Bancassurance

The Bancassurance is a phenomenon where in insurance products are offered through the distribution channels of the banking services along with a complete range of banking & investment products & services. In simple term, we can say It is a relationship/tie-up between a Bank and an Insurance company. Bank sells the products of the Insurance company to their own customers and earn some amount of commission on sales.

Consideration for Insurers…Immediate access to

New Markets

Increase in Market Penetration

Reduce reliance on traditional

distribution channel

Combine Cost Saving & Increased

Profitability

Develop new financial products more efficiently

Improve sales effectiveness & after

sales service

Insurer

Different Bancassurance Models

4

IntegratedIntegrated

Broker’s Broker’s modelmodel

InsurerInsurerBankBank

InsurerInsurerBankBank

Non -Non -integratedintegrated

•Agents to Agents to place at bank place at bank branchesbranches

•Mine on bank’s Mine on bank’s client base - client base - telemarketingtelemarketing

•No agent at No agent at branchesbranches

•Bank’s RMs to Bank’s RMs to sellsell

BankBank InsurerInsurer

BankBank BrokerBroker

Partnership - Leads Partnership - Leads referral from bank referral from bank

on commercial on commercial business; brokers to business; brokers to

recommend recommend businessbusiness

AgentsAgents

Bancassurance in India:

Bancassurance in India is a new concept. In our country the banking & insurance sectors are regulated by two different entries. They are: -

* Banking is fully governed by RBI & * Insurance sector is by IRDA

Guidelines given by RBI1. Any commercial bank will be allowed to undertake

insurance business as the agent of insurance companies & this will be on fee basis with no-risk participation

2. The second guideline given by the RBI is that the joint ventures will be allowed for financial strong banks wishing to undertake insurance business with risk participation.

3. The third guideline is for banks which are not eligible for this joint venture option, an investment option of (1) up to 10% of the net worth of the bank or (2) Rs. 50 crores. Whichever is lower is available.

Guidelines given by IRDA1) Each bank that sells insurance must have a chief

Insurance Executive to handle all the insurance matters & activities.

2) 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) Commercial banks, including co-operative banks and RRBs may become corporate agents for one insurance company. 4) Banks cannot become insurance brokers

Advantages of Banassurance:

Bancassurance is a tool, which is beneficial to

• bank, • customer & • Insurer

Fr From the banks view: (A) By selling the insurance product by their own channel the

banker can increase their income. (B) Banks have face-to-face contact 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 like-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) Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also.

(F) Providing multiple services at one place to the customers means enhanced customer satisfaction

From the Insurer Point of view

• The Insurance Company can increase their business through the banking distribution channels because the banks have so many customers.

• By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification.

• 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.

• 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.

From the customers' point of view:

• Product innovation and distribution activities are directed towards the satisfaction of needs of the customer.

• Bancassurance model assists customers in terms of reduction price, diversified product quality in time and at their doorstep service by banks.