveral sets of alternatives for the respondents choice.

Ranking questions:These questions are given when there are many pointsto be considered and to be ranked in priority.



66/80


67/80


DATA ANALYSIS

A survey was conducted of about 50 people who did regular banking transactionsand also had an insurance policy.These included several housewives, businessmen, professionals, students, etc.The following analysis was done on the basis of

Anuradha Finance Bank Assurance

Documents

Transcript of Anuradha Finance Bank Assurance