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1.1 MEANING ANDS CHARACTERSTIC OF BANKING
A bank is a financial institution and a financial intermediary that accepts deposits and channels
those deposits into lending activities, either directly by loaning or indirectly through capital
markets. A bank is the connection between customers that have capital deficits and customers
with capital surpluses.
(i) Dealing in money:
The banks accept deposits from the public and advancing them as loans to the needy
people. The deposits may be of different type’s current, fixed, savings, etc. accounts. The
deposits are accepted on various terms and conditions.
(ii) Deposits must be withdrawn able:
The deposits (other than fixed deposits) made by the public can be withdraw able by
cheques, draft or otherwise, i.e., the bank issue and pay cheques. The deposits are usually
withdrawn able on demand.
(iii) Dealing with credit:
The banks are the institutions that can create credit i.e., creation of additional money for
lending. Thus, "creation of credit' is the unique feature of banking.
(iv) Commercial in nature:
Since all the banking functions are carried on with the aim of making profit, it is regarded
as a commercial institution.
(v) Nature of agent:
Besides the basic functions of accepting deposits and lending money as loans, banks
possess the character of an agent because of its various agency services.
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1.1.1 TRADITIONAL BANKING ACTIVITIES
Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers' current accounts. Banks also enable customer payments via other payment
methods such as Automated Clearing House (ACH), Wire transfers or telegraphic
transfer, EFTPOS, and automated teller machine (ATM).
Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend
money by making advances to customers on current accounts, by making installment
loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide different payment services, and a bank account is considered
indispensable by most businesses and individuals. Non-banks that provide payment
services such as remittance companies are normally not considered as an adequate
substitute for a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most
funds to households and non-financial businesses, but non-bank lenders provide a
significant and in many cases adequate substitute for bank loans, and money market
funds, cash management trusts and other non-bank financial institutions in many cases
provide an adequate substitute to banks for lending savings to.
1.2 MEANING AND CHARACTERSTIC OF INSURANCE
Insurance means a promise of compensation for any potential future losses. It facilitates
financial protection against by reimbursing losses during crisis. There are different
insurance companies that offer wide range of insurance options and an insurance
purchaser can select as per own convenience and preference.
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Several insurances provide comprehensive coverage with affordable premiums.
Premiums are periodical payment and different insurers offer diverse premium options.
The periodical insurance premiums are calculated according to the total insurance
amount.
Mainly insurance is used as an effective tool of risk management as quantified risks of different
volumes can be insured.
When shopping around for an insurance policy, look for the best priced package that is right for
you - prices can vary from one insurance company to the next. And make sure you know what
you want. Some individuals, for example, prefer 24-hour claims service or face-to-face contact
with an insurance representative. Also consider the claims settlement process, the amount of the
deductible and the extent of the replacement coverage. Insurance companies and the policies they
offer are not all the same, so think about more than just the price.
Commercially insurable risks typically share seven common characterstics
1. Large number of similar exposure units: Since insurance operates through members
of large classes, allowing insurers to benefit from the law of large numbers in which
predicted losses are similar to the actual losses. Exceptions include Lloyd's of London,
which is famous for insuring the life or health of actors, sports figures and other famous
individuals. However, all exposures will have particular differences, which may lead to
different premium rates.
2. Definite loss: The loss takes place at a known time, in a known place, and from a
known cause. The classic example is death of an insured person on a life insurance
policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion.
Other types of losses may only be definite in theory. Occupational disease, for instance,
may involve prolonged exposure to injurious conditions where no specific time, place or
cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough
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that a reasonable person, with sufficient information, could objectively verify all three
elements.
3. Accidental loss: The event that constitutes the trigger of a claim should be fortuitous,
or at least outside the control of the beneficiary of the insurance. The loss should be pure,
in the sense that it results from an event for which there is only the opportunity for cost.
Events that contain speculative elements, such as ordinary business risks or even
purchasing a lottery ticket, are generally not considered insurable.
4 Large losses: The size of the loss must be meaningful from the perspective of the
insured. Insurance premiums need to cover both the expected cost of losses, plus the cost
of issuing and administering the policy, adjusting losses, and supplying the capital needed
to reasonably assure that the insurer will be able to pay claims. For small losses, these
latter costs may be several times the size of the expected cost of losses. There is hardly
any point in paying such costs unless the protection offered has real value to a buyer.
5.Affordable premium: If the likelihood of an insured event is so high, or the cost of the
event so large, that the resulting premium is large relative to the amount of protection
offered, then it is not likely that the insurance will be purchased, even if on offer.
Furthermore, as the accounting profession formally recognizes in financial accounting
standards, the premium cannot be so large that there is not a reasonable chance of a
significant loss to the insurer. If there is no such chance of loss, then the transaction may
have the form of insurance, but not the substance. (See the US Financial Accounting
Standards Board standard number 113)
6. Calculable loss: There are two elements that must be at least estimable, if not formally
calculable: the probability of loss, and the attendant cost. Probability of loss is generally
an empirical exercise, while cost has more to do with the ability of a reasonable person in
possession of a copy of the insurance policy and a proof of loss associated with a claim
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presented under that policy to make a reasonably definite and objective evaluation of the
amount of the loss recoverable as a result of the claim.
7. Limited risk of catastrophically large losses: Insurable losses are
ideally independent and non-catastrophic, meaning that the losses do not happen all at
once and individual losses are not severe enough to bankrupt the insurer; insurers may
prefer to limit their exposure to a loss from a single event to some small portion of their
capital base. Capital constrains insurers' ability to sell earthquake insurance as well as
wind insurance in hurricane zones. In the US, flood risk is insured by the federal
government. In commercial fire insurance, it is possible to find single properties whose
total exposed value is well in excess of any individual insurer's capital constraint. Such
properties are generally shared among several insurers, or are insured by a single insurer
who syndicates the risk into the reinsurance market.
1.3 HISTORY OF BANKING
Without a sound and effective banking system in India it cannot have a healthy economy.
The banking system of India should not only be hassle free but it should be able to meet new
Challenges posed by the technology and any other external and internal factors.
For the past three decades India’s banking system has several outstanding achievements to it’s
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact Indian banking system has reached even to the remote corners of
the country. This is one of the main reasons of India growth process. The government’s regular
policy for main reason of India’s growth process. The government regular policy for Indian bank
since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.
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Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or
for withdrawing his own money. Gone are days when the most efficient bank transferred money
from one branch to other in two days. Now it is simple as instant messaging or dials a pizza.
Money have become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian banking system can be segregated into three distinct phases. They are as
mentioned below:
1. Early phase from 1786 to 1969 of Indian banks.
2. Nationalization of Indian banks and up to 1991 prior to Indian banking sector reforms.
3. New phase of Indian banking system with the advent of Indian financial and banking
sector reforms after 1991.
1.4 HISTORY OF INSURANCE
Insurance is a form of risk management, primarily used to hedge against the risk of a
contingent loss. In essence, insurance is simply the equitable transfer of a risk of a loss,
from one entity to another, in exchange for a premium.
Gambling transactions also hedge against risk, but it offers the possibility of either a loss
or a gain. Gambling creates losers and winners, whereas in insurance offers financial
support sufficient to replace loss, not to create pure gain. Gamblers can continue
spending, buying more risk than they can afford, but insurance buyers can only spend up
to the limit of what carriers would accept to insure; their loss is limited to the amount of
the premium.
Gamblers, by creating new risk transfer, are risk seekers. Insurance buyers are risk
avoiders, creating risk transfer in terms of their need to reduce exposure to large losses.
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Early methods of transferring or distributing risk were practiced by Chinese traders as
early as the 3rd millennia BC. These merchants travelling treacherous river rapids would
cleverly distribute their wares across many vessels to spread the loss due to any single
vessel's capsizing.
Modern profit insurance manifested in Babylon almost 2000 years B.C., in a contract of
loan of trading capital to travelling merchants. The contract contained a clause that the
risk of loss due to robbery in transit was borne by the party providing the loan. In
consideration for bearing this risk, the lender calculated interest on the loan at an
exceptionally high rate.
Benjamin Franklin helped to popularize the practice of insurance in North America -
particularly against fire – and in 1752, he founded the Philadelphia Contribution ship for
the Insurance of Houses from Loss by Fire. Franklin's company was the first to make
contributions toward fire prevention. Not only did his company advise / warn against
certain fire hazards, it refused to insure certain buildings where the risk of fire was too
great, such as "all-wooden" houses.
The industry was growing into massive scale, carrying equally massive risk, and -
although competitors - to find a solution to the challenge of large losses they worked
together to create systems that could be used throughout the industry. Reinsurance -
whereby losses can be distributed among many carriers - was devised, a plan not unlike
the Chinese farmers' solution a thousand years earlier. This system is now commonly
used in all types of insurance.
he first American life insurance association was sponsored by a church – the
Presbyterian Synod of Philadelphia – and set up for the benefit of their ministers and their
dependants. Although there was initial religious objection against the practice of
insurance by a church, after 1840 life assurance simply boomed as people used the
opportunity to protect themselves against major losses.
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Insurance had become accepted practice. Farmers wanted crop insurance. Travelers
wanted travel insurance. Everybody turned to insurers to buy peace of mind.
Mechanically propelled vehicles were not used on the roads of the UK to any great extent
before the beginning of the 20th Century and, consequently, car insurance is of more
recent origin than fire, theft and general liability insurance.
The early underwriters tended to adapt the practices of these existing insurance
departments to the requirements of car insurance, and placed more emphasis on the the
car for rating purposes, than they did upon the driver. The increase in road traffic after
1918 and the rise in the number of occasions when members of the public were injured,
led to the introduction of the Road Traffic Act 1930.
to make a long story short, insurance (today) is being conducted over a vast array of
"lines of business" that encompass personal, commercial, marine, aviation, agriculture,
life, health, financial and engineering insurance. Virtually anything - from the mundane
to the bizarre - can be insured, as Lloyd’s is famous for insuring the life, health, legs or
even noses of actors, actresses and / or sports figures.
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1.5 OBJECTIVES OF THE STUDY
1. To study about bancassurance , it’s commercial role and various types of banking
activities.
2. To study the trend of bancassurance in India.
3. To analyze its opportunities and challenges in India.
4. To identify the bancassurance fundamentals.
5. To study its future prospects in Indian economy.
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1.6 RESEARCH METHODOLOGY
Without proper methods one cannot make a project. For this purpose a defined research is
required. A research design is a specification of procedures for collecting and analyzing
the necessary data help identify or react to a problem or opportunity. This project is
mainly concerned bancassurance and its present scenario in India.
There are mainly two types of sources that need to be established order to conduct a good
analysis:
1. primary source
2. secondary sources
Primary source s : A primary source is the most direct place you can find the information
you want to write about. For example, Census.gov would be a primary source for a
population estimate of your city, whereas a newspaper article detailing the number would
not be considered primary. Some other examples of primary sources are peer reviewed
research publications, journals, diaries, legal documents, government records, original
maps, photographs, original manuscripts, institutional records, or national archives.
Secondary sources: secondary source of information is one that was created later by
someone .Examples of secondary sources include literary criticism, biographies,
encyclopedia articles, and journal articles critiquing the work of others. There are of two
types:
1. Internal sources: publish broachers, official reports, accounting records etc.
2. External sources: periodicals, journals, newspapers, internet, directories.
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RESEARCH DESIGN
Descriptive: it is a kind of data which is also called statistical research; describe the
characteristics of the data in brief.
Exploratory: this research is set to design the study with better understanding as it
gathers explanation of the research.
Explanatory: it is conducted in order to explain any behavior of the study more deeply
and with all characteristic it consists of both description and exploratory research.
Conclusive: it consists of formal research, as the names suggest it is research which
helps in getting conclusion about the study.
For researching and writing this large piece of work mainly secondary data have been
used. Information collected by others such as government agencies or non-profit
organizations that pertains to your area of interest. The degree of reliability, validity and
precision in secondary data depends on how it was collected and interpreted. Census data
is on example of secondary data. Information in this report has been sourced from
namely, books, newspapers, trade journals, and white papers, industry news and
developments.
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2.1 INTRODUCTION TO BANCASSURANCE
The Indian insurance industry is growing fast. Banks and insurance companies see
bancassurance as the answer to the Indian retail financial industry’s future income. Non-
life products have featured les prominently in such channel as compared to life products.
The banks in India have a client base of close to 100 million and therefore are an ideal
case for carrying bancassurance forward. A unique aspect will be predominance of rural
bank branches in sales processes and the closeness of the bank staff with customers in
general in the rural pockets.
Bancassurance in India is a very new concept, but is fast gaining ground. The banking
and insurance sectors in India are regulated by two different entities (banking is regulated
by RBI while insurance by IRDA) and bancassurance comes under both the regulators as
it is a combination of both. Each of the regulators has given out detailed guidelines for
banks getting into insurance sector.
As per the recommendations of the Malhotra Committee on Reforms in the Insurance
Sector, Indian Parliament passed the Insurance Regulatory & Development Authority
(IRDA) Act 1999. IRDA is constituted to regulate, promote and ensure orderly growth of
insurance and reinsurance business. According to IRDA, a private sector participant has
to fulfill the following criteria for entry into insurance sector:
(a) Minimum paid-up capital of Rs.100 crores
(b) Investment in policyholders’ funds only in India
(c) Restriction of international companies to minority equity holding of 49 %
One of the most significant changes in the financial services sector over the past few years has
been the appearance and development of bancassurance. Banking institutions and insurance
companies have found bancassurance to be an attractive – and often profitable – complement to
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their existing activities. The successes demonstrated by various bancassurance operations,
although not all of them have been successful, have attracted the attention of the financial
services sector, and further new operations continue to be set up regularly.
The purpose of this report is to inform the reader about ways in which a bancassurance operation
can be set up. The report discusses the various observed methods in use today under each of the
following headings:
– Contractual relationships between bank and insurer
– Product ranges
– Sales channels
– Remuneration methods and training in bancassurance operations
the report does not seek to cover all aspects of banking or of insurance operations, but
concentrates on the special needs of a bancassurance operation in the above areas.
The focus on Europe is deliberate since most developments in bancassurance up to the mid-1990s
took place in Europe. This report is timely, however, because banks and insurers in other parts of
the world, e.g. the USA, Canada and Asia, are now developing bancassurance operations. In
doing so, they seek to learn from the experiences of European bancassurers
Bancassurance covers a wide range of detailed arrangements between banks and insurance
companies, but in all cases it includes the provision of insurance and banking products or
services from the same sources or to the same customer base.
Because there is a wide diversity of strategies, there is no standard model for bancassurance, even
within a country. Available literature also shows a wide range of possible descriptions of
bancassurance:
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– The Life Insurance Marketing and Research Association’s (LIMRA’s) insurance dictionary
defines bancassurance as “the provision of Life insurance services by banks and building
societies”.
– Alan Leach, in his book, “European Bancassurance – Problems and prospects for 2000”,
describes bancassurance as “the involvement of banks, savings banks and building societies in
the manufacturing, marketing or distribution of insurance products”.
For the purpose of this report, the definition of bancassurance which will be used is the
following:
“Bancassurance is the provision of insurance and banking products and services through a
common distribution channel and/or to the same client base.
2.2 DEFINATION OF BANCASSURANCE
The Bank Insurance Model ('BIM'), also sometimes known as 'Bancassurance', is the
partnership or relationship between a bank and an insurance company whereby the
insurance company uses the bank sales channel in order to sell insurance products.
BIM allows the insurance company to maintain smaller direct sales teams as their
products are sold through the bank to bank customers by bank staff and employees as
well.
Bank staff and tellers, rather than an insurance salesperson, become the point of
sale/point of contact for the customer. Bank staff are advised and supported by the
insurance company through product information, marketing campaigns and sales training.
Both the bank and insurance company share the commission. Insurance policies are
processed and administered by the insurance company.
An arrangement in which a bank and an insurance company form a partnership so that the
insurance company can sell its products to the bank's client base. This partnership
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arrangement can be profitable for both companies. Banks can earn additional revenue by
selling the insurance products, while insurance companies are able to expand their
customer base without having to expand their sales forces or pay commissions to
insurance agents or brokers.
In simple term we can say bancassurance tries to exploit synergies between both the
insurance companies & banks.
2.3 NEED FOR BANCASSURANCE
Researches and present day statistics speak about the need of a well equipped financial
structure for a country that helps it to grow economically. The financial resources in the
hands of people should be channelized in effective manner so as to increase the returns
from the basic financial structure of nation and also the quality of living of people.
Insurance policies are instruments/products that play major role in upholding the
financial structure of developed countries. Though the teething phase of insurance, one
may say is just past, a desirable foothold is yet to be found. With growth in number of
middle class families in the country, RBI recognized the need of an effective method to
make insurance policies reach people of all economic classes in every corner of the
nation. Implementing bancassurance in India is one such development that took place
towards the cause. The need and subsequent development of bancassurance in India
began for the following reasons:
To improve the channels through which insurance policies are sold/marketed so as
to make them reach the hands of common man
To widen the area of working of banking sector having a network that is spread
widely in every part of the nation
To improve the services of insurance by creating a competitive atmosphere among
private insurance companies in the market.
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2.4 BANKING OF A BANCASSURANCE
Though much ado was made about bancassurance, an alternate channel to hawk risk
products through banks, the channel is yet to pick up pace as of today. Most of the
insurance companies have already tied up with banks to explore the potential of the
channel that has been a success story in Europe and legislations are also in place. For
insurance companies and banks the convergence brings about benefits for both but then
what’s stopping it from taking off in a big way?
Bancassurance primarily banks on the relationship the customer has developed over a
period of time with the bank. And pushing risk products through banks is a cost-effective
affair for an insurance company compared to the agent route, while, for banks,
considering the falling interest rates, fee based income coming in at a minimum cost is
more than welcome.
SBI Life Insurance Company a predominant player in bancassurance is positive about the
channel bringing about a transformation in the way insurance has been sold so far. The
company is banking heavily on bancasurance and plans to explore the potential of State
Bank of India’s 9000 plus branches spread across the country and also its 4000 plus
associate banks - one of the reasons why SBI Life Insurance is not laying much emphasis
on increasing its agent force from the present 3000.
The company plans to appoint Certified Insurance Facilitators (CIFs) in a phased manner
at its branches. For now around 320 CIFs, one from each of its bank branches have been
identified for the purpose in addition to setting up insurance counters at its banking
outlets. The number is expected to go up to 500. ‘Out of our present business of around
Rs 150-200 crore bancassurance has brought in 50 percent while corporate agency and
the agent channel have contributed about 10 percent and 40 percent respectively’, says
Pradeep Pandey, Head, PR, SBI Life Insurance Company. The company aims at
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acquiring 75 percent of the total business through bancassurance and the balance through
the other channels by 2007.
Various models are used by banks for bancassurance. One is the insurance salesman of
the respective company being posted in the bank, the other is where a select group of
wealth management people of the bank sell insurance and the third is where the bank
employees are incentivized to hawk insurance products.
But the pertinent question is how far bancassurance will succeed when insurance is a
product that is sold not bought in our country. Insurance needs hard selling but banks
have never been aggressive about selling financial products. Says Pradeep Pandey’ I
agree that in our country insurance awareness is low but with falling interest rates, banks
are on the look out for additional revenue and bancassurance can provide them fee based
income –insurance is one outlet where income can be gained. And the cost that banks
have to incur is minimal. With the other entire infrastructure in place already, the cost is
only about training a few individuals’.
And will products sold through bancassurance be any different? ‘The products sold will
be the same. In the first phase we plan to sell endowment and pension’ opines Mr
Pandey, SBI Life Insurance. On the contrary Shivaji Dam, CEO, OM Kotak Mahindra
Life Insurance begs to differ,’ Yes products will have to be different to be sold through
bancassurance. They will have to be term and savings products with not much of
complications. In other words products that is static and simple’
OM Kotak Mahindra Life Insurance has tied up with Dena Bank and its own Kotak Bank
for bancassurance. The company is targeting around 10 percent of the business during its
start up phase. Adds Shivaji Dam,’ Our focus will not be the affluent class but the middle
class’ But in case of SBI Life there is no such emphasis on a segment of the population
perhaps considering the wide reach its bank branches have even in the remotest corners
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of the country. Also SBI Life plans to offer its complete basket of products but OM
Kotak will be selling select products.
Insurers are no doubt optimistic about the channel but it does come with a few
limitations. While sale of insurance comes at a lower cost through this channel in
comparison to the agency route and the insurance company gains much through the large
bank network spread across the country the potential can be impeded if bank officials do
not actively generate leads.
Also it is yet to be seen how far buying shelf space in a bank helps push sale of insurance.
Besides the target audience is limited to those individuals who visit the bank during the
working hours. And with technology changing at a rapid pace ATMs and internet
banking have been reducing the individual’s visits to the bank which could perhaps be a
dampener for bancassurance.
Insurance companies are positive about the bancassurance channel raking in volume
business at a low cost and banks have been salivating over the fee-based income that it
will bring. But unless products are simple, easy to understand and easy to market much of
the benefits the bancassurance channel holds, may remain only on paper.
2.5 BENEFITS OF BANCASSURANCE
From the banks point of view:
(A) By selling the insurance product by their own channel the banker can increase their
income.
(B) Banks have face-to-face contract with their customers. They can directly ask them to
take a policy. And the banks need not to go any where for customers.
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(C) The Bankers have extensive experience in marketing. They can easily attract
customers & non-customers because the customer & non-customers also bank on banks.
(D) Banks are using different value added services life-E. Banking tele- banking, direct
mail & so on they can also use all the abovementioned facility for Bankassurance purpose
with customers & noncustomers.
(E) Productivity of the employees increases.
(F) By providing customers with both the services under one roof, they can improve
overall customer satisfaction resulting in higher customer retention levels.
(G) Increase in return on assets by building fee income through the Sale of insurance
products.
(H) Can leverage on face-to-face contacts and awareness about the financial conditions of
customers to sell insurance products.
(I) Banks can cross sell insurance products E.g.: Term insurance products with loans.
From the Insurer Point of view:
(A) The Insurance Company can increase their business through the banking
distribution channels because the banks have so many customers.
(B) By cutting cost Insurers can serve better to customers in terms lower premium rate
and better risk coverage through product diversification.
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(C)Insurers can exploit the banks' wide network of branches for distribution of products.
The penetration of banks' branches into the rural areas can be utilized to sell products in
those areas.
(D)Customer database like customers' financial standing, spending habits, investment and
purchase capability can be used to customize products and sell accordingly.
(E)Since banks have already established relationship with customers, converse
on ratio of leads to sales is likely to be high. Further service aspect can also be tackled
easily.
(F)The insurance companies can also get access to ATM’s and other technology being
used by the banks.
(G)The selling can be structured properly by selling insurance products through banks.
(H) The product can be customized as per the needs of the customers.
From the customers' point of view:
(A) Product innovation and distribution activities are directed towards the satisfaction
of needs of the customer.
(B) Bancassurance model assists customers in terms of reduction price, diversified
product quality in time and at their doorstep service by banks.
(C) Comprehensive financial advisory services under one roof. i.e., insurance services
along with other financial services such as banking, mutual funds, personal loans etc.
(D) Easy access for claims, as banks are a regular visiting place for customers.
(E) Innovative and better product ranges and products designed as per the needs of
customers.
(F) Any new insurance product routed through the bancassurance Channel would be well
received by customers.
20
.
(G) Customers could also get a share in the cost savings in the form of reduced premium
rate because of economies of scope, besides getting better financial counseling at single
point.
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Models of Bancassurance
3.1 Structural Classification
a) Referral Model
Banks intending not to take risk could adopt ‘referral model’ wherein they merely part
with their client data base for business lead of commission. The actual transaction with
the prospective client in referral model is done by the staff of the insurance company
either at the premises of the bank or elsewhere. Referral model is nothing but a simple
arrangement, wherein the bank, while controlling access to the clients data base, parts
with only the business leads to the agents/ sales staff of insurance company for a ‘referral
fee’ or commission for every business lead that was passed on. In fact a number of banks
in India have already resorted to this strategy to begin with. This model would be suitable
for almost all types of banks including the RRBs /cooperative banks and even
cooperative societies both in rural and urban. There is greater scope in the medium term
for this model. For, banks to begin with can resort to this model and then 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 corporate agent for the insurance
product for a fee/commission. This seems to be more viable and appropriate for most of
the mid-sized banks in India as also the rate of commission would be relatively higher
than the referral arrangement. This, however, is prone to 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, and packaged with proper incentives in the banks coupled with
selling of simple insurance products in the initial stage. This model is best suited for
majority of banks including some major urban cooperative banks because neither there is
22
sharing of risk nor does it require huge investment in the form of infrastructure and yet
could be a good source of income. This model of bancassurance worked well in the US,
because consumers generally prefer to purchase policies through broker banks that
offer a wide range of products from competing insurers.
c) Joint ventures
Apart from the above two, the fully integrated financial service involves much more
comprehensive and intricate relationship between insurer and bank, where the bank
functions as fully universal in its operation and selling of insurance products is just one
more function within. This includes banks having wholly owned insurance subsidiaries
with or without foreign participation. The great advantage of this strategy being that the
bank could make use of its full potential to reap the benefit of synergy and therefore the
economies of scope. This may be suitable to relatively larger banks with sound financials
and has better infrastructure. As per the extant regulation of insurance sector the foreign
insurance company could enter the Indian insurance market only in the form of
joint venture, therefore, this type of bancassurance seems to have emerged out of
necessity in India to an extent. There is great scope for further growth both in life and
non-life insurance segments as GOI is reported have been actively considering to increase
the FDI’s participation up to 49 per cent.
3.2 Product based classification
(a) Stand-alone Insurance Products
In this case bancassurance involves marketing of the insurance products through either
referral arrangement or corporate agency without mixing the insurance products with any
of the banks’ own products/ services. Insurance is sold as one more item in the menu of
products offered to the bank’s customer, however, the products of banks and insurance
will have their respective brands too.
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(b) Blend of Insurance with Bank Products
This method aims at blending of insurance products as a ‘value addition’ while
promoting the bank’s own products. Thus, banks could sell the insurance products
without any additional efforts. In most times, giving insurance cover at a nominal
premium/ fee or sometimes without explicit premium does act as an added attraction to
sell the bank’s own products, e.g., credit card, housing loans, education loans, etc. Many
banks in India, in recent years, has been aggressively marketing credit and debit card
business, whereas the cardholders get the ‘insurance cover’ for a nominal fee or
(implicitly included in the annual fee) free from explicit charges/ premium. Similarly the
home loans / vehicle loans, etc., have also been packaged with the insurance cover as an
additional incentive.
3.3 Bank Referrals
There is also another method called 'Bank Referral'. Here the banks do not issue the
policies; they only give the database to the insurance companies. The companies issue the
policies and pay the commission to them. That is called referral basis. In this method also
there is a win-win situation every where as the banks get commission, the insurance
companies get databases of the customers and the customers get the benefits.
24
4.1 FORMS OF BANCASSURANCE ARRANGEMENTS
1. Strategic alliance: under a strategic alliance, there is a tie-up between a bank and an insurance
company. The bank only markets the products of the insurance company. Except for marketing
the products, no other insurance functions are carried out by the bank.
2. Full integration: This arrangement entails a full integration of banking and insurance
services. The bank sells the insurance products under its branch acting as a provider of financial
solutions matching customer needs. Bank controls sales and insurer service levels including
approach to claims. Under such an arrangements the bank has an additional core activity similar
to that of an insurance company.
3. Mixed models: under this approach, the marketing is done by the insurer staff and the bank is
responsible for generating leads only. In other words, the database of the bank is sold to the
insurance company. The approach requires very little technical investment.
4.2 GUIDELINES GIVEN BY RBI
Following the issuance of Government of India Notification dated August 3, 2000,
specifying ‘Insurance’ as a permissible form of business that could be undertaken by
banks under Section 6(1) (o) of The Banking Regulation Act, 1949, RBI issued the
guidelines on Insurance business for banks.
1 Any scheduled commercial bank would be permitted to undertake insurance business as
agent of insurance companies on fee basis. Without any risk participation.
2. Banks which satisfy the eligibility criteria given below will be permitted to set up a
joint venture company for undertaking insurance business with risk participation, subject
to safeguards. The maximum equity contribution such a bank can hold in the Joint
Venture Company will normally be 50% of the paid up capital of the insurance company.
25
The eligibility criteria for joint venture participant are as under:
i. The net worth of the bank should not be less than Rs.500 crore;
ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level of non-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if any, of the concerned bank
should be satisfactory.
3. In cases where a foreign partner contributes 26% of the equity with the approval of
Insurance Regulatory and Development Authority/Foreign Investment Promotion Board,
more than one public sector bank or private sector bank may be allowed to participate in
the equity of the insurance joint venture. As such participants will also assume insurance
risk, only those banks which satisfy the criteria given in paragraph 2 above, would
be eligible.
4. A subsidiary of a bank or of another bank will not normally be allowed to join the
insurance company on risk participation basis.
5. Banks which are not eligible for ‘joint venture’ participant as above, can make
investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower,
in the insurance company for providing infrastructure and services support. Such
participation shall be treated as an investment and should be without any contingent
liability for the bank.
The eligibility criteria for these banks will be as under:
i. The CRAR of the bank should not be less than 10%;
ii. The level of NPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive years.
26
6. All banks entering into insurance business will be required to obtain prior approval of
the Reserve Bank. The Reserve Bank will give permission to banks on case to case basis
keeping in view all relevant factors including the position in regard to the level of non-
performing assets of the applicant bank so as to ensure that non-performing assets do not
pose any future threat to the bank in its present or the proposed line of activity, viz.,
insurance business. It should be ensured that risks involved in insurance business do not
get transferred to the bank. There should be ‘arms length’ relationship between the bank
and the insurance outfit.
7. Holding of equity by a promoter bank in an insurance company or participation in any
form in insurance business will be subject to compliance with any rules and regulations
laid down by the IRDA/Central Government. This will include compliance with
Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of
equity in excess of 26 per cent of the paid up capital within a prescribed period of time.
8. Latest audited balance sheet will be considered for reckoning the eligibility criteria.
4.3 GUIDELINES GIVEN BY IRDA FOR BANCASSURANCE
The Insurance regulatory development & Authority has given certain guidelines for the
Bancassurance they are as follows: -
1) Chief Insurance Executive: Each bank that sells insurance must have a chief
Insurance Executive to handle all the insurance matters &activities.
2) Mandatory Training: All the people involved in selling the insurance should
under-go mandatory training at an institute determined (authorized) by IRDA &
pass the examination conducted by the authority.
27
3) Corporate agents: Commercial banks, including co-operative banks and RRBs
may become corporate agents for one insurance company.
4) Banks cannot become insurance brokers.
Issues for regulation: Certain regulatory barriers have slowed the development of
Bancassurance in India down. Which have only recently been cleared with the passage of
the insurance (amendment) Act 2002. Prior it was clearly an impractical necessity and
had held up the implementation of Bancassurance in the country. As the current
Legislation places the following:-
1) Training and examination requirements: upon the corporate insurance
executive within the corporate agency, this barrier has effectively been removed.
Another regulatory change is published in recent publication of IRDA regulation
relating to the (2) Licensing of Corporate agents.
(2) Specified person to satisfy the training & examination: According to new
regulation of IRDA only the specific persons have to satisfy the training & examination
requirement as insurance agent.
28
5.1 INTRODUCTION
Bancassurance in India is a very new concept, but if past gaining ground. In our country the
banking and insurance are regulated by two different entries.
They are as follows:
1. Banking is fully governed by RBI
2. Insurance sector is by IRDA
And bank assurance being the combination of two sectors comes under the purview of both the
regulators. Each of the regulators has given out detailed guidelines for banks getting into
insurance sector.
5.2 SCOPE FOR BANCASSURANCE IN INDIA
By now, it has become clear that as economy grows it not only demands stronger and
vibrant financial sector but also necessitates to provide with more sophisticated and
variety of financial and banking products and services. The outlook for bancassurance
remains positive. While development in individual markets will continue to depend
heavily on each country’s regulatory and business environment, bancassurers
could profit from the tendency of governments to privatize health care and pension
liabilities.
India has already more than 200 million middle class population coupled with vast
banking network with largest depositors base, there is greater scope for use of
bancassurance. In emerging markets, new entrants have successfully employed
bancassurance to compete with incumbent companies. Given the current relatively low
bancassurance penetration in emerging markets, bancassurance will likely see further
significant development in the coming years.
29
In India the bancassurance model is still in its nascent stages, but the tremendous growth
and acceptability in the last three years reflects green pasture in future. The deregulation
of the insurance sector in India
has resulted in a phase where innovative distribution channels are being explored. In this
phase, bancassurance has simply outshined other alternate channels of distribution with a
share of almost 25-30% of the premium income amongst the private players.
To be fruitful, it is vital for bancassurance to ensure that banks remain fully committed to
promoting and distributing insurance products. This commitment has to come from both
senior management in terms of strategic inputs and the operations staff who would
provide the front-end for these products. In India, the signs of initial success are already
there despite the fact that 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 the years to come.
5.3 PRESENT INDIAN SCENARIO OF BANCASSURANCE
The business of banking around the globe is changing due to integration of global
financial markets, development of new technologies, universalization of banking
operations and diversification in non-banking activities. Due to all these movements, the
boundaries that have kept various financial services separate from each other have
vanished. The coming together of different financial services has provided synergies in
operations and development of new concepts. One of these is bancassurance.
Bancassurance is a new buzzword in India. It originated in India in the year 2000 when
the Government issued notification under Banking Regulation Act which allowed Indian
Banks to do insurance distribution. It started picking up after Insurance Regulatory and
30
Development Authority (IRDA) passed a notification in October 2002 on 'Corporate
Agency' regulations. As per the concept of Corporate Agency, banks can act as an agent
of one life and one non-life insurer. Currently bancassurance accounts for a share of
almost 25-30% of the premium income amongst the private players in India.
Bancassurance provides various advantages to banks, insurers and the customers. For the
banks, income from bancassurance is the only non interest based income. Interest is
market driven and fluctuating and quite narrowing these days. Banks do not get great
margins because of the competition This is why more and more banks are getting into
bancassurance so as to improve their incomes. Increased competition also makes it
difficult for banks to retain their customers. Banassurance comes as a help in this
direction also. Providing multiple services at one place to the customers means enhanced
customer satisfaction. As for the insurance company the advantage that bancassurance
provides is evident. The insurance company gets improved geographical reach without
additional costs. In India around 67,000 branches are there for PSU banks alone. If all
67,000 branches sell the insurance products one can see the reach. This is one method of
penetrating the market.
India's rural market has huge potential that is still untapped by the insurance companies.
Setting up their own networks entails such a huge cost, that no company would be
interested in doing so.
Bancassurance again comes as an answer. It helps the insurance companies to tap the
market at a much lower cost. As for the customer the competitive nature of the Indian
market ensures that the reduction in costs would result in benefits in terms of lower
premium rates being passed on to him. The penetration level of life insurance in the
Indian market is considerably low at 2.3% of GDP with only 8% of the total population
currently insured.
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Thus, bancassurance 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 the ‘right model’ partnership. Given
these changes, bancassurance 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 reason to be optimistic that bancassurance in India will
play a long inning.
5.4 PLAYERS FOR BANCASSURANCE
Career Agents:
Career Agents are full-time commissioned sales personnel holding an agency contract.
They are generally considered to be independent contractors. Consequently an insurance
company can exercise control only over the activities of the agent which are specified in
the contract. Many bancassurers, however avoid this channel, believing that agents might
oversell out of their interest in quantity and not quality. Such problems with career agents
usually arise, not due to the nature of this channel, but rather due to the use of improperly
designed remuneration and incentive packages.
Special Advisers:
Special Advisers are highly trained employees usually belonging to the insurance partner,
who distribute insurance products to the bank's corporate clients. The Clients mostly
include affluent population who require personalised and high quality service. Usually
Special advisors are paid on a salary basis and they receive incentive compensation based
on their sales.
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Salaried Agents:
Salaried Agents are an advantage for the bancassurers because they are under the control
and supervision of bancassurers. These agents share the mission and objectives of the
bancassurers. These are similar to career agents, the only difference is in terms of their
remuneration is that they are paid on a salary basis and career agents receive incentive
compensation based on their sales.
Bank Employees / Platform Banking:
Platform Bankers are bank employees who spot the leads in the banks and gently suggest
the customer to walk over and speak with appropriate representative within the bank. The
platform banker may be a teller or a personal loan assistant. A restriction on the
effectiveness of bank employees in generating insurance business is that they have a
limited target market, i.e. those customers who actually visit the branch during the
opening hours.
Corporate Agencies and Brokerage Firms:
There are a number of banks who cooperate with independent agencies or brokerage
firms while some other banks have found corporate agencies. The advantage of such
arrangements is the availability of specialists needed for complex insurance matters and
through these arrangements the customers get good quality of services.
Direct Response:
In this channel no salesperson visits the customer to induce a sale and no face-to-face
contact between consumer and seller occurs. The consumer purchases products directly
from the bancassurer by responding to the company's advertisement, mailing or telephone
offers. This channel can be used for simple packaged products which can be easily
understood by the consumer without explanation.
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Internet:
Internet banking is already securely established as an effective and profitable basis for
conducting banking operations. Bancassurers can feel confident that Internet banking will
also prove an efficient vehicle for cross selling of insurance savings and protection
products. Functions requiring user input (check ordering, what-if calculations, credit and
account applications) should be immediately added with links to the insurer. Such an
arrangement can also provide a vehicle for insurance sales, service and leads.
E-Brokerage:
Banks can open or acquire an e-Brokerage arm and sell insurance products from multiple
insurers. The changed legislative climate across the world should help migration of
bancassurance in this direction. The advantage of this medium is scale of operation,
strong brands, easy distribution and excellent synergy with the internet capabilities.
Outside Lead Generating Techniques:
One last method for developing bancassurance eyes involves "outside" lead generating
techniques, such as seminars, direct mail and statement inserts. Great opportunities await
bancassurance partners today and, in most cases, success or failure depends on precisely
how the process is developed and managed inside each financial institution.
5.5 AN INDIAN PRESPECTIVE
Coming to India, bancassurance is a new buzzword in India. It originated in India in the
year 2000 when the Government issued notification under Banking Regulation Act which
allowed Indian Banks to do insurance distribution. It started picking up after Insurance
Regulatory and Development Authority (IRDA) passed a notification in October 2002 on
'Corporate Agency' regulations. As per the concept of Corporate Agency, banks can act
as an agent of one life and one non-life insurer. Currently bancassurance accounts for a
share of almost 25-30% of the premium income amongst the private players in India.
34
Bancassurance provides various advantages to banks, insurers and the customers. For the
banks, income from bancassurance is the only non interest based income. Interest is
market driven and fluctuating and quite narrowing these days. Banks do not get great
margins because of the competition This is why more and more banks are getting into
bancassurance so as to improve their incomes. Increased competition also makes it
difficult for banks to retain their customers. Banassurance comes as a help in this
direction also. Providing multiple services at one place to the customers means enhanced
customer satisfaction. For example, through bancassurance a customer gets home loans
along with insurance at one single place as a combined product. Another important
advantage that bancassurance brings about in banks is development of sales culture in
their employees.
As for the insurance company the advantage that bancassurance provides is evident. The
insurance company gets improved geographical reach without additional costs. In India
around 67,000 branches are there for PSU banks alone. If all 67,000 branches sell the
insurance products one can see the reach. This is one method of penetrating the market.
India's rural market has huge potential that is still untapped by the insurance companies.
Setting up their own networks entails such a huge cost, that no company would be
interested in doing so. Bancassurance again comes as an answer. It helps the insurance
companies to tap the market at a much lower cost. As for the customer the competitive
nature of the Indian market ensures that the reduction in costs would result in benefits in
terms of lower premium rates being passed on to him.
The penetration level of life insurance in the Indian market is abysmally low at 2.3% of
GDP with only 8% of the total population currently insured. With almost half of the
population likely to be in the 'wage earner' bracket by 2010, there is every reason to be
optimistic that bancassurance in India will play a long inning.
35
5.6 OriginandGlobalScenario:
Bancassurance has grown at different pace and taken different shapes and forms in
different countries depending on the demography, economic and legislations in that
country. During the last two decades, bancassurance has taken deep roots in various
countries, especially in Europe. Bnacassurance, so far, has been basically European.
Bancassurance has seen tremendous acceptance and growth across nations. Although it
enjoys a penetration rate in excess of 50% in France, Spain, Italy and Belgium, other
countries have opted for more traditional networks. The Life insurance market in the UK
is largely in the hands of the brokers. With advent of bancassurance, their market share
has increased from 40% in 1992 to 54% in 1999. Sales agents also play an important role
on a market entirely regulated by the Financial Services & Markets Act (FSMA) which
imposes very strict marketing conditions. In Germany, the market continues to be
dominated by general sales agents, even if their market share has declined from 85% in
1992 to 54% in 1999.
Bancassurance recorded huge growth in Europe but not in USA and Canada. In the US,
there were hurdles till recently banks were not allowed to do insurance business and vice
versa. In several countries in Latin America, banks have benefited from recent reforms –
financial deregulation, among others – by selling insurance products across the counter.
In China, banks are limited to playing the role of tide agents to insurance companies,
which can still provide a good platform for bancassurance to develop.
In Hong Kong, when a Swiss bank introduced bancassurance, the life insurance sales
went up by 240%. Japan has to make a remarkable headway in bancassurance. In the
Philippines, banks are permitted to own 100% of the insurance company. Bancassurance
is yet to be exploited in Singapore. There is a huge market potential out there in many
36
countries and especially in India when compared to the global benchmark. It is good
news to bancassurers that only about 25% of the global insurable.
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6.1 INTRODUCTION
The life insurance company saw a growth of 10.48 per cent in terms of first year premium
income and 12.83 per cent in terms of new policies sold.
The size of the market for 2003-04 was rs 187.10 billion worth of first year premium income
with 28.6 million policies. These are extremely satisfactory statistics but certainly not path-
breaking; they reaffirm the belief that huge potential stills remains unexploited.
Some salient features of the domestic market growth can be highlighted:
1 the private companies- operating from a smaller base- have achieved a staggering growth of
153 percent and 101 per cent in terms of first year premium and number of policies respectively.
As expected under the circumstances, the market share of LIC in respect of first year premium
has fallen to 87.04 per cent from 94.34 per cent. The 13 per cent contribution of the private
players within the third completed year of the opening up of the sector is the most significant
variable that the market has thrown up in 2003. The fact that private banks took more than ten
years to reach double figure contributions in the banking sector further accentures the positive
start made by the private insurers.
6.2 EMERGING TRENDS
Though bancassurance has traditionally targeted the mass market, but bancassurers
have begun to finely segment the market, which has resulted in tailor-made products for
each segment.
Some bancassurers are also beginning to focus exclusively on distribution. In some
markets, face-to-face contact is preferred, which tends to favour bancassurance
development.
38
Nevertheless, banks are starting to embrace direct marketing and Internet banking as
tools to distribute insurance products. New and emerging channels are becoming
increasingly competitive, due to the tangible cost benefits embedded in product pricing or
through the appeal of convenience and innovation.
Bancassurance proper is still evolving in Asia and this is still in infancy in India 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 private and including foreign banks have
made use of the bancassurance channel in one form or the other in India.
Banks by and large are resorting to either ‘referral models’ or ‘Corporate agency
model’ to begin with.
Banks even offer space in their own premises to accommodate the insurance staff for
selling the insurance products or giving access to their client’s database for the use of the
insurance companies.
As number of banks in India have begun to act as ‘corporate agents’ to one or the other
insurance company, it is a common sight that banks canvassing and marketing the
insurance products across the counters.
6.3 OPPORTUNITIES ANDS CHALLENGES
OPPORTUNITIES
1. Today, life in general, has become more uncertain and risky. Not only are man-made dangers
(burglary, accidents, terrorist activities, hijacking, etc.) on the rise but natural catastrophes
(earthquake, flood, cyclone, etc.) are also becoming more frequent. One certainly does not
39
welcome such uncertain times, but these uncertain times create opportunities for insurance
business
2. The joint family system, which functioned like an insurance system, is gradually collapsing
due to several reasons. More and more nuclear families are coming up, and with this, the demand
for life-cover for the head of the family and family members is also rising.
3. Improving economic conditions, coupled with higher education and small family concept, has
resulted in savings orientation in the economy. The process has been catalyzed by higher
awareness about savings culture being spread through various media by financial institutions
4. Recently, the Central Government has approved a voluntary retirement scheme for the
insurance sector. This would provide an opportunity to bancassurers to hire such retired
insurance employees, i.e., readymade talent, into their business.
5. Banks in their normal course of functions lend finance in the form of loans for 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.
6. Some areas with good potential for bancassurers are health insurance, credit insurance,
deposit insurance, travel insurance, capital market-related insurance and pension.
7. In today's competitive environment offering more and more services under one roof would
also help banks to improve their market share.
8. There are many people in many areas that are still unaware about the insurance and its
various products and are waiting that somebody should come and give them the
information about it.
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CHALLENGES
1. Success of bancassurance would also depend on the extent to which and how fast the
technology being used for banking operations can be used for meeting the technology
requirements for insurance business. Otherwise, banks will have to incur large investments for
putting in place the technological infrastructure for bancassurance operations.
2. In case of failure of the bancassurance operation, the bank runs the threat of image risk and
cannibalizing deposits (i.e. there may be a fear among the staff that investment oriented life
insurance products may eat into the deposit base of the branches).
3. Insurance sales being commission/incentive driven, banks selling insurance products may be
required to provide incentive packages in addition to the regular remuneration to drive the sales.
4. Maintaining the same service levels for insurance business as that for the banking services may
be one of the biggest challenge.
5. Private players in the insurance industry being new entrants are technology-savvy. Banks,
especially PSBs, have to rise up to the challenge and be willing to invest in technology.
41
7.1 MEANING OF DATA ANALYSIS AND INTERPRETATION
Data analysis and interpretation
Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the
goal of highlighting useful information. Suggesting conclusions, and supporting decision making.
Data analysis has multiple facets and approaches encompassing diverse techniques under a
variety of names, in different business, science and social science domains.
Data mining is a particular data analysis technique that focuses on modeling and knowledge
discovery for predictive rather than purely descriptive purposes. Business intelligence covers data
analysis that relies heavily on aggregation, focusing on business information. In statistical
applications, some people divide data analysis into descriptive statistics, exploratory data
analysis, and confirmatory data analysis. EDA focuses on discovering new features in the data
and CDA on confirming or falsifying existing hypothesis. Predictive analytics focuses on
application of statistical models for predictive forecasting or classification, while text analytics
applies statistical, linguistic and structural techniques to extract and classify information from
textual sources, a species of unstructured data. All are varieties of data analysis.
Data integration is a precursor to data analysis is closely linked to data visualization and data
dissemination. The term data analysis is sometimes used as a synonym for data modeling which
is unrelated to the subject of this article.
Data analysis is a process, within which several phrases can be distinguished:
Data cleaning
Initial data analysis (assessment of data quality)
Main data analysis (answer the original research question)
Final data analysis (necessary additional analyze and report)
Data cleaning: data cleaning is an important procedure during which the data are inspected and
erroneous data are- if necessary, preferable, and possible corrected. Data cleaning can be done
during the stage of data entry. If this is done, it is important that no subjective decisions are
42
made. The guiding principle provided by Ader (ref) is: during subsequent manipulations of the
data, information should always be cumulatively retrievable. In other words, it should always be
possible to undo ant data set alternations. Therefore, it is important not to throw information
away at any stage in the data cleaning phase. All information should be saved (i.e. when altering
variables, both the original values and the new values should be kept, either in a duplicate dataset
or under a different variable names), and all alterations to the data set should carefully and clearly
documented, for instance in a syntax or a log.
Initial data analysis: the most important distinction between the initial data analysis phase and the
main analysis is that during initial data analysis one refrains from any analysis is aimed at
answering the original research question.
7.2 TOOLS USED FOR ANALYSIS
Tools used for analysis are:-
Bar graph
Pie charts
7.3 GRAPHICAL REPRESENTATION OF DATA
A survey was conducted of about 50 people who did regular banking transactions and also had an insurance policy. These included several housewives, businessmen, professionals, students, etc. The following analysis was done on the basis of the survey conducted:
Are you aware of Bancassurance?
43
Yes 80%
No 20%
Yes
No
Interpretation: - Among those who surveyed, 80% of respondents were aware that their bank provided bancaasurance.They knew with which Insurance Company their bank has tie up with; also they were aware about various policies provided by their banks. However, 20% of the respondents were amused with the term bancassurance and didn’t know anything about it and the services provided by their banks.
Have You Taken An Insurance Policy From Your Bank?
44
Yes34%
No66%
No
Yes
Interpretation : Among the people who were surveyed, there were only 34% people who had taken insurance policy from their respective banks. Remaining 66% respondents didn’t opt to take a policy from their banks.
45
23%
63%
18%
42%
0
10
20
30
40
50
60
70
The Kind Of Insurance Policy Taken From The Bank :-
Deposit Based Loan Based Life Insurance Others
Interpretation : Maximum number of insurance taken was related to loan. It was either car insurance or a home insurance. Out of the people surveyed 63% said that they have taken a loan based insurance. There were 23% who have taken insurance which are deposit based because it is a part of the deposit scheme. Only 18% have taken life insurance cover from the bank and 42% belong to others category.
46
80% 28% 65% 40%
0
10
20
30
40
50
60
70
80
90
Reasons For Taking An Insurance Policy :-
Security Savings Brand Image of Bank Image of
Bank Insurance
Interpretation : There was a mixed response from the customers. 80% said that they took the insurance policy because of security benefits. 65% said that since, they trusted their bank, they took the policy. There was 40% who said that the brand image of the company also mattered. Only 28% said that savings was a reason that encouraged them to buy insurance policy.
47
On Your Choice Which Mode Of Insurance Distribution Channel Would You Prefer To Buy The Policy From?
Banks23%
Brokers7%
Agents50%
Insurance companies
20%
Interpretation : 50% people preferred agents because they provide personalized services. 20% took insurance from companies because of their trust on the company. 23% said they would buy insurance from banks because of the brand name and their trust on banks. Only 7% said that they would buy insurance from brokers.
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Which Bank Do You Feel Would Excel In Bancaasurance? Rate Them Accordingly
38%
90%
70%
0
10
20
30
40
50
60
70
80
90
100
Public Sector Private Sector Foreign Banks
Interpretation : 90% people said that private sector banks would excel in this because of their aggressive selling policies and they provide quality services to the customers. 70% votes were given to foreign banks. Because foreign banks have proper management and aggressive selling strategies. The public sector banks were given the least votes because of their lazy approach to work.
49
Do You Think Bancassurance Has A Good Future?
No,5%
Yes,95%
Yes
No
Interpretation: 95% people said that they believe that Bancassurance has a very bright future because there is an immense potential for the insurance industry in India. But 5% believe that because of the emergence of the new technology such as ATM’s, Internet banking etc the banks will soon go virtual so there is not much scope for it.
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FINDINGS
Although the concept is simple enough in theory, but in practice it has been found
to be far from straightforward.
Almost many people have a fair idea about Bancassurance and that their banks sell
various insurance products. But still few people don’t know about Bancassurance
as a concept.
It has been also found out that the banks have various opportunities to cross sell
insurance products. The insurance companies also have the opportunity to take
advantage of the bank’s network and other avenues.
It is also seen that customers have a lot of trust on the banks, and because of that
trust the customers will take the insurance products from banks.
As the brand name of the banks is important so is the brand image of the insurance
companies. So the banks and the insurance companies must tie-up with the right
partners. This will help them to create a better image in the minds of the
customers.
It has also clear from the study that the private sector and the foreign banks have
better future in Bancassurance. But the public sector banks are also trying to give
them a tough competition e.g. SBI Life Insurance Co.
The insurance business can go a long way because there is a large population who
is still unaware about insurance. So the insurance companies have a huge potential
market in the years to come.
The banks fail to provide personalized services as are provided by the agents. So
banks will have to improve in that area. They should provide after sales services to
the customers.
Banks now-a-days are trying to provide each and every service to its customers.
So by providing insurance, banks can add one more service to their list.
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RECOMMENDATIONS
The Insurance companies need to design products specifically for distributing
through banks. Trying to sell traditional products may not work so effectively.
The employees of the banks who are selling insurance products must be given
proper training so that they can answer to any queries of the customers and can
provide them products according to their needs.
Banks should also provide after sales services and they should be more aggressive
in selling the insurance products.
Banks should also do the settlement of claims which will increase the trust and
reliability of the customers on the banks.
In India, since the majority of the banking sector is in public sector which has been
widely responsible for the lethargic attitude and poor quality of customer service,
it needs to rebuild the blemished image. Else, the bancassurance would be difficult
to succeed in these banks.
For bancassurance to succeed, products and processes will need to be tailored to
bank markets, rather than adjusted to insurer’s specifications.
Banks and Insurance companies should apply all the skills and potential in this
area and take advantage of the same and they should improve the products from
time to time according to the needs of the customers.
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LIMITATIONS
Data management of an individual customer’s identity and contact details may
result in the insurance company utilizing the details to market their products, thus
compromising on data security.
There is a possibility of conflict of interest between the other products of bank and
insurance policies (like money back policy). This could confuse the customer
regarding where he has to invest.
Better approach and services provided by banks to customer is a hope rather than a
fact.
Unlike insurance agents, banks may be lacking sales culture. Selling an insurance
product is different from selling a banking product.
Need for clarity on the operational activities of the bancassurance i.e., who will do
the branding, will the insurance company prefer to place a person at the bank
branch, or will the bank branch train and put up one of its own people.
Training: Even though the banks are in personal contact with their clients, a high
degree of pro-active marketing and technical skill is required to sell the insurance
products. This can be addressed through proper training.
Resistance: There are hazards of direct competition to conventional banking
products. Bank personnel may become resistant to sell insurance products.
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CONCLUSION
The life Insurance Industry in India has been progressing at a rapid growth since opening
up of the sector. The size of country, a diverse set of people combined with problems of
connectivity in rural areas, makes insurance selling in India a very difficult task. Life
Insurance Companies require good distribution strength and tremendous man power to
reach out such a huge customer base.
The concept of Bancassurance in India is still in its nascent stage, but the tremendous
growth and the potential reflects a very bright future
for bancassurance in India. With the coming up of various products and services tailored
as per the customers needs there is every reason to be optimistic that bancassurance in
India will play a long inning.
But the proper implementation of bancassurance is still facing so many hurdles because
of poor manpower management, lack of call centers, and no personal contact with
customers, inadequate incentives to agents and unfullfilment of other essential
requirements.
I have experienced a lot during the preparation of the project. I had just a simple idea
about Bancassurance. But after a detailed research in this topic I have found how
important bancassurance can be for bankers, insurers as well as the customers. I
amcontented that all my objectives have been met to its fullest.
I have also experienced that though Bancassurance is not being utilized to its fullest but
it surely has a bright future ahead. India is at the threshold of a significant change in the
way insurance is perceived in the country. Bancassurance will definitely play a defining
role as an alternative distribution channel and will change the way insurance is sold
in India.
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The bridge has been reached and many are beginning to walk those cautious steps across
it. Bancassurance in India has just taken a flying start. It has a long way to go ………..
After all The SKY IS THE LIMIT!
In fact, customer expectations are also a function of the level of services made available
to them. And the bank employees in the public sector understand them quite well. That is
why as and when customers demand better services, banks have provided the same.
The road to Bancassurance has been laid. A few Bancassurance vehicles have started
their journey on the road; but they have miles to go. Bancassurance ventures should
primarily strive to remain safe and sound through proper corporate governance, risk
management and operational practices. Good customer service should remain another
important goal of bancassurers. In a competitive market, where products are cloned in no
time, customer service provides one with the necessary cutting edge to remain ahead of
others. In this, technology will have a dominant role to play. Product research through
market surveys is also essential. Nevertheless, bancassurers, at least for some time to
come, will concentrate on urban and life areas of business.
The convergence of banking and insurance in India happens due to market pressure. The
contribution of Bancassurance will be substantial. The ability to tap into bank's huge
customer base is an irresistible opportunity for insurance companies. The scope to benefit
from the generous commission payout by insurance companies is a great attraction for
banks.
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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 fulfil 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 Crédit Agricole and Crédit Mutuel, grew between 2001 and 2003 by
almost 1% a year. Just as with life products, and within the same perspective of success,
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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