BANCASSURANCE

What is Bancassurance?

• Distribution of insurance products through a bank’s distribution channels.

• According to IRDA, ‘bancassurance’ refers to banks acting as corporate agents for insurers to distribute insurance products

• Life Insurance Marketing and Research Association’s insurance dictionary defines bancassurance as “the provision of life insurance services by banking and building societies”.

Bancassurance in India

• In the year 2002 the banks of India were permitted to do insurance business for the first time.

• It is regulated by both RBI and IRDA as it is combination of bank and insurance.

• It is a Win-Win Strategy• Example: SBI Life Insurance Company Ltd

has tie up with SBI.

RBI finalises guidelines for banks to enter insurance biz

• The banks have also been allowed to set up subsidiaries and joint venture

companies for undertaking insurance business with risk participation.

• They can also act as corporate agents without seeking prior approval from

the RBI. However, they will have to comply with IRDA guidelines. Under

existing banc assurance guidelines, a bank can act as a corporate agent.

• The new guidelines allow banks to act as brokers permitting them to sell

insurance policies of different insurance companies.

• Banks will be permitted to act as insurance brokers so that the entire

network of banks' branches will be utilised to increase the penetration of

insurance.

• bank should not be less than Rs 1,000 crore and the CRAR of the bank

should not be less than 10 per cent.

• The level of net non-performing assets should be not more than 3 per

cent.

• It may be noted that a subsidiary of a bank and another bank will not

normally be allowed to contribute to the equity of the insurance

company on risk participation basis.

• For banks undertaking insurance broking through a subsidiary or JV

without risk participation, the the net worth of the bank should not be

less than Rs 500 crore after investing in the equity of such company.

• Violation of the above instructions will be viewed seriously and will

invite deterrent penal action against the banks.

The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance

• Each bank that sells insurance must have a chief insurance executive to

handle all the insurance activities;

• All the people involved in selling should under-go mandatory training at an

institute accredited by IRDA and pass the examination conducted by the

authority;

• Commercial banks may become corporate agents

• The Insurance Regulatory and Development Authority of India (IRDA) has

allowed banks to tie up with a maximum of nine insurers from three

segments —life, non–life and standalone health insurers — as part of the

new bancassurance guidelines .

• The new draft has also relaxed certain other limits on the way corporate

agents can conduct business. corporate agents can conduct up to 90% of

the business (premium collection) from any one insurer in the same line

of business, and the remaining 10% from two other insurers

• This limit will come down to 75% in the second year and 60% in the

third. From the fourth year onwards, the draft proposed that no corporate

agent would place more than 50% of its business with any one insurer.

• the corporate agent shall file, at the time of seeking registration, with the

authority (Irda) a board-approved policy on the manner of soliciting and

servicing insurance products,

• Banks will be responsible for any mis-selling through Bancassurance

Advantage for the Banks

• Revenue diversification• Satisfaction of more financial needs under the

same roof• Customer retention-Increase in customer

loyalty• More profitable resource utilization• Enriched work environment• Establish sales oriented culture

Advantage for the Insurance Companies

• Revenue and channel diversification• Quality customer access• Quicker geographical reach creation of brand

equity• Increase in volume and profit• Improved brand equity

Advantage for the Consumer

• Enhanced convenience• One stop shopping for all financial services• Innovative and better product ranges• More credible solution

OPPORTUNITY:Data mining :Banks have a huge customer

database which has to be properly leveraged. Target segments should be identified and tapped.

Wide distribution networks of banks

THREATS:Human Resource ChallengesNon-response from the target groups can also pose

a challenge.

Impact

• banks will go for mandatory multiple partnership with insurers.

• banks have a captive customer base and ready infrastructure, it is cheaper

for insurance companies to use banks as corporate agents than the agency

channel

• this is one reason why bank-promoted insurers with a ready-made

bancassurance channel were able to adjust to the recent spate of regulatory

reforms relatively quickly, while others grappled with high rates of agent

dropout

Inspection of Corporate Agent

Undertake inspection of the books of accounts , records and documents relating to

Corporate Agent for any of the following reasons.

• to ensure that the books of account, records and documents are being maintained

by the corporate agent in the manner as may be specified by the Authority ;

• to inspect the handling of complaints received from clients or any other person, on

any matter having a bearing on the activities of the corporate agent;

• to ascertain whether the provisions of the Act, as amended from time to time, and

these Regulations are being complied with by the corporate agent;

• to inspect into the affairs of corporate agent, in the

interest of the policyholders;

• to examine the veracity of the complaint received;

• to investigate into the activities and conduct of the

corporate agent.

Notice before inspection.

• Before ordering an inspection under regulation , the Authority

shall give not less than ten days’ notice to the corporate agent.

Submission of Inspection Report to the Authority.

• The inspecting authority shall, as soon as possible, but in any

case not later than 30 days from the completion of the

inspection, submit an inspection report to the Authority.

• inform immediately the Authority should any cover be cancelled or voided

or if any policy is not renewed;

• inform immediately the insurer in writing of any claim made by or against

it;

• advise immediately the insurer of all circumstances or occurrences that

may give rise to a claim under the policy ; and

• advise the Authority as soon as an insurer has notified that it intends to

decline indemnity in respect of a claim under the policy.

Every corporate agent firm shall