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Bancassurance
‘BANCASSURANCE’ as term itself tells us what does it means. It’s a
combination of the term ‘Bank’ and ‘Insurance’. It means that insurance have
started selling there product through banks. It’s a new concept to Indian market
but it is very widely used in western and developed countries. It is profitable
both to Banks and Insurance companies and has a very bright future to be the
most develop and efficient means of distribution of Insurance product in very
near future.
Insurance company can sell both life and non-life policies through banks.
The share of premium collected by banks is increasing in a decent manner from
the time it was introduce to the Indian market. In India Bancassurance in guide
by Insurance Regulatory and Development Authority Act (IRDA), 1999 and
Reserve Bank of India. All banks and insurance company have to meet
particular requirement to get into Bancassurance business.
It is predicted by experts that in future 90% of share of premium will
come from Bancassurance business only. Currently there are more and more
banking and Insurance Company and venturing into Bancassurance business for
better business prospect in future.
The banking business is also generating more profit by more premium
collected by them and they also receive commission like normal insurance
agent which increase there profits and better reputation for the banks as there
service base also increase and are able to provide more service to customers andeven more customer are attracted toward bank.
It is even profitable for Insurance Company as they receive more and
more sales and higher customer base for the company. And they have to
directly deal with an organization which reduce there pressure to deal with each
customer face to face.
In all Bancassurance has proved to be boom in whole Banking andInsurance arena.
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Bancassurance
Bancassurance is defined as ‘Selling Insurance products through
banks’. The word is a combination of two words ‘Banc’ and ‘assurance’
signifying that both banking and insurance products and service are provided by
one common corporate entity or by banking company with collaboration with
any particular Insurance company. In concrete terms bancassurance, which is
also known as Allfinanz - describes a package of financial services that can
fulfill both banking and insurance needs at the same time.
The usage of the word picked up as
banking and insurance companies merged together and banks sought to provide
insurance, in the market which has been liberalized recently.
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Financial Services
Banking Insurance
BancassuranceBancassurance
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Bancassurance
But it is a controversial issue as many
experts feels that this ides gives banking sector too great a control over
financial market in that country. Therefore it has also been restricted in many
countries too.
But, still which countries have permitted
Bancassurance in their market has seen a tremendous boom in that sector. The
share of premium collected by them has increased in constant and decent
manner. This success coincided with a favorable taxation for life insurance
products, as well as with the consumers' growing needs, in terms 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 new company) which gives rise to a complete upheaval
concerning marketing strategies 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 Indian market and there is lot of development leftto be done by the government and regulatory authority. But this has proven to
be a boom for the Insurance and Banking companies together and both the
different sector of the industry has shown better result and improvement in their
own field due coming of the whole new concept of BANCASSURANCE.
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Bancassurance
Bancassurance in its simplest form is the
distribution of insurance products through a bank’s distribution channels. It is
the provision of insurance and banking products and service through a common
distribution channel or through a common base.
Banks, with their geographical spreading
penetration in terms of customer’s reach of all segments, have emerged as
viable source for the distribution of insurance products. It takes various forms
in various countries depending upon the demography and economic and
legislative climate of that country. This concept gained importance in the
growing global insurance industry and its search for new channels of
distribution.
However, the evolution of bancassurance
as a concept and its practical implementation in various parts of the world, have
thrown up a number of opportunities and challenges.
The concept of bancassurance was
evolved in Europe. Europe leads the world in Bancassurance market penetration
of banks assurance in new life business in Europe which ranges between 30%
in United Kingdom to nearly 70% in France. However, hardly 20% of allUnited States banks were selling insurance against 70% to 90% in many
Western European countries. In Spain, Belgium, Germany and France more
than 50% of all new life premiums is generated by banks assurance. In Asia,
Singapore, Taiwan and Hong Kong have surged ahead in Bancassurance then
that with India and China taking tentative step forward towards it. In Middle
East, only Saudi Arabia has made some feeble attempts that even failed toreally take off or make any change in the system.
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Bancassurance
The motives behind bancassurance also
vary. For Banks, it is n means of product diversification and source of
additional fee income. Insurance companies see bancassurance as a tool for
increasing their market penetration and premium turnover. The customer sees
bancassurance as a bonanza in terms of reduced price, high quality products and
delivery at the doorsteps.
With the liberalization of the insurance sector and competition tougher thanever beore, 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 premiums, unitized products, unit-linked products and innovative riders. But
a hitherto untapped field is the one involving the distribution of these insurance
products.
Currently, insurance agents are still the main
vehicles through which insurance products are sold. But in a huge country like India,
one can never be too sure about the levels of penetration of a product. It therefore
makes sense to look at well-balanced, alternative channels of distribution.
Nationalized insurers are already well
established and have an extensive reach and presence. New players may find it
expensive and time consuming 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 out to a worthwhile number of customers, making use of other
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Bancassurance
distribution avenues becomes a must. Alternate channels will help to bring
down the costs of distribution and thus benefit the customers.
Business generated by Bank in Insurance
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
F r a n c eP o u r t u g a lS p a i n U . K S w e d e nU S A I n d i a
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Bancassurance
Market share with in Europe the inventor in
Bancassurance
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Bancassurance
Bancassurance is a very innovative
product in both Banking and Insurance sector. It is supposed to be a WIN –
WIN situation for both banking and insurance industry. There are series of
advantages to all bankers, insurance company and even to customers of banks
and insurance company.
ADVANTAGES TO BANKS:
• Bancassurance is helping banks to achieve one of there very prime
objective of Universal Banking which means providing variety of banking and
other additional services through there medium of banks.
• Bancassurance also helps in increasing there customer bases because of
increase in the variety of service they provide and over that there is also an
increase in the service they provide by the entry of the complete range of new
product from Insurance industry.
• Banks across the world have now realized that offering value added
service like life insurance and non-life insurance and even mediclaim very well
help them meet the expectation of the customers.
• Its even help banks in way providing insurance service gives them a
cutting edge advantage over other banks in personal financial service area
which is get hot every day.
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Bancassurance
• Bancassurance also helps banks who seek in retaining customer loyalty in
way of offering them a vastly expanded and sophisticated range of insurance
product.
• Distribution of Insurance product also help increase of fee based earning
of the banks to a considerable extent. Internationally, fee collected from
insurance activity have contributes significantly to the banks total domestic
retail revenues in other words fee based revenues.
• Fee based selling also help in enhancing the staff productivity level in the
banks. This provides vital help in developing that staff motivation levels in
banks in India.
• Banks can even put more energy into small scale commission customers
which insurance agents tends to avoid because of more hard work in convincing
and lesser returns and if policy collapsed all the commission will also be
withdrawn from agents and his all hard work will go to waste which in its huge
customer base can easily bare.
• For banks it’s even more profitable as there is no lock up of any vital
assets or capital and over that banks receive commission which is total income
revenues for banks.
• Bancassurance also helps banks in optimum utilization of there resources
to there maximum level so that all the asset and capital are utilized in proper
manner and maximum revenues are generated from the business.
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Bancassurance
ADVANTAGES TO INSURANCE COMPANIES:
• Bancassurance helps insurance companies in wide diversification in there
channel of distribution of there products from there primitive technique of
direct sale or sales by there agents for which they have to pay them
commission.
•
Bancassurance also allow insurance companies to access the wide andhigh quality database of there customer. Which in turn helps in increase the sale
of there companies and revenues for both insurance and banking companies.
• Bancassurance also helps in development of a brand image of insurance
companies which is very helpful in this competitive market and also explore
new horizon of business.
• Bancassurance is very helpful in increasing the sales of the insurance
companies. It like boom for them because there product can now get sold from
wide network of banks branches which bring in enormous amount of revenues
from insurance companies.
• Bancassurance also help insurance companies to achieve a wide
geographical reach with minimum expenditure and time devotion and even
helps in less appointment new agents and staff all over the area.
• Bancassurance helps insurance companies to penetrate the market in
much better way and to a higher extent.
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Bancassurance
• It also helps to insurance companies in a way that sales starts coming
automatically from a wide network of banks instead giving remuneration to
sales agent and setting targets for them and managing each agent of the
companies.
• It also helps banks in a way that they have to now deal with just
corporate entity or bank instead of dealing with thousands of direct selling
agents and managing different accounts for them. Which reduce there staff
requirement and even work pressure on the staff member of the insurance
company.
• The insurance company have to follow a straighten process of processing
because all the information of client have been verified and certified by banks
which makes there work easy and even increase the premium revenue for the
insurance company.
• Bancassurance also helps insurance companies in way that it can now
also concentrate in small policy or smaller premium customer which insurance
agents tends to avoid because of higher risk involve which is now possible
because of banks.
• It also helps insurance company in reducing there direct distribution cost
which in turn helps in increasing profits and revenues for the insurance
companies.
• It helps in development more and better products
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Bancassurance
THE WIN – WIN CONDITION FOR BANKS AND
INSURANCE COMPANIES.
Banks Insurance
• Customer retention• Revenues and channel of
diversification• Satisfaction of more
financial need under same roof.• Quality customer access.
• Revenue diversification• Establish a low cost
acquisition channel.
• More Profitable resources
utilization.• Creation of Brand Image.
•
Establish sales orientatedculture.
• Quicker Geographical reach.
• Enrich work environment.• Leverage service synergies
with Bank.
ADVANTAGES OF CUSTOMERS:
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• As there would be lower distribution cost the customer will be final
benefited as they will now have to pay lower premium rates.
• There would professionally trained executives which will give customer
better understanding of the plan so there would me no hitch in the mind of the
customer regarding the product and he could invest properly which is not
possible by normal insurance agent which are unprofessional and some times
make customers even more confused.
• The customer is also benefited that he is now able to get the wide range
of service under just one roof.
• Customers are now also able to pay there premium to insurance company
through a wide range of medium like different bank branches, ATM’s, kiosks
and many more.
• The customer can also get loans and credit facilities from banks in
security of the insurance policy.
• It improves customer satisfaction of the customer because he is getting he
mostly require for financial planning under one roof and even better service
from banks.
• He even receives tax benefit if he invests his funds properly in any of the
scheme provided by banks on Insurance products which is very helpful.
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Bancassurance
Bancassurance is a WIN – WIN situation
for both Banking and Insurance Industry it is even beneficial even to the
customers but it also has disadvantages:
• One of the very major risk involve in Bancassurance is that
Bancassurance gives a very major hold to the banks in the Indian financial
markets. Which can even be some time misused by banks for there own profits.
For that reasons Bancassurance is also restricted in many country to avoid
banks taking major hold of the financial markets in that particular country.
Even United States at one time restricted Bancassurance but on later stage
special resolutions and bills were passed to make Bancassurance legal in United
States.
• As insurance company have to develop more, better and attractive
products it has to major risk in innovating and making different plans to meet
the customer demand in the market. So the risk factor of the company definitely
increases.
• In India bancassurance is guide by two different regulatory and
governing bodies which makes banks and insurance company very difficult to
meet with there requirement and standards prescribe by them to work and exist
in the market.
• As bancassurance progress there are more small scale investors and
policies takes which has very less premium. In that case there are more chances
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of default then high end customers. This means more of risk to banks and
Insurance companies then profits.
• The other major problem for banking companies is that staffs at banking
companies are not sale motivated staff so they must be trained in that matter
because the work of insurance is mostly sale oriented.
• There is also a major expense of training bank staff regarding insurance
product because they well oriented with banking product and now the even
have to deal with selling insurance product which completely in itself. So
insurance company have to make banking staff aware of their products and
service and even guide regarding guidance to even make customer convince.
• The other major problem which insurance and banking company facing is
regarding technical incapability to connect all branched and offices under on
network or Wide Area Network (WAN) which make lot of process time and
insufficient to perform at there full capacity.
India has an extensive bank network
established over the years. What Insurance companies have to do is to just take
advantage of the customers' long-standing trust and relationships with banks.
This is a mutually beneficial situation as banks can also expand their range of
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products on offer to customers, while the insurance company will also earn
profits from the exposure. Another advantage is that banks, with their network
in rural areas, help to fulfill rural and social obligations stipulated by the
Insurance Regulatory and Development Authority (IRDA) recently. Insurance
companies should see bancassurance as a tool for increasing their market
penetration in India. It is also good for the one who sees bancassurance in terms
of reduced price, high quality product and delivery at doorsteps. Everybody is a
winner here. The creation of bancassurance operations has made an important
impact on the financial services industry at large. This is though a new concept
but it has gained a lot of importance in the industry at present and has a great
future.
The other major factor for Bancassurance
form Indian point of view is that India has one of the world highest saving rates
in the world. Around 25% of the Indian GDP goes saving that makes up a
massive insurable market of the world. Above that Indian banking system have
been playing a major role in Indian financial market There are more then
1,00,000 braches strategically located all over India. Above that India have
second largest population of the world which is around 1.5 billion people which
provide banks and insurance company with a huge customer prospect which in
very future can convert into actual customers.
Since 2002, two thirds of the twelve
foreign insurance companies authorized to work in India have already
developed strong partnerships with banks. The Association of Insurers of Indiahas signed a “bancassurance” agreement with Corporation Bank. Other
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agreements have also been signed with South Indian Bank, Lord Krishna Bank,
ICICI Bank, etc.
For Bajaj Allianz, for example, a joint
venture between Baja Auto Ltd, the country’s second largest motorcycle
manufacturer, and the German insurance company Allianz AG, bancassurance
represented some 27% of its total new insurance business at the end of October
2004, compared with 17-18% in 2002. This figure is likely to grow further,
following the launch of specific products by Centurion Bank and its agreements
with banks such as Standard Chartered Bank and Syndicate Bank. Aviva has
signed a new bancassurance partnership with Punjab and Sind Bank in pursuit
of its ambition to grow on the Indian market. In 2003, Aviva Life generated
73% of its new business through the banking network.
When the International Director of BNP
Paribas Assurance is asked in which countries Cardiff wants to expand, China
is in the forefront.
INDIAN INVESTMENT INDUSTRY
APPROX US$ 500 BILLION UNDER FUND
MANAGEMENT 2005 – 2006
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Bancassurance
Life
Insurance
18%
90 bln
Retirement
Funds
14%
70 bln
Mutual Funds
10%
50 bln
Banks Term
Loans
28%
140 bln
Banks
Saving
Accounts
30%
150 bln
Bancassurance in its simplest form is the
distribution of insurance products through a bank's distribution channels. In concrete
terms bancassurance, which is also known as Allfinanz - describes a package of
financial services that can fulfill both banking and insurance needs at the same time.
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Bancassurance
It takes various forms in various countries
depending upon the demography and economic and legislative climate of that country.
Demographic profile of the country decides the kind of products bancassurance shall
be dealing in with, economic situation will determine the trend in terms of turnover,
market share, etc., whereas legislative climate will decide the periphery within which
the bancassurance has to operate.
The motives behind bancassurance also
vary. For banks it is a means of product diversification and a source of additional fee income. Insurance companies see bancassurance as a tool for
increasing their market penetration and premium turnover. The customer sees
bancassurance as a bonanza in terms of reduced price, high quality product and
delivery at doorsteps. Actually, everybody is a winner here.
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 apply
for mortgages, pensions, savings and insurance products.
Discovery comes from looking at the
same thing as everyone else but seeing something different. Banks' desire to
increase fee income has them looking at insurance. Insurance carriers and banks
can become part of the vision through strategic partnerships. Now is the time to
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Bancassurance
position your company for the new millennium of insurance product
distribution.
STRENGHT:
Bancassurance can be a sure of fire way
to wider customer base, provides it is made use of sensibility. In India there is
an extensive bank network establishment over the years. Insurance companies
will have take advantage of the customer’s longstanding trust and relationships
with banks. This in mutually beneficial situation as banks can expand the range
of their products on offers to customers and earn more, while the insurance
company profits from the exposure at the banks branches, and the security of
receiving timely payments.
There is a vast untapped potential
waiting to be mined particularly for life insurance products in rural areas. Banks
with their network in rural areas, help to fulfill rural and social obligations as
stipulated by the Insurance Regulatory Development Authority (IRDA).
There are several reasons why bank
should seriously consider bancassurance, the most important of which is
increased returns on assets (ROA). It offers fee – based non – interest income to
the banks without involving in any amount of risk and at the same time does not
require any additional capital.
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In a country of 1 Billion people, sky is
the limit for personal lines insurance products. There is a vast untapped
potential waiting to be mined particularly for life insurance 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 about 200 Million households
waiting to be approached for a householder's insurance policy. Millions of
people traveling in and out of India can be tapped for Overseas Mediclaim and
Travel Insurance policies. After discounting the population below poverty line
the middle market segment is the second largest in the world after China. The
insurance companies worldwide are eyeing on this, why not we preempt this
move by doing it ourselves?
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. LIC and GIC both have a good
range of personal line products already lined up; therefore R & D efforts to
create new products will be minimal in the beginning. Additionally, GIC with
4200 operating offices and LIC with 2048 branch offices are almost already
omnipresent, which is so essential for the development of any bancassurance
project.
WEAKNESS:
The success of bancassurance calls for a
paradigm shift in the behavior of the banks, which have to develop marketing
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skills. Most of the banks lack adequate marketing skills to perform these
additional responsibilities. At the same time, there is a need for banks to be
sensitive to the customer preferences.
Bancassurance could turn out to be an
expensive channel as it requires huge investment in Wide Area Network
(WAN) and Vast Area Network (VAS) to meet the customer’s needs in order to
finalize a sale. Another drawback is the inflexibility of the products that is it
cannot be tailor made as per the requirements of the customers. For Banks
assurance venture to succeed, it is extremely essential to have built flexibility of
the products that is it cannot be tailor made to the requirements of the
customers. For a Bank assurance venture to succeed, it is extremely essential to
have an in built flexibility so as to make the product attractive to the customers.
The IT culture is unfortunately missing
completely in all of the future collaborators i.e. banks, GIC & LIC. A late
awakening seems to have dawned upon but it is a case of too late and too little.
Elementary IT requirement like networking (LAN) is not in place even in the
headquarters of these institutions, when the need today is of Wide Area
Network (WAN) and Vast Area Network (VAN). Internet connection is not
available even to the managers of operating offices.
The middle class population that we are
eyeing at are today overburdened, first by inflationary pressures on their
pockets and then by the tax net. Where is the money left to think of insurance?
Fortunately, LIC schemes get IT exemptions but personal line products from
GIC (mediclaim already has this benefit) like householder, travel, etc. also need
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to be given tax exemption to further the cause of insurance and to increase
domestic revenue for the country.
Another drawback is the inflexibility of
the products i.e. it can not be tailor made to 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 customer.
OPPORTUNITY:
Bank database is enormous and they
have a wide branch network. Millions of customers become accessible to
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insurance companies through bank branches. This database has to be churned in
order to position the banks assurance products.
New private sector insurance companies
are yet to become popular. They are in existence for less than five years. In a
short period, to appoint agents all over the country and effectively follow them
would be an uphill task. They are in the process of building brand equity. Tie
up with Banks will help them to boost their image and provide great
opportunity for insurance as in as Banks. In this process is bank will also
benefit.
Customers have more faith in Banks and
they view those Banks as more responsible than individual agents. Moreover,
agents may not be available for further services. But customers can approach
the banks any time and paying the premium is easier with Banks because of
standing instructions.
Banks' database is enormous even though
the goodwill may not be the same as in case of their European counterparts.
This database has to be dissected variously and various homogeneous groups
are to be churned out in order to position the bancassurance products. With agood IT infrastructure, this can really do wonders.
Other developing economies like
Malaysia, Thailand and Singapore have already taken a leap in this direction
and they are not doing badly. There is already an atmosphere created in the
country for liberalization and there appears to be a political consensus also onthe subject.
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Therefore, RBI or IRA should have no
hesitation in allowing the marriage of the two to take place. This can take the
form of merger or acquisition or setting up a joint venture or creating a
subsidiary by either party or just the working collaboration between banks and
insurance companies.
Name of Insuranceco.
New Business in2004 - 05
% BusinessthroughBancassurance
SBI Life Insurance Rs 482 crore 67
Aviva Life Insurance Rs 192 crore 65
Birla Sun Life Insurance Rs 621 crore 40
HDFC Standard Life Rs 486 crore 37
TATA AIG Life Insurance Rs 300 crore 30
Bajaj Allianz Life Rs 860 crore 25
ICICI Prudential Life Rs 1,580 crore 19
LIC Rs 15,840 crore 1
THREATS:
Even Insurers and banks that seem
ideally suited for a bank assurance partnership can run into problems during
implementation. Success of a bancassurance venture requires change in
approach, thinking and work culture on the part of everybody involved.
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The most common obstacles to success
are manpower management, lack of sales culture within the banks, non –
involvements by managers, insufficient product promotions, failure to integrate
marketing plans, marginal database expertise, inadequate incentives, a definite
threat of resistance to change, negative attitude towards insurance and unwieldy
marketing strategy.
Success of a bancassurance venture
requires change in approach, thinking and work culture on the part of
everybody involved. Our work force at every level are so well entrenched in
their classical way of working that there is a definite threat of resistance to any
change that bancassurance may set in. Any relocation to a new company or
subsidiary or change from one work to a different kind of work will be resented
with vehemence.
Another possible threat may come from
non-response from the target customers. This happened in USA in 1980s after
the enactment of Garn - St Germaine Act. A rush of joint ventures took place
between banks and insurance companies and all these failed due to the non-
response from the target customers. US banks have now again (since late
1990s) turned their attention to insurance mainly life insurance.
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The investors in the capital may turn
their face off in case the rate of return on capital falls short of the existing rate
of return on capital. Since banks and insurance companies have major portion
of their income coming from the investments, the return from bancassurance
must at least match those returns. Also if the unholy alliances are allowed to
take place there will be fierce competition in the market resulting in lower
prices and the bancassurance venture may never break-even.
Bancassurance mainly works in threedifferent ways that’s by Banks providing distribution services for Insurance
companies ,Banks and Insurance companies coming out with a joint Venture
which deals with both insurance and banking products and last by coming up
with a financial services group.
Each different mode of bancassurancehas its own advantages and disadvantages. The most commonly used mode of
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bancassurance currently is by banks providing distribution services for
insurance company. This mode currently dominates the Indian market and is
less risky for both banks and insurance company.
But across the world now different
modes of bancassurance is also taking up pace to meet with emerging markets
and developing economy all over world. In India only distribution models exist
because to Banks unable and insufficient to take up Joint Venture.
MODEL IN INDIA MODEL IN ASIA
Distribution
Agreements
30%
Joint Venture
70%
THE THREE DEVELOPMENT MODELS
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Distribution
Agreement
70%
Joint
Venture 15
Financial
Services
15%
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Bancassurance
SHARE OF DIFFERENT MODELS IN WORLD MARKET
Bancassurance in India is a very new
concept, technically seeing the concept if Bancassurance is only one year old tothe Indian Financial market. In India there are different regulatory bodies for
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Bancassurance
Banks and Insurance Company, for banking sector it is Reserve Bank of India
(RBI) and for insurance sector it is Insurance Regulatory and Development
Authority (IRDA) and bancassurance is combination of both banking and
insurance sector therefore it comes under the preview of both the regulatory
bodies. Each Regulatory has given out detailed guidelines and norms for banks
getting into insurance sector and banks have to compulsory follow it to get
ahead with bancassurance business.
Reserve Banks of India guidelines for
banks entering into insurance sector provide the options for banks to enter in
bancassurance. They are:
1. Joint Venture will be allowed for financially strong Banks wishing to
undertake Insurance Business with risk participation.
2. For Banks which are not able to take up Joint Venture option because not
enough financially strong position, an investment option is made available to
them up to 10% of the net worth of the banks or Rs 50 crore, which ever is
lower, is available.
3. Finally, any commercial banks will be allowed to undertake insurance business as agent of insurance companies. This will be on a fee basic with no
risk participation. A bank can be agent of only one insurance company and not
multiple companies.
The Insurance Regulatory and
Development Authority (IRDA) issued guidelines and norms for Insurance
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companies which they have to mandatory follow to enter into bancassurance
business with any banks.
1. Each bank that sells insurance product must have a chief insurance
executive to handle all the insurance activities.
2. All the people involve in selling Insurance product in banks and
insurance companies must compulsory undertake undergo training from
Institution accredited by Insurance Regulatory and Development Authority
(IRDA) and pass examination conducted by the authority to sell insurance
products.
3. Commercial banks, including regional rural banks, co-operative banks
may become agents of just only one insurance company.
4. Banks cannot operate or become broker to any insurance company.
Implementing is a key challenge in
the India because of many government restriction and lengthy and complicated
regulatory guidelines to meet by Banks and Insurance companies.
SOME INPORTANT BANCASSURANCE TIE – UPS
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Bancassurance
INSURANCE BANKS
LIFE INSURANCECORPORATION (LIC)
Corporation Bank, IndianOverseas Banks, CenturionBank, Satara District Bank,Cooperative Bank, Janata UrbanCooperative Bank, YeotmalMahila Sahkari Bank, OrientalBank of Commerce.
BIRLA SUN LIFEINSURANCE
The Bank of Rajasthan, AndhraBank, Bank of Muscat,Development Credit Bank,Deutsche Bank and CatholicSyrian Bank.
DABUR CGU LIFE
INSURANCE COMPANYPVT LTD
Canara Bank, Lakshmi VilasBank, American Express Bank,ABN Amro Bank.
HDFC STANDARD LIFEINSURANCE CO.
Union Bank of India.
ICICI PRUDENTIAL LIFEINSURANCE CO.
Lord Krishna Bank, ICICI Bank,
Bank of India, Citibank,Allahabad Bank, Federal Bank,South Indian Bank, Punjab &Maharashtra co-operative Bank.
NATIONAL INSURANCECO.
City Union Bank.
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MET LIFE INDIA
INSURANCE CO.
Karnataka Banks, TheDhanalaxmi Bank, Jammu andKashmir Bank.
SBI INSURANCE CO.State Bank of India, AssociateBank
BAJAJ ALLIANZ
GENERAL INSURANCE
Krur Vysya Bank, Associate
Bank
ROYAL SUNDARAMGENERAL INSURANCECO.
Standard Chartered Bank, ABNAmro Bank, Citibank, Amex andRepco Bank
UNITED INDIAINSURANCE CO.
South Indian Bank
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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 apply
for mortgages, pensions, savings and insurance products.
Discovery comes from looking at the
same thing as everyone else but seeing something different. Banks' desire to
increase fee income has them looking at insurance. Insurance carriers and banks
can become part of the vision through strategic partnerships. Now is the time to
position your company for the new millennium of insurance product
distribution.
The entire banking sector in India has
been looking at this business very carefully. The multinational banks have done
an outstanding job on insurable sales. Three multinational banks are skewing
the results in India because they are in a little bit of a different league in terms
of the levels of business they are generating. Then you have the Indian private
sector banks that are like our partners doing very well. But then you also have
the third category which are your large public sector banks who in my opinionhaven’t done anything nearly consistent with what their potential is and I think
it just goes back to the kind of commitment that banks show towards insurance
sales and how they pursue it from the implementation standpoint and that’s
what is the result. So it will be interesting to see how long this trend will
continue because today the sales are all primarily being made to bank customers
with whom the banks have very significant relationships but their ability to
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Bancassurance
sustain this will depend on whether they can keep generating customers over
and above the ones who are readily sitting there.
Bancassurance, the much talked about
channel of insurance distribution through banks that originated in France and
which has been a success story in Europe is yet to take off here. A number of
insurers have already tied up with banks and some banks have already flagged
off bancassurance through soft launches of select risk products. While reams
have been written about the numerous benefits of bancassurance considering
the wide scale availability of risk products it will enable, rules and regulations
regarding the same are yet to fall in place.
Fee based income:
For banks, bancassurance would mean a
major gain. Since interest rates have been falling and profit on off take of credit
has been low all banks have been able to do is sustain them but not profit much.
Enter bancassurance and fee based income through hawking of risk products
would be guaranteed.
Unique strategies:
Before taking the plunge, banks as alsoinsurers need to work hard on chalking out strategies to sell risk products
through this channel especially in an emerging market as ours. Through tie-ups
some insurers plan to buy shelf space in banks and sell insurance to those who
volunteer to purchase them. But unless banks set up a trained task force that
will focus on hard-selling risk products, making much headway is difficult
especially with a financial product that is not so easily bought over the counter.
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Bancassurance
Identifying Target audience:
Besides, identifying the target audience
is yet another important aspect. Banks have a large depositor base of corporate
as well as retail clients they can tap. Talking of retail clients the lower end and
middle-income group customers constitute a major chunk that have over a
period of time built a good rapport with the bank staff and thus hold big
potential for bancassurance.
Reduced costs:
While products such as retirement
planning will involve an elaborately worked out plan with the help of a
financial advisor, simple products such as an accident cover in other words pure
risk products will be sold through this channel enabling savings on solicitation
costs of these products. So will insurers pass on a part of the gains on cost
saving (saving on agent training etc) to customers? At present insurers is non-
committal on this one. Also there are no immediate plans to redesign products
to suit the bancassurance channel but banks are gung-ho about cross-selling
products.
Legal issues:
Conversely, the Insurance RegulatoryDevelopment Authority (IRDA) has adopted a cautious approach before
Bancassurance is flagged off. While on the one hand it is an economical
proposition to sell risk products through the numerous bank branches spread
across the country the fact that claim settlement disputes take an unusually long
time in our country is one of the causes for worry. In such a situation will banks
be in a position to fight for the cause of their clients is a major concern? Besidesregulatory authorities for both - banks and insurance companies are different.
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Bancassurance
Moreover, banks may have to part with confidential information about their
clients. Now where should banks draw a line?
By allowing FDI in the insurance
industry to rise to 49%, we would be attracting more global players to invest in
India and also encouraging the growth of existing players. More capital will
also encourage a greater involvement of global partners, and thereby, enhance
product innovation, service quality, infrastructure, and technology standards,
among other things. In order to tap the tremendous potential of the life
insurance industry in India, it is essential to allow greater investment. All of this
will impact the customer positively; who will benefit more if the competition in
the market gets intensified.
It is very well considered fact that now
Bancassurance is here to stay for a long time and there are many developments
expected to happen by both insurance and banking companies and even the
regulatory company have considered that fact and are favorable norms and
guidelines for insurance and banking sector.
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BUSINESS FROM BANCASSURANCE IN 2001
Business f rom
other
me diums 98%
Business f rom
Bancassurance
2%
2005
Business from
other mediums
94%
Business from
Bancassurance6%
Predicted 2010
Business from
other me dium
85%
Business from
Bancassurance
15%
Source: IRDA
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As Bancassurance is a very new concept
to Indian Banking and Insurance sector there are major developments going on
in both Banking and Insurance adjust and adopt this new channel of
distribution. Which has been recognize by both banking and insurance industry
as boom to them So even regulatory authority of Banks and Insurance sector
have also started taking step in development of Bancassurance.
IRDA SETS UP PANNEL FOR BANCASSURANCE:
AMIDST differences between insurance
companies and banks on the modalities of operational sing the system of
bancassurance, the Insurance Regulatory and Development Authority (IRDA)
has decided to constitute a separate sub-committee that would attempt to evolve
a consensus on contentious issues surrounding bancassurance.
The panel on bancassurance is expected
to have representatives from both banks and insurance companies. It would
discuss the changes that should be incorporated in the corporate agency norms
applicable to banks as well as other details such as the payment of agency
commission, according to sources.
Preliminary discussions on the concept of
bancassurance, in which banks take up the marketing and distribution of
insurance products, were held at a high-level meeting here on Thursday
convened by IRDA.
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Bancassurance
Besides the top brass of IRDA,
representatives of the Reserve Bank of India and the Chief Executive Officers
(CEOs) of over a dozen banks and public and private sector insurance
companies attended the meeting.
According to sources, a major sticking
point between banks and insurance companies was the corporate agency norms
for banks. While representatives of the banks tried to push through their case
that a single bank should be allowed to act as the corporate agent for more than
one insurance company, the insurance sector was of the opinion that a corporate
agent should be linked to only one company.
The insurance companies expressed the
view that the relationship between them and their corporate agents was of a
special nature where the company spent a lot of money and time to train the
agent. As such, they argued that an agent should work for a single company
only. ``Why should I train people of a corporate agent and then allow them to
sell the products of another company?'' the CEO of an insurance company said
after the meeting.
He said the view in the insurance sector was that if banks wished to sell the products of more than one insurance
company, they should take up a broker's license once brokers were allowed as
intermediaries in the insurance sector.
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However, the banking sector expressed
the view that acting on behalf of a single insurance company would not be
commercially viable for a bank. They felt that in order to generate adequate
volumes so as to offset the cost of deployment of employees for selling
insurance and to provide office space, banks should be allowed to work on
behalf of more than one insurance company.
``The benefit of wide reach that a large
public sector bank can extend far exceeds the business that a single insurance
company can generate for the bank, except perhaps the public sector insurance
companies,'' the Chairman of a bank said.
INCREASING FDI ALLOWANCE LIMIT ON INSURANCE:
Government have showed a very
encouraging interest in increasing the Foreign Direct Investment (FDI) limit to
49% which was till now restricted to just 25%.
Government has taken this decision by
taking into consideration demand of growing insurance market and shortage
insurance company faces meeting with the demand of the market and even
taking into consideration the future development plan of the insurance sector asa whole.
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Consider Mr. A. K. Mehta aged 35 he is
married and has 2 children and parents staying with him want to take an
insurance policy but he does not know to whom he can contact regarding that
matter regarding that matter. He doesn’t have any relative or friends who are
agent of any insurance company from whom he can understand and invest in
any good insurance policy.
Fortunately he walks down to his bank
for depositing cheque which he received from his job as salary. Suddenly to his
surprise a bank staff greets him and ask him that is he interested in taking a new
insurance policy which his bank has now started offering. He was relief at a
that for an insurance policy which he was planning to take for a long time but
doesn’t knew where to approach has now been offered at his bank only.
The staff member requested him to come
to his cabin where he dedicated sufficient time and explained the policy to him.
He was now even more surprised that banks have now started offering same
policy like Insurance Company at a same premium rate and very much better
service then normal insurance selling agents which would not provide any
importance to your doubt after you buy the policy and pay your first premium.But here at banks they were always ready to understand him doubt and solve
with zest. He was shocked by the manner bank are now even allowing him to
pay his premium for insurance policy through different medium like ATM,
Kiosks, Credit Card etc.
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The policy also offered to him fantastic.
It was like a dream policy he was expected to invest which would safeguard his
future and even secure his family if any unexpected happen and even provided
him life insurance and returns return at later stage of life. The policy was as
follow:
SUM INSSURED IN CASE OF NORMAL DEATH: Rs 15,00,000/-
SUM INSSURED IN CASE OF DEATH BY ACCIDENT: Rs 30,00,000/-
And yearly return of Rs 1,00,000/- after the age of 60 yrs.
This all service at just premium of Rs 20,653/- only per annum.
Mr. A. K. Mehta was really happy with
the policy offered which give him both life security of his life and even give
him regular written after his retirement and he invested his money in this
policy.
This tells us a story of success
bancassurance which will be the boom in the Indian Financial market and even
both banks and insurance company will be profited by it.
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It is difficult to draft an overall
conclusion on “bancassurance around the world", because as we have seen, the
sector’s level of maturity differs from one country to the next. For this reason,
each country needs to be looked at individually.
Now that we have shared our
observations and thoughts on the emergence of bancassurance and its current
status, it would seem reasonable to ask how bancassurance is likely to develop
in the coming years.
Some countries, where bancassurance
currently plays a relatively minor role, are trying to identify the reasons for this
failure and would now like to develop these activities on a different basis. A
process of rapprochement between banks and insurance companies was
attempted by the so-called “Anglo-Saxon” countries such as the USA, the UK
or Germany, where the bancassurance model never really took off. Through
financial deregulation and/or an understanding of the reasons for this limited
development, the two industries may perhaps be able to establish genuine
alliances.
The high levels of recent economicgrowth in certain parts of the world (China, India, etc.) suggests the possibility
that bancassurance may emerge in other countries. This emergence may take
different forms: the integrated model, or simple cooperation. The degree of
integration will depend above all on the local context in each market and the
strategy adopted by the operators. However, these are not the only factors that
will determine whether bancassurance succeeds. Many other elements andfactors are required for a successful convergence.
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As regards the countries where bank
assurance is the dominant model, mainly the so-called “Latin” countries of
Europe, banking and life assurance would now seem to be two intimately linked
activities, sharing the primary goal of fulfilling a global customer need. The
bancassurance model should therefore continue to gain market share, even if
bancassurance operators have already begun thinking about a possible change
of direction, or at least a shift to new objectives, products and customers.
Thus, after starting out with a mass
distribution rationale and a strong focus on bank customers – i.e. on individuals
– Bancassurance operators are becoming increasingly innovative, and showing
evidence of a willingness and ability to adjust and respond to their customers.
This should enable them to maintain their position, and also to target new
objectives, such as high-net-worth customers, business customers,
professionals, young people, etc.
In terms of products too, bancassurance
operators are diversifying and moving into a new era of more complex life
insurance products, niches previously confined to the traditional channels. The
goal of “mature” bancassurance operators is now to be able to fulfill even the
most specific customer needs.However, for some years it has also been
clear that a new movement is emerging: bancassurance operators are looking at
property and casualty injury products. In France, Solving International’s annual
survey has shown that the market share of the banks in this segment, especially
Credit Agricole and Credit Mutual, grew between 2001 and 2003 by almost 1%
a year. Just as with life products, and within the same perspective of success,
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personal injury products are now increasingly designed and sold to fit into an
integrated banking approach.
However, the future of bancassurance is
not predetermined, and operators will need to deal with increasingly tough
competition. For example, to counter the rise in bancassurance, traditional
insurance companies have responded with the invention of Assurbanque and the
launch of their own range of banking products. For the moment, this offensive
is too recent for predictions to be made about its future.
To sum up, in the countries where it is
already well established, bancassurance can still grow in certain market sectors,
while in other parts of the world, it is a matter of starting from scratch.
Bancassurance still has a long way to go!
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Questionare
Q1) NAME:
AGE:
SINGLE / MARRIED:
DEPENDNT ON PERSON:
CHILDRENS (IF ANY):
Q2) HAVE YOU TAKEN ANY POLICY FROM ANY BANKS?
Q3) HOW MUCH HAVE YOU INVEST IN POLICY TAKEN FROM BANK?
Q4) WERE YOU HAPPY WITH THE SERVICE PROVIDED BY BANK?
Q5) WHAT PERCENT OF YOUR TOTAL SHARE OF INVESTMENT IN
INSURANCE POLICY IN THROUGH BANK?
Q6) DO U HAVE MEDICAL HISTORY OF ILLNESS OR OF ANY KIND?
Q7) ARE U ADDICTED TO ANY THING LIKE SMOKING, DRINKING OR
ANYTHING?
Q8) ARE U WILLING TO CHANGE UR AGENT OR MODE OF
DISTRIBUTION CHANNEL TO BUY ANY INSURANCE PRODUCTS?
Q9) WHAT YOUR ANNUAL INCOME (APPROX)?