Bancassurance Final

7/28/2019 Bancassurance Final

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DECLARATION

I Ms. KAJAL GAGWANI, student of KETs V. G. Vaze College of Arts, Science

and Commerce, Mulund studying in T. Y. Bcom Banking and Insurance, Semester

VI, Hereby declare that I have completed the project on BANCASSURANCE in

the academic year 2011-2012.

This information is true and to the best of my knowledge and belief.

Signature

KAJAL GAGWANI

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ACKNOWLEDGEMENT

After so many days of hard work in completing this project, it finally comes to a dayof expressing to a number of people. I would like to extend highest appreciation and

gratitude to our Principal, Dr. BHARAT. B. SHARMA.

A special thanks to Mr. SIRwho has always been a combination of strict, vigilant

and guided nature. I would also like to thank our Course Coordinator, Mrs. Seema

Pawar for providing guidance regarding this project. I thank them for their

continuous support and valuable inputs of this project.

A special mention must be made to Librarian Mr. Paritosh Pawar and Assisstant

Librarian Mrs. Kavita Mehta and also other library staff who have provided me the

right information and study material at the right point of time.

I would also like to thank the University for giving a chance to conduct this project.

From this project I was able to gain more knowledge for the future.

I cannot end without thanking my father and friends on whose constant

encouragement and love I have relied throughout my project.

Last but not least, thanks to God. May your name be exalted, honored and glorified.

THANK YOU ALL.

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DESIGN OF THE STUDY

SCOPE

The researcher has tried to study about Bancassurance. The project has been designed

to cover the concept of Bancassurance in India.

The project tries to take a glance over the various aspects of Bancassurance, its

meaning and origin, meaning of banking and insurance both , benefits of

bancassurance and SWOT analysis of bancassurance.

OBJECTIVE

To understand the concept of BANCASSURANCE

To recognize need and importance of bancassurance.

To identify the challenges and opportunities of bancassurance.

To cover various aspects relating to BANCASSURANCE.

LIMITATIONS

Data collection was very time consuming.

Banks and insurance companies were reluctant to disclose information.

RESEARCH METHODOLOGY

The research methodology for this project was done in one way:

Secondary data- The secondary information is collected from websites and

newspapers.

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Executive Summary

The Banking and Insurance industries have changed rapidly in the

changing and challenging economic environment throughout the world. In this

competitive and liberalized environment everyone is trying to do better than others

and consequently survival of the fittest has come into effect.

This has given rise to a new form of business wherein two big financial

institutions have come together and have integrated all their strength and efforts and

have created a new means of marketing and promoting their products and services. On

one hand it is the Banking sector which is very competitive and on the other hand is

Insurance sector which has a lot of potential for growth. When these two join

together, it gives birth to BANCASSURANCE.

Bancassurance is nothing but the collaboration between a bank and an

insurance company wherein the bank promises to sell insurance products to its

customers in exchange of fees. It is a mutual relationship between the banks and

insurers. A relationship which amazingly complements each others strengths and

weaknesses.

It is a new buzz word in India but it is taking roots slowly and gradually. It

has been accepted by banks, insurance companies as well as the customers. It is

basically an international concept which is spreading all around the world and is

favored by all.

Taking all these things into consideration I would like to present my project

BANCASSURANCE (an emerging concept in India). The project flashes some light

on Bancassurance and how it is perceived by people in India. It deals with the

conceptual part of Bancassurance as well as its practical applications in India.

The main focus of this project is on benefits and importance ofBancassurance in India. The regulations governing Bancassurance are also dealt with

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in this project. SWOT analysis is also done so as to identify the various opportunities

and threats for Bancassurance in India.

The Indian as well as Global contexts both are taken into account. The

project also revolves around data, facts and figures that are necessary to prove the

importance of Bancassurance.

Further the project also includes the case study of SBI Life Insurance

Company, its various products, the growth they have experienced since the opening

up of a wholly owned subsidiary of SBI Bank that sells insurance products.

A survey analysis has also been done so as to know the popularity and the

growth perspectives of Bancassurance. The survey tries to identify whether the

conditions are favourable for it India or not. At the end some suggestions are also

given to fill the potholes that still exist in this system.

This project is just a gist about how the Globalization, Liberalization and

tough Competition have brought the Banking as well as the Insurance Industries

together to help each other and to provide excellent services to the customers.

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INDEX

Chapter

No.

Topic Pg no.

1. History of Banking in India

History of Insurance in India

10-13

2. About Bancassurance

Meaning

Origin

Models of Bancassurance

14-19

3. Utilities of Bancassurance

For Banks

For Insurance Companies

20-24

4. Regulations for Bancassurance in India

RBI Norms for banks entering into

Insurance sector

IRDA Norms for Insurance companies

tying up with Banks

25-29

5. Benefits of Bancassurance

To Banks

To Insurance companies

30-34

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To Customers

6. Distribution Channels 35-37

7. Case Study 38-51

8. Various Trends

Challenges

52-54

9. SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

55-61

10. Indian scenario

Global scenario

Future scope of Bancassurance

Other tie ups

62-68

11. Findings 69

12. Recommendations 70

13. Conclusion 71

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14. Bibliography 72

Chapter 1

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History of Banking in India.

1. Definition

2. History

History of Insurance in India

1. Definition

2. History

Introduction to Banking

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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 service which 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.

Introduction to Insurance Sector

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Insurance may be defined as: -

It is a contract between two parties where by one party undertakes to

compensate the another party for the loss arising due to an uncertain events for which

the 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 come 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 in the 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 are aware 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

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1. Meaning

2. Origin

3. Models of Bancassurance

i. Structural classification

ii. Product based classification

iii. Bank Referrals

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 consumer awareness about theirproducts and offer them at a competitive price. Since the banking services, insurance

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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 as Bancassurance.

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.

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 and customers found the concept

appealing for various reasons.

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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.

Models of Bancassurance

I. 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 ban0k 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

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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, 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 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) Insurance as Fully Integrated Financial Service/ 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 FDIs participation up to 49 per cent.

II. Product based classification

(a) Stand-alone Insurance Products

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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 banks customer, however, the

products of banks and insurance will have their respective brands too.

(b) Blend of Insurance with Bank Products

This method aims at blending of insurance products as a value addition

while promoting the banks 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 banks 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.

III. 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.

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Chapter 3

Utilities of Bancassurance

1. For Banks:

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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

v. Targeting middle income customers

For Banks

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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. A typical commercial bank has

the potential of maximizing fee income from Bancassurance up to 50% of their totalfee 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 theincreasing appetite of the banks for such products.

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Insurers who are generally accused of being inflexible in the pricing

and structuring of the products have been responding too well to the challenges (say

opportunities) thrown open by the spread of Bancassurance. They are ready to

innovate and experiment and have set up specialized Bancassurance units within their

fold. 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. The traditional products that the

Building close relations with the customers

Increased competition also makes it difficult for banks to retain their

customers. Banassurance comes as a help in this direction also. 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.

For Insurance Companies

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Stiff Competition

At present there are 15 life insurance companies and 14 general

insurance companies 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 theygenerate 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.

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Multi channel Distribution

Now a days the insurance companies are trying to exploit each and every

way 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.

Targeting Middle income Customers

In previous there was lack of awareness about insurance. The agents sold

insurance policies to a more upscale client base. The middle income group people

got very less attention from the agents. So through the venture with banks, the

insurance companies can recapture much of the under served market. So in order

to utilize the database of the banks middle income customers, there was a need

felt for Bancassurance.

Chapter 4

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Regulations for Bancassurance in India

1. RBI Norms for banks entering into Insurance sector

2. IRDA Norms for Insurance companies tying up with Banks

RBI Norms for banks

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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, ifany, 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 the eligibility criteria.

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IRDA Norms for Insurance Companies

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.

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

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(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.

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Chapter 5

Benefits of Bancassurance

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 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, 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 distribution channels,

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

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and high quality service. Usually Special advisors are paid on a salary basis and

they receive incentive compensation based on their sales.

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

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advertisement, mailing or telephone offers. This channel can be used for simple

packaged products which can be easily understood by the consumer without

explanation.

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.

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Chapter 7

SBI Life Insurance (profile)

Products offered

SBI Life Insurance (perspective)

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State bank of India Life Insurance

SBI Life Insurance is a joint venture between the State Bank of India and Cardif

SA of France. SBI Life Insurance is registered with an authorized capital of Rs 1000

crore and a paid up capital of Rs 500 crores. SBI owns 74% of the total capital and

Cardif the remaining 26%.

State Bank of India enjoys the largest banking franchise in India. Along with

its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,500 branches

across the country, arguably the largest in the world. Cardif is a wholly owned

subsidiary of BNP Paribas, which is the Euro Zones leading Bank. BNP Paribas is

one of the oldest foreign banks with a presence in India dating back to 1860. Cardif is

ranked 2nd worldwide in creditors insurance offering protection to over 35 million

policyholders and net income in excess of Euro 1 billion. Cardif has also been apioneer in the art of selling insurance products through commercial banks in France

and in 35 more countries.

SBI Life Insurances mission is to emerge as the leading company offering a

comprehensive range of Life Insurance and pension products at competitive prices,

ensuring high standards of customer service and world class operating efficiency.SBI

Life has a unique multi-distribution model encompassing Bancassurance, Agency and

Group Corporate.

SBI Life extensively leverages the SBI Group as a platform for cross-selling

insurance products along with its numerous banking product packages such as

housing loans and personal loans. SBIs access to over 100 million accounts across

the country provides a vibrant base for insurance penetration across every region and

economic strata in the country ensuring true financial inclusion.

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Agency Channel, comprising of the most productive force of more than 25,000

Insurance Advisors, offers door to door insurance solutions to customers.

Products Offered by SBI

Individual Products

A. Unit Linked products:

1)SBI Life - Horizon II:

SBI Life-Horizon II is a unique, non participating Unit Linked

Insurance Plan in Indian Insurance Industry, where you need to be a financial market

expert. This plan offers the flexibility of Unit Linked Plan along with Automatic

Asset Allocation which provides relatively higher returns on your money where as

increasing death benefits provide higher security to your family

2)SBI Life - Unit Plus II:

This is a non participating individual unit linked product. It provides

unmatched flexibility to match the changing requirements. It provides choice of 5

investments funds in a single policy

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3)SBI life- unit plus child plan:

SBI LIFE understand you better and hence have developed SBI Life -

Unit Plus Child Plan to suit you and your needs best. This Plan is meant for

parents in the age group of 18-57 having a child between the age group of 0-15

years.

4)SBI Life Unit Plus Elite:

In this policy the customer can choose the type of cover, type of fund

to be invested in and the term the customer wants to pay premium for.

B. Pension Products

SBI Life - Horizon II Pension:

A unique Unit Linked Pension Plan that will enable the

customers to build a kitty good enough to enable them to spend a

peaceful and financially sound, retired life. SBI Life - Horizon II

Pension is a safe and hassle free way to get high returns. It comes

with the unique feature of Automatic Asset Allocation by means of

which you truly, dont need to be an expert to grow your money.

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1) SBI Life - Unit Plus II Pension:

SBI Life understands the basic needs for pension plan and give the

customers financial strength to maintain the life style even after the retirement.

This is a unit linked pension plan wherein the policyholder chooses an investment

period from 5 to 52 years for a vesting age between 50 to 70 years. They can

choose to pay either single premium or pay regular premium for the entire policy

term. Their contributions are invested into 4 fund options as per their choice.

2) SBI Life - Lifelong Pensions:

It is a pension plan wherein the policyholder gets the flexibility to

meet the post retirement financial needs. It also provides tax benefits. The

policyholder also has the option of withdrawing a lump sum amount up to

particular limit.

3) SBI Life - Immediate Annuity:

SBI Life - Immediate Annuity Plan is introduced for Pension

Policyholders. This product provides annuity payments immediately from

payment of purchase price. It has been specially designed to cater to the annuity

needs of existing policyholders (SBI Life - Lifelong Pensions, SBI Life - Horizon

II Pension, SBI Life - Unit Plus II Pension) at the vesting age.

C. Pure Protection Products

1) SBI Life - Swadhan:

This is a Traditional Term Assurance Policy with guaranteed

refund of basic premium .Life cover is provided at no cost. Tax benefit

is also provided. There is also a rebate on high sum assured. There is

also flexible benefit premium paying mode.

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2) SBI Life - Shield:

It offers the customers with the life insurance cover at the lowest cost for a

selected term. Tax benefit is also provided. There is also rebate on modes of

premium payment.

3) SBI Life Shield as a Keyman Insurance Policy:

A Keyman insurance policy is taken to protect the organization against the

reduction in profit resulting from the death of the Keyman. As per IRDA circular

only Pure Term Assurance Products may be used as a Keyman Insurance. The

SBI Life Insurance provides SBI Life Shield as a Keyman Insurance Policy.

D. Protection cum Savings Products

1) SBI Life Sudarshan:

SBI Life - Sudarshan is an Endowment Policy designed to provide

savings and protection to the policyholder and their family. They can save

regularly for the future. Thus at the end of the plan, he will receive a substantial

amount of savings along with the accumulated bonuses declared. At the same

time, his family will be protected for death risk for the full Sum Assured.

2) SBI Life - Scholar II:

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Twin benefit of saving for the child's education and securing a bright

future despite the uncertainties of life. Option to receive the installments in lump

sum at the due date of first installment of Survival benefit.

E. Money back scheme products

1) SBI Life - Money Back:

It is a Traditional Saving Plan with added advantage of life cover and

guaranteed cash inflow at regular intervals. The plan has a number of money

back options specially suited to the customers needs. The cover is available at

competitive premium rates.

2) SBI Life - Sanjeevan Supreme:

It is a Traditional Saving Plan which offers a life cover for the term of the

customers choice at the same time does not burden him with liability to pay

premiums for the entire term and also provides cash flows at regular intervals.

F. For Brokers:

1) SBI Life - SARAL ULIP:

It is a simple Unit Linked Non-Participating Insurance

Plan. The sum assured is based on Term and Premium amount. There

is also flexibility to increase or decrease regular premium and it also

provides tax benefits.

Group Products

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A. Group Employee Benefit Products

I. Retirement Solutions:

1)SBI Life - CapAssure Gratuity Scheme:

It is a Non-Participating yearly renewable traditional Group Gratuity

Scheme. Under this scheme, the contributions paid continue to accumulate on

traditional platform of investments and at the end of the financial year; an investment

income earned on your contributions is credited to your gratuity fund account.

2)SBI Life - CapAssure Superannuation Scheme:

It is a Non-Participating yearly renewable traditional group superannuation

scheme. The object of this scheme is to ensure that the underlying fund is

accumulated in such a manner so that the fund will be sufficient to purchase an

expected amount of annuity to an employee upon his retirement / to the legal heir in

the event of an unfortunate death during service. The scheme would also entitle the

employee for some benefit, defined as per the scheme rules, on his resignation,

retirement, permanent total disability whilst in service, death whilst in service.

3)SBI Life - CapAssure Leave Encashment Scheme:

It is a Non-Participating yearly renewable traditional group leave

encashment scheme. Under this scheme, the contributions paid continue to

accumulate on traditional platform of investments and at the end of the financial year;an investment income earned on your contributions is credited to your CA-LE fund

account.

4)SBI Life - Group Immediate Annuity:

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It is a scheme wherein life annuity is payable at a constant rate through out

the life time. Employees can choose the periodicity of the annuity depending upon the

needs.

5)SBI Life - Golden Gratuity:

It is a yearly renewable unit linked group gratuity plan. Along with managing

the gratuity fund a life cover on the employees life protect their family financially in

case of unfortunate event.

6) SBI Life - Dhanrashi:

It is a traditional non participating Group Savings Linked Insurance scheme.

This scheme is applicable for both employer-employee and non-employer employee

groups. It has attractive returns on savings with twin benefits. It also provides

protection at low cost with no medical examination and also hassle free joining

process with no entry charges.

7)SBI Life - Swarna Jeevan:

It is a Group Immediate Annuity Plan for Corporate Clients (ie.Employer-

Employee groups) and other Group Administrators. It provides Attractive Annuity

rates due to group effect. It also gives customized annuity options to customers. It

gives the option to choose the periodicity of annuity payment.

8)SBI Life - Group Gratuity cum Life Cover Scheme:

It is a Participating yearly renewable traditional Group Gratuity Scheme.

Under this scheme, the contributions paid continue to accumulate on traditional

platform of investments. It also provides tax benefits.

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9)SBI Life - Group Superannuation Scheme:

SBI Life provides two types of Superannuation schemes:

1. Defined Benefit Scheme: It defines the amount of benefit that an employee

receives at retirement.

2. Defined Contribution Scheme: It defines the annual contribution that the employer

will deposit into the scheme for each employee.

10) SBI Life provides SBI Life - Group Leave Encashment cum LifeCover Scheme:

It is a Non-Participating yearly renewable traditional group leave encashment

scheme. Under this scheme, the contributions paid continue to accumulate on

traditional platform of investments.

11)SBI Life - SWARNA GANGA:

It is a unique product that offers life cover, with an advantage of accumulating

savings at attractive rates, to group of persons who share a common identity or

affinity.

II.Group Protection Plans

1)SBI Life - Sampoorn Suraksha:

SBI Life - Sampoorn Suraksha is a yearly renewable group term insurance

plan which provides life cover at comparatively lower premium than individual

insurance to the groups who are engaged in the similar kind of activities. It is

available for both Formal and Informal Groups.

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2)SBI Life Super Suraksha:

It is group term assurance non-participating plan. The Product provides

cover at an affordable premium due to the benefits of coverage of a wide section, and

the administered savings achieved. There is a possibility of profit sharing based on the

mortality experience of the group.

3)SBI Life - Super Suraksha in Lieu of EDLI:

Life cover available to employees irrespective of their Provident Fund

Balance. Lower premium rates are also available. No medical evidence is required

and also there accident death benefit.

4)SBI Life - Credit Guard:

It is a Non Participating Group Term Insurance Plan. It is a simple and easy

solution to cover the cardholders of a bank/other Financing entity, through a Group

Master Policy.

III. Specialized Term Insurance

1)SBI Life - Shield used as Keyman:

It is a pure term life cover to protect the organization from adverse financial

consequences arising due to death of a key employee. The aim is to indemnify the

company for these losses and to allow for business continuity.

B. Group Term with ROP:

1) SBI Life - Swadhan (Group):

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It is a Non Participating Group Term Insurance Plan with Return of

Premium. It is a simple and easy solution which offers dual benefits of life cover

protection in the event of death and refund of premium in case of survival up to the

end of the cover term.

C. Group Loan Protection Products

1)SBI Life - Dhanaraksha Plus SP

It provides decreasing term cover at a very low cost. Available for various types

of individual loans for borrowers of a lending institution through a Group Master

Policy. There is only one time payment of premium.

2)SBI Life - Dhanaraksha Plus LPPT:

It provides decreasing term cover at a very low cost. Available for various

types of individual loan for borrowers of a lending institution through a Group Master

Policy. There is Limited Premium Payment Term.

3)SBI Life - Dhanaraksha Plus RP:

It provides decreasing term cover at a very low cost. Available for various

types of individual loan for borrowers of a lending institution through a Group Master

Policy. There are two options for premium payment i.e. throughout the cover term or

2/3rd of the cover term.

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D. Group Savings Protection

1)SBI Life - Nidhi Raksha RP:

It is a unique Plan which will help protect and grow the customers savings. It

is offered to deposit holders of the master policyholder (bank/financial institution). It

is a transparent plan, where the benefit available at any point of time is clearly defined

in the Certificate of Insurance (COI) issued to the insured group member.

E. Group Micro Insurance

1)SBI Life - Grameen Shakti:

The purpose of this product is to provide life insurance protection to the

weaker sections of the society. It is a Group Micro insurance product with refund of

premiums at maturity.

2)SBI Life - Grameen Super Suraksha:

The purpose of this Product is to provide life cover at low costs to groups

of economically weaker sections of Society. It is a low cost Group term assurance

plan for rural people who can seek life insurance protection without maturity benefit.

SBI Life Insurance Company (perspective)

SBI Life insurance, a joint venture between State Bank of India, the largest

bank in the country and bancassurance major Cardiff of France. SBIs stake in the

venture is 74% whereas Cardiff has 26% share. They have launched many products so

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far incorporating certain features that are introduced for the first time in the country.

SBI -Life is banking on the bancassurance model on the strength of the SBI Groups

10000 plus bank branches and its vast customer base. In addition it is also tapping

other. banks corporate agents and the traditional agency route to penetrate the

insurance market SBI Life is planning to introduce more novel and user friendly

products to cater to the requirements of the consumers in different segments.

SBI has the largest banking network in the county. The bank is looking

for business from every customer segment of the bank rural and urban segments,

upper, middle and lower income segments /groups and corporate segment. Besides

their own channels they are planning to distribute products through other interested

banking channels also. It is expected that 2/3 rd of the premium income in expected to

come by way of bancassurance and the rest from the traditional agency channel as

well as ties up with corporate agents (Sundaram Finance). SBI has also introduced

group insurance to some well managed corporate staffs.

Technology is an integral part of this operation. Cardiff provided the

technology required. The project was initiated in April 2004, and the initial roll-out

was completed by August 2004. SBI Life has implemented an Internet-centric IT

system with browser-based front-office and back-office systems, channel

management, policy product details, online premium calculator and facility for group

insurance customers to view their individual savings status on the Web. The

organization has the facility to pay premiums through credit cards, Net banking,

standing instructions, etc. This is fully integrated with the core systems throughindustry standards such as XML, EDI, etc.

Even as it plans to scale up operations shortly, SBI Life Insurance Company

Ltd is looking at tripling its gross premium income in the new financial year. In 2007-

08, SBI Life earned a total premium income of Rs 5,622 crore, of which income from

new policy sales was Rs 4,800 crore. For the current financial year, their target is to

achieve a total premium income of Rs 10,500 crore and a first year premium income

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of Rs 8,500 crore. The SBI Life ranks second in terms of market share among private

life insurers in the country.

SBI Life Insurance Company is the first among the 14 life insurance

companies in the private sector to post a net profit in 2005-06. There are life insurance

players much more aggressive than SBI and they have still not been able to break the

record of SBI. Their success is largely on the channel strategy and product strategy.

The another aspect is their superior investment performance. They have consistently,

over the last two years, generated 11-12 per cent earnings from the investments.

SBI Life Insurance is uniquely placed as a pioneer to usher bancassurance

into India. The company hopes to extensively utilize the SBI Group as a platform forcross-selling insurance products along with its numerous banking product packages

such as housing loans, personal loans and credit cards.

Chapter 8

Various Trends

Challenges

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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.

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.

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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 andincluding 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.

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 counter

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 in their 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

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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.

Chapter 9

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 insurance companies 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 generate some 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

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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:

Strengths

In a country like India of one billion people where sky is the limit there is avast 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 long presence 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.

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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.

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 the standards 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.

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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 visitsin 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 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

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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.

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.

Another area that could be of interest to bankers to sell insurance is exploiting

the corporate customers and tying up for insurance of the 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

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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 riskcover. So this may create an adverse feeling in the minds of the bankers that

such products may lessen the sales of regular bank saving products. 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 unholy ventures 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 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.

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Chapter 10

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

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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

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.

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

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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.

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. 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 andBelgium, 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 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.

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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 a good news to bancassurers that only about 25% of the global

insurable population is insured, and even among them most are underinsured.

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 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 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 seefurther 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 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.

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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.

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.

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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:

16. Life Insurance Corporation of India

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.

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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.

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 abo

Documents

Bancassurance Final