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8/8/2019 Project - Nupur Sharma
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DECLARATION
I Nupur Sharma Roll No. MO8052, Class - MBA, student of Amity School of
Insurance And Actuarial Science here by declare that the project entitled
Bancassurance is an original work and the same has not been submitted to any other
institute for the award of any degree. The interim report was presented to the Supervisor
on Mrs. Komal Kapoor.
Signature of the Candidate
Signature of the Supervisor
Director/ of the Institute
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ACKNOWLEDGEMENT
In this present world of competition there is a race of existence in which those who are
having will to come forward will succeed. Project is a bridge between practical and
theoretical working, with this will I have joined the project. I really wish to express my
gratitude towards all those people who have helped me.
I really indebted to Dr.R.K.Grover, Director ASIAS, for this kind hearted approach. His
timely guidance, supervision & encouragement have helped me to get this golden
opportunity.
My project guide Mrs. Komal Kapoor lecturer of ASIAS Noida, who provided me her
expert advise, inspiration & moral support in spite of her busy schedule & assignments,
has mainly provided my understanding of this project. I am very grateful to his
kindhearted approach & encouragement, which helped me immensely in completion of
this project report.
Last , but not the least, I say only this much that all are not to be mentioned but none is
forgotten and I will like to extend my special thanks and gratitude to my parents who
always encourage me in pursuit of excellence.
(NUPUR SHARMA)
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Chapter 1
History of Banking in India.
1. Definition
2. History
History of Insurance in India
1. Definition
2. History
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Introduction to Banking
Banking as per the Banking Regulation Act, Banking is defined as: -
Accepting for the purpose of lending of deposits of money from
the public for the purpose of lending or investment, repayable on demand
through Cheques, drafts or order.
A sound and effective banking system is necessary for a healthy
economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any
other external and internal factors. Many new things have come up in the
banking sector in the recent years. Banks have adopted the new technology
because banking has not remained up to accepting and lending but now it is
all about satisfying the needs of the customers.
The development of the Indian banking sector has been accompanied
by the introduction of new norms. New services are the order of the day, in
order to stay ahead in the rat race. Banks are now foraying into net banking,
securities, and consumer finance, housing finance, treasury market,
merchant banking etc. They are trying to provide every kind of servicewhich can satisfy or rather we should say that it can delight the customers.
Entry of private and foreign banks in the segment has provided
healthy competition and is likely to bring more operational efficiency into
the sector. Banks are also coping and adapting with time and are trying to
become one-stop financial supermarkets. The market focus is shifting from
mass banking products to class banking with the introduction of value added
and customized products.
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Introduction to Insurance Sector
Insurance may be defined as: -
It is a contract between two parties where by one party
undertakes to compensate the party for the loss arising due to an uncertain
events for which another party agrees to pay a certain amount regularly.
In India, insurance has a deep-rooted history. Insurance in India has
evolved over time heavily drawing from other countries, England in
particular.The insurance sector in India has a full circle from being an open
competitive market to nationalization and back to a liberalized market again.
The business of life insurance in India in its existing form started in India inthe year 1818 with the establishment of the Oriental Life Insurance
Company in Calcutta.
The Insurance Act, 1938 was the first legislation governing all
forms of insurance to provide strict state control over insurance
business.Today there are 14 general insurance companies and 14 life
insurance companies operating in the country. But today also the insurance
companies are trying to capture Indian markets as not many people areaware of it.
The insurance sector is a colossal one and is growing at a speedy
rate of 15-20%. Together with banking services, insurance services add
about 7% to the countrys GDP. A well-developed and evolved insurance
sector is a boon for economic development as it provides long- term funds
for infrastructure development at the same time strengthening the risk taking
ability of the country.
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Chapter 2
About Bancassurance
1. Meaning
2. Origin
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What is BANCASSURANCE?
With the opening up of the insurance sector and with so many players
entering the Indian insurance industry, it is required by the insurance
companies to come up with innovative products, create more consumerawareness about their products and offer them at a competitive price. Since
the banking services, insurance and fund management are all interrelated
activities and have inherent synergies, selling of insurance by banks would
be mutually beneficial for banks and insurance companies. With these
developments and increased pressures in combating competition, companies
are forced to come up with innovative techniques to market their products
and services. At this juncture, banking sector with it's far and wide reach,
was thought of as a potential distribution channel, useful for the insurance
companies. This union of the two sectors is what is known asBancassurance.
Meaning
Bancassurance is the distribution of insurance products through the
bank's distribution channel. It is a phenomenon wherein insurance products
are offered through the distribution channels of the banking services along
with a complete range of banking and investment products and services. To
put it simply, Bancassurance, tries to exploit synergies between both the
insurance companies and banks.
Bancassurance can be important source of revenue. With the increased
competition and squeezing of interest rates spread, profits are likely to be
under pressure. Fee based income can be increased through hawking of risk
products like insurance.
Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the
customer.
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Origin
The banks taking over insurance is particularly well-documented with
reference to the experience in Europe. Across Europe in countries like Spain
and UK, banks started the process of selling life insurance decades ago andcustomers found the concept appealing for various reasons.
Germany took the lead and it was called ALLFINANZ. The system of
bancassurance was well received in Europe. France taking the lead,
followed by Germany, UK, Spain etc. In USA the practice was late to start
(in 90s). It is also developing in Canada, Mexico, and Australia.
In India, the concept of Bancassurance is very new. With the liberalization
and deregulation of the insurance industry, bancassurance evolved in India
around 2002.
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Chapter 3
Utilities of Bancassurance
1. For Banks:
i. As a source of fee based income
ii. Product diversification
iii. Building close relations with the customers
2. For Insurance Companies
i. Stiff competition
ii. High cost of agents
iii. Rural penetration
iv. Multi-channel distribution
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As a source of fee income
Banks traditional sources of fee income have been the fixed charges levied
on loans and advances, credit cards, merchant fee on point of sale
transactions for debit and credit cards, letter of credits and other operations.This kind of revenue stream has been more or less steady over a period of
time and growth has been fairly predictable. However shrinking interest rate,
growing competition and increased horizontal mobility of customers have
forced bankers to look elsewhere to compensate for the declining profit
margins and Bancassurance has come in handy for them. Fee income from
the distribution of insurance products has opened new horizons for the banks
and they seem to love it.
From the banks point of view, opportunities and
possibilities to earn fee income via Bancassurance route are endless. Atypical commercial bank has the potential of maximizing fee income from
Bancassurance up to 50% of their total fee income from all sources
combined. Fee Income from Bancassurance also reduces the overall
customer acquisition cost from the banks point of view. At the end of the
day, it is easy money for the banks as there are no risks and only gains.
Product Diversification
In terms of products, there are endless opportunities for the banks. Simple
term life insurance, endowment policies, annuities, education plans,
depositors insurance and credit shield are the policies conventionally sold
through the Bancassurance channels. Medical insurance, car insurance,
home and contents insurance and travel insurance are also the products
which are being distributed by the banks. However, quite a lot of
innovations have taken place in the insurance market recently to provide
more and more Bancassurance-centric products to satisfy the increasing
appetite of the banks for such products.
Examples of some new and innovative Bancassurance
products are income builder plan, critical illness cover, return of premium
and Takaful products which are doing well in the market.
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Building close relations with the customers
Increased competition also makes it difficult for banks to retain
their customers. Bancassurance 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. Also, banking in India is
mainly done in the 'brick and mortar' model, which means that most of the
customers still walk into the bank branches. This enables the bank staff to
have a personal contact with their customers. In a typical Bancassurance
model, the consumer will have access to a wider product mix - a rather
comprehensive financial services package, encompassing banking and
insurance products.
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For Insurance Companies
Stiff Competition
At present there are 15 life insurance companies and 14 general insurancecompanies in India. Because of the Liberalization of the economy it became
easy for the private insurance companies to enter into the battle field which
resulted in an urgent need to outwit one another. Even the oldest public
insurance companies started facing the tough competition. Hence in order to
compete with each other and to stay a step ahead there was a need for a new
strategy in the form of Bancassurance. It would also benefit the customers in
terms of wide product diversification.
High cost of agents
Insurers have been tuning into different modes of distribution because of
the high cost of the agencies services provided by the insurance companies.
These costs became too much of a burden for many insurers compared to the
returns they generate from the business. Hence there was a need felt for a
Cost-Effective Distribution channel. This gave rise to Bancassurance as a
channel for distribution of the insurance products.
Rural Penetration
Insurance industry has not been much successful in rural penetration of
insurance so far. People there are still unaware about the insurance as a
tool to insure their life. However this gap can be bridged with the help of
Bancassurance. The branch network of banks can help make the rural
people aware about insurance and there is also a wide scope of business
for the insurers. In order to fulfill all the needs bancassurance is needed.
Multi channel Distribution
Now a day the insurance companies are trying to exploit each and everyway to sell the insurance products. For this they are using various
distribution channels. The insurance is sold through agents, brokers
through subsidiaries etc. In order to make the most out of Indias large
population base and reach out to a worthwhile number of customers there
was a need for Bancassurance as a distribution model.
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Chapter 4
Regulations for Bancassurance in India
1. RBI Norms for banks entering into Insurance
sector
2. IRDA Norms for Insurance companies tying up
with Banks
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RBI Norms for banks
RBI Guidelines for the Banks to enter into Insurance Business
Following the issuance of Government of India Notification dated
August 3, 2000, specifying Insurance as a permissible form of
business that could be undertaken by banks under Section 6(1) (o) of
The Banking Regulation Act, 1949, RBI issued the guidelines on
Insurance business for banks.
1 Any scheduled commercial bank would be permitted to undertake
insurance business as agent of insurance companies on fee basis. Without
any risk participation
2. Banks which satisfy the eligibility criteria given below will be permitted
to set up a joint venture company for undertaking insurance business with
risk participation, subject to safeguards. The maximum equity contribution
such a bank can hold in the Joint Venture Company will normally be 50%
of the paid up capital of the insurance company.
The eligibility criteria for joint venture participant are as under:
i. The net worth of the bank should not be less than Rs.500 crore;ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level ofnon-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if
any, of the concerned bank should be satisfactory.
3. In cases where a foreign partner contributes 26% of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign
Investment Promotion Board, more than one public sector bank or private
sector bank may be allowed to participate in the equity of the insurance joint
venture. As such participants will also assume insurance risk, only those
banks which satisfy the criteria given in paragraph 2 above, would be
eligible.
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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 CRARof the bank should not be less than 10%;
ii. The level ofNPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive
years.
6. All banks entering into insurance business will be required to obtain prior
approval of the Reserve Bank. The Reserve Bank will give permission to
banks on case to case basis keeping in view all relevant factors including the
position in regard to the level of non-performing assets of the applicant bank
so as to ensure that non-performing assets do not pose any future threat to
the bank in its present or the proposed line of activity, viz., insurance
business. It should be ensured that risks involved in insurance business do
not get transferred to the bank. There should be arms length 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 theeligibility criteria.
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IRDA Norms for Insurance Companies
The Insurance regulatory development & Authority has givencertain 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.
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.
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Chapter 5
Benefits of Bancassurance
1. To Banks
2. To Insurance companies
3. To Customers
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To Banks
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.
(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 above-mentioned
facility for Bankassurance purpose with customers & non-customers.
(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.
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To Insurers
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.
(C)Insurers can exploit the banks' wide network of branches for distributionof 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,
conversion 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 ATMs 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.
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To 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..
(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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Chapter 6
Distribution Channels:
1. Career agents
2. Special advisers
3. Salaried agents
4. Bank employees
5. Corporate agency & Brokerage firm
6. Direct response
7. Internet
8. E- Brokerage
9. Outside lead generating techniques
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Distribution Channels
Traditionally, insurance products were promoted and sold principally
through agency systems only. The reliance of insurance industry was totally
on the agents. Moreover with the monopoly of public sector insurance
companies there was very slow growth in the insurance sector because of
lack of competition. The need for innovative distribution channels was not
felt because all the companies relied only upon the agents and aggressive
marketing of the products was also not done. But with new developments in
consumers behaviours, evolution of technology and deregulation, new
distribution channels have been developed successfully and rapidly in recent
years.
Recently Bancassurers have been making use of various distributionchannels, they are:
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 advisorsare 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 careeragents, 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 agenciesor 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 consumerpurchases products directly from the bancassurers 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 crossselling of insurance savings and protection products. Functions requiring
user input (check ordering, what-if calculations, and 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 insuranceproducts 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.
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Chapter 7
Various Trends
Challenges
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Trends
Though bancassurance has traditionally targeted the mass market, butbancassurers 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.
Nevertheless, banks are starting to embrace direct marketing and
Internet banking as tools to distribute insurance products. New andemerging 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 clients database for the use of the insurance companies.
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Challenges
Increasing sales of non-life products, to the extent those risks are
retained by the banks, require sophisticated products and risk
management. The sale of non-life products should be weighted against
the higher cost of servicing those policies.
Bank employees are traditionally low on motivation. Lack of sales
culture itself is bigger roadblock than the lack of sales skills in the
employees. Banks are generally used to only product packaged selling
and hence selling insurance products do not seem to fit naturally intheir system.
Human Resource Management has experienced some difficulty due to
such alliances in financial industry. Poaching for employees,
increased work-load, additional training, maintaining the motivation
level are some issues that has cropped up quite occasionally. So,
before entering into a bancassurance alliance, just like any merger,
cultural due diligence should be done and human resource issues
should be adequately prioritized.
Private sector insurance firms are finding change management in the
public sector, a major challenge. State-owned banks get a new
chairman, often from another bank, almost every two years, resulting
in the distribution strategy undergoing a complete change. So because
of this there is distinction created between public and private sector
banks.
The banks also have fear that at some point of time the insurance
partner may end up cross-selling banking products to their
policyholders. If the insurer is selling the products by agents as well
as banks, there is a possibility of conflict if both the banks and the
agent target the same customers.
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Chapter 8
SWOT Analysis
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats
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SWOT Analysis:
Banking and Insurance are very different businesses. Banks have less riskbut the insurance has a greater risk. Even though, banks and insurancecompanies in India are yet to exchange their wedding rings, Bancassurance
as a means of distribution of insurance products is already in force in some
form or the other.
Banks are selling Personal Accident and Baggage Insurance
directly to their Credit Card members as a value addition to their products.
Banks can straightaway leverage their existing capabilities in terms of
database and face-to face contact to market insurance products to generatesome income for themselves, which previously was not thought of.
The sale of insurance products can earn banks very significant
commissions (particularly for regular premium products). In addition, one of
the major strategic gains from implementing bancassurance successfully is
the development of a sales culture within the bank. This can be used by the
bank to promote traditional banking products and other financial services as
well. Bancassurance enables banks and insurance companies to complement
each others strengths as well.
It is therefore essential to have a SWOT analysis done in the
context of bancassurance experiment in India. A SWOT analysis of
Bancassurance is given below:
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Strengths:
In a country like India of one billion people where sky is the limit
there is a vast untapped potential waiting for life insurance products.
Our other strength lies in a huge pool of skilled professionals whether
it is banks or insurance companies who may be easily relocated for
any bancassurance venture.
Banks have the credibility established with their constituents because
of a variety of services and schemes provided by them. They also
enjoy pride of place in the hearts of people because of their longpresence and sustained image.
Banks also enjoy a wide network of branches, even in the remotest
areas that can facilitate taking up the task on a large and massive
scale, simultaneously.
Banks are very well aware with the psychology of the customers
because of their interaction with the customers on regular basis.
Because of this the bankers can guess the attitude and diverse needs
of the customers and could change the face of insurance distribution
to personal line insurance.
People rely more upon LIC and GIC for taking insurance. If the
products of LIC and GIC are provided through bancassurance it
would be an added advantage to the insurance companies.
With the help of banks trained staff, its brand name and the
confidence and reliability of people on the banks, the selling of
insurance products can be done in a more proper way.
Other than all these things there is a huge potential for insurance
sector, as the population of India is high and a large part of it has
remained untapped till now. So this can create an added advantage for
both banks and insurers.
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Weaknesses:
In spite of growing emphasis on total branch mechanism and full
computerization of bank branches, the rural and semi-urban banks
have still to see information technology as an enabler. The IT culture
is unfortunately missing completely in all of the future collaborations.
The internet connections are also not properly provided to the staff.
To undertake the distribution of the insurance products, the bank
employees have to undergo certain minimum period of training,
followed by a test and then get themselves licensed. Moreover thestandards of the examination have been raised in the recent past
making it difficult for many examinees to clear the same.
There is lack of personalized services because the traditional
insurance agent is considered a member of the family and hence is
able to render a personalized service during and after the sales
process. However that may not be the case in regards to a bank
employee.
There are many differences in the way of thinking and business
approaches of bankers and the managers of insurance companies.
Banks are traditionally demand-driven organizations with a reactive
selling philosophy. Insurance organizations are usually need-driven
and have an aggressive selling philosophy.
The visit of a customer to the bank is to have a simple transaction like
deposit or withdrawal. Busy customers will have no time to have a
discussion on a long-term durable purchase like insurance across the
counter. Also, the visits in urban or metro branches are going to be
fewer because of ATMs and e-banking.
Another drawback is the inflexibility of the products i.e. it cannot be
tailor made to the requirements of the customer. For a bancassurance
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venture to succeed it is extremely essential to have in-built flexibility
so as to make the product attractive to the customers.
Opportunities:
There is a vast untapped potential waiting to be mined particularly for
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 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.
In urban and metro areas, where the customers are willing to get many
services like lockers and safe deposit systems and other products and
services from banks, there is a good opportunity to market many
property related general insurance policies like fire insurance,
burglary insurance and medi-claim insurance etc.
Banks' database is enormous even though the goodwill may not be the
same. This database has to be dissected and various homogeneous
groups are to be churned out in order to position the Bancassurance
products. With a good IT infrastructure, this can really do wonders.
Banksin 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 combineit as a package.
Another area that could be of interest to bankers to sell insurance is
exploiting the corporate customers and tying up for insurance of the
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employees of corporate clients, which would be an avenue with easy
access. In most cases banks provide salary disbursement and loan
facilities but here they can provide insurance cover as well.
Threats:
Success of a Bancassurance venture requires change in approach,
thinking and work culture on the part of everybody involved. The
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
not be easily acceptable by the employees.
Another possible threat may come from non-response from the
targeted customers. If many joint ventures took place between banks
and insurance companies then it may happen that the customers may
not respond to such ventures as happened in U.S.
Insurance in India is perceived more as a saving option than providing
risk cover. So this may create an adverse feeling in the minds of the
bankers that such products may lessen the sales of regular bank savingproducts. Also selling of investment and good return products may
affect the FD Portfolio of the banks.
There would be a problem of Reputational Contagion i.e. loss of
market confidence towards one in a venture leading to loss of
confidence on the other because of identical brand recognition,
similar management and consolidated financial reporting etc.
If no strict norms are there for such ventures then many unholyventures may take place which may give rise to tough competition
between bancassurers resulting in lower prices and the Bancassurance
venture may never break because of such situations.
The most common obstacles to success of Bancassurance are poor
manpower management, lack of a sales culture within the bank, no
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involvement by the branch manager, insufficient product promotions,
failure to integrate marketing plans, marginal database expertise, poor
sales channel linkages, inadequate incentives, resistance to change,
negative attitudes toward insurance and unwieldy marketing strategy.
Chapter 9
Indian scenario
Global scenario
Future scope of Bancassurance
Other tie ups
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Indian Scenario
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
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 customersmeans 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.
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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 nocompany 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.
Thus, bancassurance provide an apparently viable model for
product diversification by banks and a cost-effective distribution channel forinsurers. 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.
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Global Scenario
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. Bancassurance,
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
LatinAmerica, banks have benefited from recent reforms financialderegulation, 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 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 population is
insured, and even among them most is underinsured.
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Future scope for Bancassurance
By now, it has become clear that as economy grows it not only demands
stronger and vibrant financial sector but also necessitates providing with
more sophisticated and variety of financial and banking products and
services. The outlook for bancassurance remains positive. Whiledevelopment in individual markets will continue to depend heavily on each
countrys 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.
In India the bancassurance model is still in its nascent stages, but
the tremendous growth and acceptability in the last three years reflects greenpasture 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 forthese 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.
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Other tie-ups
Life Insurance tie-ups:
Private Sector Companies:
1. Bajaj Allianz Life Insurance Co. Ltd.
2. Birla Sun Life Insurance Co. Ltd.
3. HDFC Standard Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Co. Pvt. Ltd.6. SBI Life Insurance Company Limited
7. TATA-AIG Life Insurance Company Ltd.
8. Sahara India Life Insurance Co. Ltd.
9. Aviva Life Insurance Co India Pvt. Ltd.
10. Kotak Mahindra OU Mutual Life Insurance Co. Ltd.
11. Max New York Life Insurance Co. Ltd.
12. MetLife India Insurance Co. Pvt. Ltd.
13. Reliance Life Insurance Co. Ltd.
14. Shriram Life Insurance Co. Ltd.15. Bharti Axa Life Insurance Co. Ltd.
Public Sector Company:
8. Life Insurance Corporation of India
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Non-Life Insurance tie-ups:
Private Sector Companies:
1. Royal Sundaram Allianz Insurance Co. Ltd.
2. TATA-AIG General Insurance Co. Ltd.
3. Reliance General Insurance Co. Ltd.
4. IFFCO-TOKIO General Insurance Co. Ltd.
5. ICICI Lombard General Insurance Co. Ltd.
6. Bajaj Allianz General Insurance Co. Ltd.
7. HDFC Chubb General Insurance Co. Ltd.
8. Cholamandalam MS General Insurance Co. Ltd.
9. Star Health and Alhed Insurance Co. Ltd.
Public Sector Companies:
10. The New India Assurance Co. Ltd.
11. National Insurance Co. Ltd.
12. United India Insurance Co. Ltd.
13. The Oriental Insurance Co. Ltd.
14. Export Credit Guarantee Corporation Ltd.
15. Agriculture Insurance Company Ltd.
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