Imran Final Prject on Banassurance

7/29/2019 Imran Final Prject on Banassurance

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UNIVERSITY OF MUMBAI

PROJ ECT REPORT

ON

BANCASSURANCE

SUBMITTED BY,

SHAIKH IMRAN

ROLL NO. - 172

MMS (SEMESTER IV)

FINANCE

UNDER THE GUIDANCE OF,

PROF. DR. KAUSTUBH SONTAKKE

ACADEMIC YEAR: 20112013


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Certificate of Approval

This is to certify that the summer internship project entitled BANCASSURANCEsubmitted by

SHAIKH IMRAN, a student of Pillais Institute of Management Studies and Research, as a part

of the curriculum of Masters of Management Studies (MMS) has been approved.

___________________ _______________________

Prof. Kaustubh Sontakke DirectorPIMSR


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Students Declaration

I hereby declare that this report submitted in partial fulfillment of the requirement of the award

for the Degree of Master of Management Studies (MMS) to PIMSR College is my original work

and not submitted for award of any other degree or diploma fellowship or for similar titles or

prizes.

I further certify that I have no objection and grant the rights to PIMSR College to publish any

chapter/ project if they deem fit in journals/Magazines and newspapers etc without my

permission.

Place : Mumbai Name : SHAIKH IMRAN

Date: 20th

march, 2013 Roll No : 172

Class : MMS (Finance)

(Signature of the student)


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ACKNOWLEDGEMENT

At the outset, I sincerely wish to express my gratitude to all those who gave me the

opportunity to work on this project

I forward my sincere thanks to my project guide Prof. Dr. Kaustubh Sontakke, for

encouraging me to take inititatives while doing my project and giving me full co-operation in

completing my project.

I also express my gratitude towards all the people I met during this project for sharing

their valuable knowledge with me for completion of the project.

My acknowledgement remain incomplete without thanking my family members,

colleagues and god.

SHAIKH IMRAN

MMS-PIMSR


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EXECUTIVE SUMMARY

It gives me immense pleasure to present my project for Bancassurance .The whole experience is

a gratifying one especially in terms of knowledge and information.

This project gives you a brief knowledge of the following:

Introduction and meaning of bancassurance, banking company and insurance company.

Different Models of bancassurance and various distributional channels through whichbancassurance products are distributed.

Advantageous of Bancassurance to banks, to insurance company and the customers.

Bancassurance in Indian scenario and global scenario comparison of both.

Emerging trends and challenges in bancassurance and the factor for success of

bancassurance

This project would study and address the issues related to bancassurance, particularly in

India. Strategic considerations at macroeconomic level on future outlook have also been

discussed along with suggestions and recommendations to sustain the growth that it has

witnesses till now.

The Case Study and Analysis is done as per the information provided to me by Mr.

Rajesh Sheth Marketing Manager of Bank of India, Mr. Rakesh L. Singh and Shivaji

Chandar Panchamukh SDM (Sales Department Managers) of HDFC Standard Life

Insurance Survey analysis as well as SWOT analysis of bancassurance.


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INDEX

SL. No. CONTENTS PAGE

NO.

1. Introduction

1.1 Basic Theory

1.2 Research Methodology

1.3 Objectives of the study

1.4 Scope of the study

2. Theoretical background

Bancassurance Models

Structural classification

Product based classification

Bank referrals

Distribution Channels

Advantages of bancassurance

Advantages to banks

Advantages to insurers

Advantages to consumers

Indian scenarioReasons for banks entering into insurance

business in India

Policies Sold by Indian Insurance players via

Bancassurance


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Global scenario

Bancassurance in India VS Bancassurance in

Asia & Europe

3. Data Analysis and Interpretations

Survey Analysis

SWOT Analysis

Strength

Weakness

OpportunityThreats

Bancassurance: Emerging Trends and Challenges

Trends

Challenges

Factors for the success of Bancassurance

Future scope for Bancassurance

4. Findings

Case-study

Conclusion


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5. Suggestions

References

Annexure


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Chapter No.1

INTRODUCTION

Introduction to bancassurance

Introduction to banking

Introduction to insurance

Meaning of bancassurance

Bancassurance = insurance product + banks reach

Regulatory Framework in India


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Introduction to Bancassurance

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. Its a relationship which

amazingly complements each others strengths and weaknesses.

Standard Chartered Bank Forms Bancassurance Alliance with Eagle Insurance .

Bajaj Allianz Life Insurance has entered into bancassurance alliances with five co-operative

banks including Manjeri Cooperative Urban Bank Ltd (Kerala) and Hubli Urban Cooperative).

Dena Bank and Om Kotak Mahindra Life Insurance Company (OMKM) have announced a

strategic alliance for bancassurance for Indian consumers .

This news is just few samples that kept on hitting the headlines one after the other in past

few years. With the beginning of 21st Century, a new revolution in distribution of insuranceproducts emerged. The synergies between the banking and insurance industry suddenly came to

limelight and picked up like a wild-fire in a very short span. Equally interesting is the fact that

the concept got appreciated across all the countries; developed and developing countries alike.


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Bancassurance, the provision of insurance services by banks, is an established and growing

channel for insurance distribution, though its penetration varies across different markets. Europe

has the highest bancassurance penetration rate. In contrast, penetration is lower in North

America, partly reflecting regulatory restrictions. In Asia, however, bancassurance is gaining in

popularity, particularly in China, where restrictions have been eased. The research shows that

social and cultural factors, as well as regulatory considerations and product complexity, play a

significant role in determining how successful bancassurance is in a particular market.


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Introduction to Banking

Banking as per the Banking Regulation Act, Banking is defined as: -

Accepting, 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 satisfyingthe 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.


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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

another 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 come as 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 inCalcutta.

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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Bancassurance- Meaning

Bancassurance is the term used to describe

the sale of insurance products in a bank. The word is

a combination of banque or bankand assurance

signifying that both banking and insurance is

provided by the same corporate entity.

Bancassurance is the distribution of insurance

products through the banks distribution channel. It is a phenomenon wherein the insurance

products are offered through the distribution channels of the banking services along with the

complete range of banking and investment products and services. In concrete terms

Bancassurance, which is also known as Allfinanz-describes a package of financial services that

can fulfill both banking and insurance needs at the same time? As the name suggests, the concept

started in France in 1980.Bancassurance has achieved remarkable success particularly in Europe.

Bancassurance represents over 65% of the premium income in life insurance in Spain, 60% in

France, 50% in Belgium and Italy. Bancassurance tries to exploit synergies between both the

insurance companies and banks.


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Bancassurance = Insurers Product + Banks reach:

To put in simple words, bancassurance is the

provision of insurance banking products and services

through the distribution channel of a bank or to a

common client base. The usage of the word started

picking up when the financial markets witnessed mergers

and alliances between the two booming segments

banking and insurance. According to a recent study, bancassurance is on the rise, particularly in

emerging markets. Worldwide, insurers have been successfully leveraging bancassurance to gain

a foothold in markets with low insurance penetration and a limited variety of distribution

channels.

Banks world over have realized that offering value-added services such as insurance, helps to

meet client expectations.

Competition in the Personal Financial Services area is getting `hot in India.

Banks seek to retain customer loyalty by offering them a vastly expanded and more

sophisticated range of products.

Customers also want a one-stop shop for all their financial needs. Therefore banks are trying to

provide more services and integrate them into their business model. Bancassurance is one such

initiative. Further the risks involved in doing this business is very low.

Banks are also trying to integrate this business into their own business. Customers would also getthis benefit as these products are offered not only by their sales force but also by net banking and

other IT enabled services like ATM etc. Insurance companies also have a wide range of

insurance products catering to a wide range of needs. Bancassurance is beneficial for insurance

companies as well as they would be cutting costs and cross-selling apart from the wider reach of

their insurance products.


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In a country like India, where the need of insurance is not felt by customers, insurance

companies should try to exploit every opportunity of selling their insurance products which

Bancassurance promises.


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Regulatory Framework in India

In India, the banking and insurance sectors are regulated by two different entities

(banking by RBI and insurance by IRDA) and bancassurance being the

combinations of two sectors comes under the purview of both theregulators. Each of the regulators has given out detailed guidelines for

banks getting into insurance sector. The RBI requires any bank intending to

undertake insurance business to obtain its prior approval. RBI guidelines

for banks entering into insurance sector provide three options for banks.

They are:

Joint ventures will be allowed for financially strong banks wishing to undertake insurance

business with risk participation.

Any commercial bank will be allowed to undertake insurance business as agent of

insurance companies. This will be on a fee basis with no-risk

participation. Banks are entitled to referral fee on the basis of

premium collected.

The Monetary & Credit Policy of the RBI in October 2002

allowed banks to undertake referral business through their

network of branches subject to certain restrictions.

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

are:

Each bank that sells insurance must have a chief insurance executive to handle all

insurance activities.

Banks are included within the IRDAs Licensing of Corporate Agents Regulation 2002.

All the people involved in selling should undergo mandatory training at an institute

accredited by IRDA and pass the examination conducted by the authority.

Commercial banks, including cooperative banks and regional rural banks, may becomecorporate agents for one insurance company.

Banks cannot become insurance brokers.

The whole aim of the present regulatory framework is to ensure that any risks that may arise

from insurance business dont affect banking business. In essence there should be an arms

length relationship between the bank and the insurance company.


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1.1- Basic Theory

MEANING, DEFINITION AND CONCEPT

MEANING:

Bancassurance is a combination of two words Banc and assurance signifying that

both banking and insurance products and service are provided by one common corporate entity

or by banking company with collaboration with any particular Insurance company. In concrete

terms bancassurance, which is also known as Allfinanz - describes a package of financial

services that can fulfill both banking and insurance needs at the same time.

It is the provision of insurance (assurance) products by a bank. The usage of the word

picked up as banks and insurance companies merged and banks sought to provide insurance,

especially in markets that have been liberalized recently. In its simplest form, Bancassurance is

the distribution of insurance products through the Banks distribution network.. 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.

Bancassurance tries to exploit synergies between both the insurance companies and banks.


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DEFINITION:

The term first appeared in France in 1980, to define the sale of insurance products

through banksdistribution channels (SCOR 2003).

The Life Insurance Marketing and Research Associations (LIMRAs) insurance dictionary

defines bancassurance as the provision of Life insurance services by banks and building

societies.

Alan Leach, in his book,European Bancassurance Problems and prospects for

2000, describes bancassurance as the involvement of banks, savings banks and building

societies in the manufacturing, marketing or distribution of insurance products.

According to IRDA, bancassurance refers to banks acting as corporate agents for

insurers to distribute insurance products. Literature on bancassurance does not differentiate if

the bancassurance refers to selling of life insurance products or non-life insurance

products.Accordingly, bancassurance is defined to mean banks dealing in insurance products of

both life and non-life type in any forms.But in this research the focus is entirely concentrated

towards life insurance. It is also important to clarify that the term bancassurance does not just

refer specifically to distribution alone. Otherfeatures, such as legal, fiscal, cultural and/or

behavioural aspects also form an integral part of the concept of bancassurance (SCOR

2003).

There are many definitions of bancassurance and, in essence it does depend upon the

model used, and the stage of development. However, the definition of a fully developed modelthat is mostcommonly used is: 'Manufacturing and distributing cost effectively banking and

insurance products to a common customer base.


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CONCEPT:

This concept gained importance in the growing global insurance industry and its search for

new channels of distribution.However, the evolution of bancassurance as a concept and its

practical implementation in various parts of the world, have thrown up a number of opportunities

and challenges.

Bancassurance is a relatively new concept in the global stage.unlike banks and

insurerswhich have been around in one form or the another for centuries,bancassurance has only

been around for a few decades. The concept of bancassurance was emerged in the western world

when banks began to get involved in marketing of insurance business. From a purely historical

perspective, many regard Barclays Life, set up in 1965 in the UK as an insurance subsidiary of

the eponymous bank, as the pioneer of bancassurance. But the term bancassurance came into

existence in France after 1980 to define the sale of insurance through an intermediary bank.

It has reared its head in France in the late 1970s,motivated by among other things

changing customer needs due to an inadequate pension scheme that existed at that time. As the

governments can no longer maintain the funding that people have begun to take a more active

role in their future entitlements by looking at alternatives to pensions. Bancassurance provides

not only provides an alternative to pensions but also caters to the current taste of customers,

which is no longer satisfied by the traditional products offered by the insurers. As bancassurance

allowed the banks to move away from income generated by the interest spreads it is viewed as a

solution to alleviate the problem of poor consumer savings, squeezed margins. Thus lackluster

pension schemes, poor consumer savings, squeezed margins, the need for one stop shop delivery


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for all financial services among the consumers, increasing importance of strategic alliance has all

led to the growth of bancassurance in Europe. With the success of bancassurance model in

Europe, the bancassurance, which was only a European phenomenon, is becoming popular in

other continents also

Bancassurance seems to have made the greatest impact in France. Almost 100% of the

banks in France are selling insurance products. It is claimed that the 55% to 60% of the life

insurance business in France had come through banks. In Portugal and Spain it was over 70%. In

U.K it is about 30%. In Argentina, Brazil, Chile, Colombia and Mexico also the bancassurance

is becoming popular. Hardly 20 % of the United states banks are selling insurance products as

only recently the Glass steagell act was repealed which has prohibited the banks from entering

into the financial services. In Asia: Singapore, Taiwan and Hong Kong have surged ahead in

Bancassurance then that with India and China taking tentative step forward towards it. In Middle

East, only Saudi Arabia has made some feeble attempts that even failed to really take off or make

any change in the system.


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1.2 -RESEARCH METHODOLOGY

This project consist data which are collected from various sources. Normally there are two

sources of collecting the data i.e. primary data and secondary data. In this project I have takenboth primary as well as secondary data.

PRIMARY RESEARCH

Primary Research has been done to validate the information given in the project. This research

has been extensively done via visit to a bank (BANK OF India) and an Insurance company

(HDFC Standard Life Insurance). Interview from Rajesh Sheth, Marketing manager of Bank of

India and two SDM (Sales Department Managers) of HDFC Standard Life Insurance Mr. Rakesh

L. Singh and Shivaji Chandar Panchamukh have really proved helpful in completion of the

project.

SECONDARY RESEARCH

The secondary data about the project is collected through various sources i.e.

Books on the very topic.

Various Websites.

Newspaper Articles.

Magazines containing the information about the topic.


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1.3 - OBJECTIVES OF THE STUDY

Primary objective:

It is to make an analysis on the financial performance of HDFC bank in

bancassurance with specific reference to life insurance and to suggest the ways and means to

improve the existing performance by way of collecting responses from the customers.

Secondary Objectives:

.

To analyze the financial performance of HDFC bank in bancassurance and its

contribution to the overall progress of the bank using ratio analysis.

To analyze the initiatives taken by the HDFC bank in endorsing the HDFC Standard Life

Insurance products.

To assess the relationship building factors of HDFC bank, which is significant for

bancassurance.

To know the customer preferences in selecting HDFC bank as a distribution channel in

case of their willingness to obtain HDFC Standard Life Insurance policy in future.


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1.4 - SCOPE OF THE STUDY

The study focuses on the financial performance of HDFC bank in bancassurance and its

contribution to theoverall progress of the bank with respect to life insurance alone.

The study analyses the awareness of the customer and the viewpoints of the customer about

insurance as well as bancassurance.

The study also measures the initiatives taken by HDFC bank in endorsing HDFC Standard

Life insurance products.

The study also throws light on the relationship building by HDFC bank with its customers, as

it is the deciding factor for considering the bank as a one-stop shop for all their financial

solutions.

It also indicates the persons who are willing to take life insurance policy in the immediate

future and the reasons for taking the same.

It also pinpoints the willingness of the customer in accepting HDFC Bank, as their

distribution channel, in case of their choice is HDFC standard Life Insurance for obtaining a

policy


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Chapter - 02

THEORETICAL BACKGROUND

Bancassurance Models

Distributional channels

Advantages of bancassurance

1. to Banking Companies

2. to Insurance Company

3. to Customers


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Models of Bancassurance

Models of Bancassurance

Structural Classification Product based classification Bank Referrals

Stand-alone insurance products

Referral Model

Blend of Insurance,

With Bank Products

Corporate Agency

Insurance as Fully Integrated Financial Service/ Joint ventures


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Structural Classification

a) Referral Model

Banks intending not to take risk could adopt referral

model wherein they merely part with their client data base for

business lead of commission. The actual transaction with the

prospective client in referral model is done by the staff of the

insurance company either at the premises of the bank or

elsewhere. Referral model is nothing but a simple arrangement,

wherein the bank, while controlling access to the clients data base,

parts with only the business leads to the agents/ sales staff of insurance company for a referralfee or commission for every business lead that was passed on. In fact a number of banks in India

have already resorted to this strategy to begin with. This model would be suitable for almost all

types of banks including the RRBs /cooperative banks and even cooperative societies both in

rural and urban. There is greater scope in the medium term for this model. For, banks to begin

with can resort to this model and then move on to the other models.

b) Corporate Agency

The other form of non-sick participatory distribution channel is that of Corporate

Agency, wherein the bank staff as an institution acts as corporate agent for the insurance

product for a fee/commission. This seems to be more viable and appropriate for most of the mid-

sized banks in India as also the rate of commission would be relatively higher than the referral

arrangement. This, however, is prone to reputational risk of the marketing bank. There are also

practical difficulties in the form of professional knowledge about the insurance products. This

could, however, be overcome by intensive training to chosen staff, and packaged with proper

incentives in the banks coupled with selling of simple insurance products in the initial stage. This

model is best suited for majority of banks including some major urban cooperative banks

because neither there is sharing of risk nor does it require huge investment in the form ofinfrastructure 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.


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c) Insurance as Fully Integrated Financial Service/ Joint ventures

Apart from the above two, the fully integrated financial service involves much more

comprehensive and complicated 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 toincrease the FDIs participation up to 49 per cent.

I. Product based classification

(a) Stand-alone Insurance Products

In this case bancassurance involves marketing of the insurance products through

either referral arrangement or corporate agency without mixing the insurance products with any

of the banks own products/ services. Insurance is sold as one more item in the menu of products

offered to the 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.


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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 everywhere as the banks get commission, the insurance companies getdatabases of the customers and the customers get the benefits.


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

InsurersIndividual

agents

Corporate

AgentsBrokers Referrals

Direct

Business

Banks Others

1 2 3 4 5 6 7

Private

insurers59.71 16.87 8.92 0.83 7.06 6.61

LIC 98.37 1.25 0.32 0.06 0.00 0.00

Total 85.67 6.38 0.31 0.31 2.32 2.17

New Business (Life) Undertaken under various intermediaries (2010-2011)


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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.

Distribution Channels diagram

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


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oversell out of their interest in quantity and not quality. Such problems with career agents usually

arise, not due to the nature of this channel, but rather due to the use of improperly designed

remuneration and incentive packages.

Special Advisers:

Special Advisers are highly trained employees usually

belonging to the insurance partner, who distribute insurance

products to the bank's corporate clients. The Clients mostly

include affluent population who require personalised and high

quality service. Usually Special advisors are paid on a salary basis and they receive incentive

compensation based on their sales.

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.


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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

bancassurers by responding to the company's advertisement, mailing or telephone offers.


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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, 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

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.


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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.

Advantages of Bancassurance

Bancassuranceis a means of product diversification and a source of additional fee income

for banks. Insurance companies see Bancassurance as a tool for increasing their market

penetration and premium turnover. The customer sees Bancassurance as a bonanza in terms of

reduced price, high quality product and delivery at doorsteps. Bancassurance if taken in right

spirit and implemented properly can be a win-win situation for all the participants viz; banks,

insurers and the customers.


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Advantages to banks

(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 anywhere for customers.

(C) 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 Bancassurance purpose with customers & non-customers.

(D) Productivity of the employees increases.

(E) By providing customers with both the services under one roof, they can improve overall

customer satisfaction resulting in higher customer retention levels.

(F) Increase in return on assets by building fee income through the sale of insurance

products.

(G) Can leverage on face-to-face contacts and awareness about the financial conditions of

customers to sell insurance products.

(H) Banks can cross sell insurance products E.g.: Term insurance products with loans.


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Advantages to Insurers

(A) The Insurance Company can increase their business through the banking distributionchannels because the banks have so many customers.

(B)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.

(C)Customer database like customers' financial standing,

spending habits, investment and purchase capability can beused to customize products and sell accordingly.

(D)Since banks have already established relationship withcustomers, conversion ratio of leads to sales is likely to be high. Further service aspect can also

be tackled easily.

(E)The insurance companies can also get access to ATMs and other technology being used by

the banks.

(F)The selling can be structured properly by selling insurance products through banks.

(G) The product can be customized as per the needs of the customers.


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Advantages to Consumers

(A) Product innovation and distribution activitiesare directed towards the satisfaction of needs ofthe customer.

(B) Bancassurance model assists customers in termsof 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 is 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.

(H) Enhanced convenience on the part of the insured.


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Scenarios

Indian Scenario

Global Scenario


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INDIAN SCENARIO


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Indian Scenario

The business of banking around the

globe is changing due to integration of globalfinancial 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.

Traditionally, the banks and financial institutions are the key pillars of Indiasfinancial system. Public have immense faith in banks. Share of bank deposits in the total

financial assets of households has been steadily rising (presently at about 40%). Indian Banks

have constantly proven their capability reach the maximum number of households. In India at

present there are total of 65700 branches of commercial banks, each branch serving an average

of 15,000 people. Out of these are 32600 branches are catering to the needs of rural India and

14400 to semi-urban branches, where insurance growth has been most buoyant. (196 exclusive

Regional Rural Banks in deep hinterland.) Rural and semi-urban bank accounts constitute close

to 60% in terms of number of accounts, indicating the number of potential lives that could be

covered by insurance with the frontal involvement of banks.


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Reasons for banks entering into insurance business in India

Indian insurance market is a hidden goldminean estimated Rs. 1, 80,000 crore in terms

of annual insurance premium.

Sale of insurance through banks will meet an important set of

consumer needs.

Banks branch network allows face to face contact that is so

important in the sale of insurance.

Bank channel can also boost sales productivity.

Banks are best qualified to sell insurance products. They have a

wide distribution reach. Because of the strong ties with the customers they are in a better

position to sell insurance products to them. Banks can provide integrated financial services under one roof to their customers.

Another main advantage in tapping the banks retail distribution network is cutting the

cost of distribution by almost 30%. As some of the studies revealed that 50% of an

insurers cost structure is directly or indirectly related to distribution.

Though insurance companies are good underwriters of risk, they are not to well known

for their expertise in investment management. On the other hand, banks are generally

perceived to be not good at managing risk but they are perceived to be better at

investment management. Bancassurance is about bringing the two attributes together.

According to reliable research sources, bancassurance salesman has a much faster

learning curve, usually around two years as compared with four and a half years in an

insurance company. In that sense, the cost of training is amortized over a shorter period

of time and therefore turns-out cheaper.

Valid reasons why banks should allow insurance salesman to sell insurance products in

their premises:

a. Bank gets a royalty or a commission for every insurance policy sold.

b. The bank gets an investment management fee for managing the insurers investment.

c. Insurance products, like retirement and pension plans, are growth areas for banks.

With greater need to downsize - banks can utilize their existing surplus manpower

reducing costs and optimum use of infrastructure.


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Instant access to 60,000 + bank branches including in remote areas.

Availability of insurance in rural areas, through cost effective banking channels.

As banks are increasingly resorting to alternate delivery channels, surplus space would

be available to distribute insurance products.


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Global Scenario

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. In Asia, there is a need for financial institutions to

be proactive and interact with regulator in order to explore the potential that bancassurance has a

complementary distribution channel. Market share per distribution network for insurance

products across various countries has been detailed in the below diagram.


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Bancassurance in India vs. Bancassurance in Asia & Europe

The following table compares the issues related to bancassurance in India with Europe and Asia

(general):

Europe Asia (general) India

Regulation Liberalized Ranging from Supportive

liberalized to forbidden

MarketMature markets

but pensionHigh growth potential High growth

growth reforms can spurgrowth in the

life insurance

sector

Bancassurance

model

Highly integrated

models

Mostly distribution alliances

and joint ventures

Distributive

Major driversTax concessionsfor life

Squeeze on bank Margins.Tax free statuson maturity

insurance

premium paid

Insurers growing cost

pressure and desire toexpand distribution

capability.

Financial deregulation

Foreign companies use

Small tax reliefon premium.

Narrowing bankmargin

Squeeze on bank

margins

Bancassurance to enter

Asian Markets

Products

Europe

Mainly life

insurance

products tomaximize tax

benefits

Asia(general)

Mainly life insurance

products linked to bank

services and increasingly,products geared towards

managed

India

Mainly non-

unitized

savings


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In several countries in LatinAmerica, banks have benefited from recent reforms financial

deregulation, among othersby selling insurance products across the counter. An example is the

Brazilian market where private pension products are marketed. Bancassurance also took

advantage of the large number of national and especially international partnerships which took

place in the 1990s. In some countries, bancassurance is still largely prohibited. Even in United

States, it was legalized in after much deliberation, when the Glass-Steagall Act was repealed

after the passage of the Gramm-Leach-Bliley Act

Mostly single

premium

Regular

premium

Distribution Multi-bank

branches

Mainly bank branches Bank branches

Major players Domestic banksand insurers

Foreign companies areplaying an important role.

NA

Sophistication High Varied Low


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Chapter No. 3.

DATAANALYSIS AND INTERPRETATION

Survey analysis

SWOT analysis


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Survey analysis (questionnaire)

A survey was conducted of about 50 people who did regular banking transactions and also had

an insurance policy. These included several housewives, businessmen, professionals, students,etc. The following analysis was done on the basis of the survey conducted:

Are you aware of Bancassurance?

Interpretation: - Among those who surveyed, 80% of respondents were aware that their bank

provided bancassurance. They knew with which Insurance Company their bank has tie up with;

also they were aware about various policies provided by their banks. However, 20% of the

respondents were amused with the term bancassurance and didnt know anything about it and the

services provided by their banks.

Yes 80%

No 20%

Yes

No


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Have You Taken An Insurance Policy From Your Bank?

Interpretation: Among the people who were surveyed, there were only 34% people who had

taken insurance policy from their respective banks. Remaining 66% respondents didnt opt to

take a policy from their banks.

The Kind Of Insurance Policy Taken From The Bank:-

Deposit Based Loan Based Life Insurance Others

23%

63%

18%

42%

0

10

20

30

40

50

60

70

Yes34%

No

66%

No

Yes


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Interpretation: Maximum number of insurance taken was related to loan. It was either car

insurance or a home insurance. Out of the people surveyed 63% said that they have taken a loan

based insurance. There were 23% who have taken insurance which are deposit based because it

is a part of the deposit scheme. Only 18% have taken life insurance cover from the bank and

42% belong to others category.

Reasons For Taking An Insurance Policy:-

Security Savings Brand Image of Brand Image of

Bank Insurance

Interpretation: There was a mixed response from the customers. 80% said that they took the

insurance policy because of security benefits. 65% said that since, they trusted their bank, they

took the policy. There was 40% who said that the brand image of the company also mattered.

Only 28% said that savings was a reason that encouraged them to buy insurance policy.

80% 28% 65% 40%

0

10

20

30

40

50

60

70

80

90


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On Your Choice Which Mode Of Insurance Distribution Channel Would YouPrefer To Buy The Policy From?

Interpretation: 50% people preferred agents because they provide personalized services. 20%

took insurance from companies because of their trust on the company. 23% said they would buy

insurance from banks because of the brand name and their trust on banks. Only 7% said that they

would buy insurance from brokers.

Banks

23%

Brokers

7%

Agents

50%

InsuranceCompanies

20%


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Which Bank Do You Feel Would Excel In Bancassurance? Rate Them Accordingly

Public Sector Private Sector Foreign Banks

Banks Banks

Interpretation: 90% people said that private sector banks would excel in this because of their

aggressive selling policies and they provide quality services to the customers. 70% votes were

given to foreign banks, because foreign banks have proper management and aggressive selling

strategies. The public sector banks were given the least votes because of their lazy approach to

work.

38%

90%

70%

0

10

20

30

40

50

60

70

80

90

100


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Do You Think Bancassurance Has A Good Future?

Interpretation: 95% people said that they believe that Bancassurance has a very bright future

because there is an immense potential for the insurance industry in India. But 7% believe that

because of the emergence of the new technology such as ATMs, Internet banking etc the banks

will soon go virtual so there is not much scope for it.

No, 5%

Yes, 95%

Yes

No


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SWOT Analysis:

Banking and Insurance are very different

businesses. Banks have less risk but the insurance has agreater 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 interms 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 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 billionpeople where sky is the limit there is a

vast untapped potential waiting for life

insurance products. Our other strengthlies 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 ofservices 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 canfacilitate taking up the task on a large and massive scale, simultaneously.

Banks are very well aware with the psychology of the customers because of theirinteraction 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 insurancedistribution to personal life insurance.

With the help of banks trained staff, its brand name and the confidence and reliability ofpeople on the banks, the selling of insurance products can be done in a more proper way.


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Weaknesses:

In spite of growing emphasis on total branchmechanism and full computerization of bank

branches, the rural and semi-urban banks have still to

see information technology as an enabler. The ITculture 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 toundergo certain minimum period of training, followed by a test and then get themlicensed. 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 traditionalinsurance 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 bankersand the managers of insurance companies. Banks are traditionally demand-driven

organizations with a reactive selling philosophy. Insurance organizations are usuallyneed-driven and have an aggressive selling philosophy.
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Opportunities:

There is a vast untapped potential waiting to bemined particularly for life insurance products.

There are more than 900 million lives waiting to be

given a life cover (total number of individual lifepolicies sold in 1998-99 was just 91.73 million).

There are many people in many areas that are still unaware about the insurance and itsvarious 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 agood 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. Thisdatabase 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.


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Threats:

Success of a Bancassurance venture requires change inapproach, thinking and work culture on the part ofeverybody involved. The work force at every level are

so well entrenched in their classical way of workingthat 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 bythe employees.

Another possible threat may come from non-response from the targeted customers. Ifmany 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 thismay 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.

If no strict norms are there for such ventures then many unholy ventures may take placewhich may give rise to tough competition between bancassurers resulting in lower prices

and the Bancassurance venture may never break because of such situations.


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Bancassurance Trends and Opportunities

TRENDS

CHALLENGES


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Bancassurance: Emerging Trends & Challenges

Trends

Though bancassurance has traditionally targeted the massmarket, 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 ondistribution. 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 astools to distribute insurance products. New and emerging channels are becoming

increasingly competitive, due to the tangible cost benefits embedded in product pricing orthrough the appeal of convenience and innovation.

Bancassurance proper is still evolving in Asia and this is still in infancy in India and it istoo early to assess the exact position. However, a quick survey revealed that a largenumber 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 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 theinsurance companies.


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Challenges

Banks could be more enduring than individual agents when selling insurance, but bancassurance

relationships are not. Since the opening up of the insurance sector in 00, as many as six

bancassurance alliances have ended in divorce saysEconomic Times.

If bancassurance was termed as marriage between banks and insurance, then the probability of

divorces cant be ruled out. Critics opine that bancassurance is a controversial idea, and it gives

banks too great a control over the financial industry. The challenge to sustain such alliances

could be immensely daunting. The difference in regulation, not only across countries butbetween banks and insurance industry as well has been cited as the primary reason. The

difference in trade customs, work culture in these industries is another impediment

Sales front:

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

HR issues:

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


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a bancassurance alliance, just like any merger, cultural due diligence should be done and human

resource issues should be adequately prioritized.

Public and private divide:

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. In the private sector,

the M&A activity is one of the causes for change.

In the past, Dena Bank, which had originally partnered Kotak Mahindra Life, switched loyalty to

the public sector Life Insurance Corporation? So did Allahabad Bank, which had a tie-up with

ICICI Prudential Life Insurance. Punjab National Bank and Vijaya Bank have been forced to

drop their bancassurance partnerships after they chose to set up an insurance broking JV.

Group companies dilemma:

The other conflict that most insurers face is when they have a bank within their own group. Half

of the insurance firms in India are part of a financial group that has a bank. They include ICICI

Bank, State Bank of India, ING Vysya, HDFC, Jammu & Kashmir Bank, and Kotak Mahindra

Bank. According to Rajesh Relhan, head of bancassurance, Aviva Life, there is a fear among

banks that at some point in future their insurance partner may end up cross-selling banking

services to their policyholders. Besides, companies that sells predominantly through agents

experience channel conflict when both agents and banks target the same customer.

Operational Challenges:

The developments in the 21st

century, particularly due to increase in non-life insurance products

pose further problems to the bancassurance alliances:

The shift away from manufacturing to pure distribution requires banks to better align the

incentives of different suppliers with their own.

Increasing sales of non-life products, to the extent those risks are retained by the banks,

require sophisticated products and risk management.


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The sale of non-life products should be weighed against the higher cost of servicing those

policies.

Banks will have to be prepared for possible disruptions to client relations arising from more

frequent non-life insurance claims


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OUTLOOK OF BANCASSURANCE




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Banks and insurance companies are very different in both value and culture. In India,

the selling of insurance through banks is yet to emerge as regular activity and, therefore using

traditional products and systems may not be appropriate.

The bitter experience of banks in Bancassurance even with innovative products in the previous

year was mainly due to poor marketing, poor publicity, monthly payments during time of

Lower cost of distribution

due to higher sales

productivity

The existing bank branch

network/infrastructure

Information Technology

Mining database

Bank customer

relationship

The decision

The banks culture

Life insurance products based

on the insurers desires (sales

driven)


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inflation and declining value of money, lack of product promotion initiated by the branch staff to

avoid manual strain in mobilizing and maintaining accounts for Bancassurance products under

different heads and conventional way of dealing with customer in explaining the merits of taking

Bancassurance products. Fundamental to Bancassurance is the convenience and accessibility to

the customer.

Lower cost of distribution due to higher sales productivity

The potential to be tapped is ample and increasing the clientele base for the insurance products

will reduce the cost of distribution. Banks can leverage their strengths to develop additional

mass.

Mining database

Banks have huge database of clients. Bank should ensure relevant and flexible database systems.

Bank customer relationship

Dealing with high net worth customers may require insurance specialists to address complex sale

issues. Bank officials need to be very clear about service standards, policy issues, processing

issues and sales and marketing supports.

The existing bank branch network/infrastructure

Branch network should be utilized in with more ambiances for selling insurance products. The

costs of infrastructure can be defrayed over a larger products and services.

Life insurance products based on the insurers desires (sales driven)

Rather than the consumers needs market oriented, in rural and semi-urban areas also, similarpolicies can be canvassed for sale. However, in these branches, the bank should be proactive and

innovative in suggest a proper planning for the payment of premiums.


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Information Technology

The banks are technology- savvy now and competing with each

other on the service front. The technology up gradation can ensure

more effective utilization of the synergies the banks posses in

Bancassurance. Banks should train and equipped their staff with

the backing of technology, to deliver the requirements, Utilization

of ATMs and debit cards as payments mechanism.

The banks culture

Banks culture must be transformed to sell insurance and it must be ensured that shelf space is

adequately provided in a banks retail delivery systems. It is important to note though, that if the

banks culture is not compatible with selling insurance, then specialist insurance salesman may

be needed.

The decision

On what types of Insurance products to be sold and methods of distribution of these products are

symbiotically related. The effort and expertise required to sell a product must be in consonancewith skills available and cost base of the chosen distribution method.

The success of the banking products is the function of the increasing strength of the service/

products plus the stages of economic development at which

society living. Similar is the way with Bancassurance as

banking product. India, as a future economic giant in the

world economy will not lag behind in supporting

Bancassurance. Indian banks are known for their innovation

and the various products and services which surfaced,

disappeared and later surfaced in a new avatar will certainly do well for the banking system.


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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. 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. Inemerging 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 growthand acceptability in the last three years reflects green pasture in future. The deregulation of the

insurance sector in India has resulted in a phase where innovative distribution channels are being

explored. In this phase, bancassurance has simply outshined other alternate channels of

distribution with a share of almost 25-30% of the premium income amongst the private players.

To be fruitful, it is vital for bancassurance to ensure that banks remain fully committed

to promoting and distributing insurance products. This commitment has to come from both

senior management in terms of strategic inputs and the operations staff who would provide the

front-end for these products. In India, the signs of initial success are already there despite the

fact that it is a completely new phenomenon. There is no doubt that banks are set to become a

significant distributor of insurance related products and services in the years to come


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Chapter No. 4

Findings and Conclusion

Findings

Although the concept is simple enough in theory, butin practice it has been found to be far fromstraightforward.

Almost many people have a fair idea aboutBancassurance and that their banks sell various

insurance products. But still few people dont know

about Bancassurance as a concept.

It has been also found out that the banks have various opportunities to cross sellinsurance products. The insurance companies also have the opportunity to take advantageof the banks network and other avenues.

It is also seen that customers have a lot of trust on the banks, and because of that trust the

customers will take the insurance products from banks.

As the brand name of the banks is important so is the brand image of the insurancecompanies. So the banks and the insurance companies must tie-up with the right partners.

This will help them to create a better image in the minds of the customers.

It has also clear from the study that the private sector and the foreign banks have betterfuture in Bancassurance. But the public sector banks are also trying to give them a tough

competition e.g. SBI Life Insurance Co.

The insurance business can go a long way because there is a large population who is stillunaware about insurance. So the insurance companies have a huge potential market in the

years to come.


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Case Study

Bank of India

HDFC (Standard Life Insurance)


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BANCASSURANCE


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BANK OF India

Bank of India was founded on 7th September, 1906 by agroup of eminent businessmen in Mumbai (previously

known as Bombay), India. Prudence and high standardof customer service has been the corner stones of the

Bank's growth during these 102 years. Today, the Bank

ranks as a premier bank with over 2865 branches in

India and 25 foreign branches/offices with an asset baseof more than USD 32 Billion as on 31st March 2007.

Corporate credit, export finance, forex and care for

customer have created strong brand equity for Bank ofIndia.

The Bank entered into Bancassurance tie up with ICICI Prudential Life Insurance Co Ltd,for selling life insurance products in December2001. The number of branches engaged in selling

life insurance products was gradually increased from 595 to 710. Various initiatives were

undertaken for giving thrust to this business, like identifying Marketing Managers exclusively

for Insurance business in high potential areas. This has resulted in increase in volume of businessand referral commission by 90% over the previous year.

The Bank has signed agreement for tie-up with National Insurance Co Ltd (NICL) for sellingtheir Non-life insurance products on referral basis. All branches in 47 Zones, as against 29 major

Zones last year, have been authorized to undertake referral business. 53 major branches were

identified across the country where NICL agreed to open their Extension Counters for givingthrust to insurance business. Due focus was also given through efforts by their Zones / branches

and Marketing Managers. This has resulted in increased business and referral commission.

The Bank is into Bancassurance business since December 2001 and they are into tie up to

undertake insurance business of behalf of ICICI Prudential Life Insurance Co Ltd for

selling life insurance products & National Insurance Co Ltd. for non-life insurance

products.

According to them the Bancassurance business have definitely proved to be an advantage

to the banking industry because it helps the bank in generating additional income thereby

providing them with an edge over their competitors and improving their profit position.


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For purpose of entering into bancassurance business the bank used 2 channels:

One partys distribution channel gained access to the client base of other

party.

Through a joint venture with ICICI Prudential Life Insurance Co Ltd & National

Insurance Co Ltd

The reasons that made the bank take up this business include competitive pressures, high

operating cost, shift in the attitude of the people to invest into insurance business for tax

benefits, earning additional income (fee based).

The distribution channels undertaken by the bank for distributing the insurance products

include:

Employment of salaried agents to promote and sell products. Bank employees themselves undertake the business of promoting and selling

products.

The Bank has also received IRDA stipulated training for insurance agents; advisors so as

to make them familiar with the insurance regulations and product information, so that

they can source the insurance plans to the right customer.

As far as the bank employees who are involved in the selling of insurance products are

concerned, a dedicated team of employees from Bank of India are employed in the

branch to guide them and resolve various issues.

As the concept of bancassurance is new, the Bank in order to educate the Bank

customers and make them aware, use various techniques:

Display material.

Through direct interaction with customers.

Through Bank employees.

According to the Bank, people prefer buying insurance products from the Bank and there

are no target customers as such. There are different plans for different target audience;

which depends on the type of policy that is being promoted & sold.

Some of types of Non-Monetary incentives that the Bank provides to agents/ employees

for doing well include:


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Rewards/Recognition.

Dinner/ Lunch with zonal & senior managers.

Vacations (count station) with family.

Internal competition.

As the number of activities of a Bank increases, the number of frauds and unwanted

manipulation also increases. To curb these HDFC Standard Life undertake the

following measures:

Proper and timely audit.

Regular training for the employees in the organization is undertaken.


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Bank Insurance


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CONCLUSION

The study thus points out that the financial performance of HDFC bank in

bancassurance has been good and it also provides a helping hand to the overall progress of the

bank. The prospect for bancassurance is also bright as HDFC bank is found to be a preferable

distribution channel among the customers who wish to buy HDFC standard life policy. With

more initiatives and focus in the specified areas the bank can even have the potentially of making

more customers to buy HDFC Standard Life policy from HDFC bank. With the merger of

centurion bank, it can also take the advantage of more customer base and can become more

competitive. Thus with its increase in the existing performance, in the upcoming years, HDFC

bank will definitely play a predominant role in the bancassurance industry and there by can

contribute more to the upliftment of the bank.


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Chapter5

Suggestions

The Insurance companies need to design products specifically for distributing throughbanks. Trying to sell traditional products may not work so effectively.

The employees of the banks who are selling insurance products must be given propertraining so that they can answer to any queries of the customers and can provide them

products according to their needs.

Banks should also provide after sales services and they should be more aggressive inselling the insurance products.

Banks should also do the settlement of claims which will increase the trust and reliabilityof the customers on the banks.

In India, since the majority of the banking sector is in public sector which has beenwidely responsible for the lethargic attitude and poor quality of customer service, it needs

to rebuild the blemished image. Else, the bancassurance would be difficult to succeed inthese banks.

A formal and standard agreement between these banks and the insurance companiesshould be taken up and drafted by a national regulatory body. These agreements must

have necessary clauses of revenue sharing. In case of possible conflicts, the bank

management and the management of the insurance company should be able to resolveconflicts arising in future.

For bancassurance to succeed, products and processes will need to be tailored to bank

markets, rather than adjusted to insurers specifications.

Banks and Insurance companies should apply all the skills and potential in this area andtake advantage of the same and they should improve the products from time to timeaccording to the needs of the customers.


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BIBLIOGRAPHY & WEBLIOGRAPHY

BIBLIOGRAPHY:

BOOKS:

Reddy, T.S. & Hariprasad Reddy.Y,Management Accounting Margham Publications,

Chennai, 2005.

Lochanan Ravi .P Research Methodology Margham Publications, Chennai, Second

Edition, 2003.

JOURNALS:

Amel Dean Barnes colleen, Panetta Fabio & Sallen Carmelo Consolidation and

Efficiency in the financial sector: A review of the international evidence, Journal ofbanking and Finance Volume No: 28, March 2000,Page numbers: 2493-2519

Browne M.J & Kim.K- An international analysis of Life insurance Demand, Journal

of Risk and Insurance Volume No:60,January 1993,Page numbers: 616-634

Carow Kenneth. A Challenging Barriers between banking and Insurance, Journal of

Banking and Finance Volume No: 25,April 2001.Page numbers: 1553-1571


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WEBLIOGRAPHY:

www.google.co.in

www.hdfcbank.com

www.hdfcinsurance.com

www.insureegypt.com

www.insuremagic.com

www.watsonwyatt.com
http://www.google.co.in/http://www.google.co.in/http://www.hdfcbank.com/http://www.hdfcbank.com/http://www.hdfcinsurance.com/http://www.hdfcinsurance.com/http://www.insureegypt.com/http://www.insureegypt.com/http://www.insuremagic.com/http://www.insuremagic.com/http://www.watsonwyatt.com/http://www.watsonwyatt.com/http://www.watsonwyatt.com/http://www.insuremagic.com/http://www.insureegypt.com/http://www.hdfcinsurance.com/http://www.hdfcbank.com/http://www.google.co.in/

Documents

Imran Final Prject on Banassurance