bancassurance & irda act[1]

8/3/2019 Bancassurance & Irda Act[1]

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BANCASSURANCEBANCASSURANCE

&&

IRDA ACT 1999IRDA ACT 1999

Presented By:Presented By:

Prof. Deepak TandonProf. Deepak Tandon


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What is BancAssurance ?What is BancAssurance ?

It is a French term referring to the selling

of insurance through a banksestablished distribution channel.

In oth

er words it is a result in wh

ich

a bankcan offer banking, insurance, lending,and investment products to a customer.


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contdcontdBancassurance which was first started in the

year 1970 encompasses terms suchas Allfinanz, Integrated Financial

Services and Assurebanking.

Its players include: Banks selling life, pension & other

collective investment products. Banks selling general insurance products. Insurance company selling banking

products (deposits, loans etc.)


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Models of BancAssuranceModels of BancAssuranceThere are basically four models of

bancassurance:

Distribu

tion all

iance

between the

insu

rancecompany and the bank.

Joint venture between the two companies.

Mergersbetween a bank and insurer.

Bank builds or buys own insurance products.

Most of the bancassurance operations fall in thefirst model.


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How does BancAssuranceHow does BancAssuranceh

elp?h

elp? Every insurance company has a wants to grow quickly to reduce

painful start-up expense overruns. Banks with their hugenetworks and large customer bases give insurers an opportunityto do this efficiently.

It gives the companies an opportunity to tap the rural sectors.Selling insurance through traditional methodsin these sectorsfalls very expensive. A tie up with a bank with an appropriatecustomer base can give an insurer a cheap access to theseareas.

Banassurance enables to have a huge pool of skilledprofessionals.

The margins of the banksin their core lending business aredeclining sharply. Opportunities like banassurance augment theirincome.

Banassurance enables to develop a sales culture within thebank. It helps to change the traditional mindset of bankingcompanies.


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BancAssurance in IndiaBancAssurance in India

Bancassurance in India is of very recent origin.

The concept was rather unknown before the

passage of IRDA Act 1999.

In the year 2000 Reserve Bank of India

formulated guidelines for the entry of banksinto the insurance sector.


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Guidelines Of IRDA Act 1999

Guidelines Of IRDA Act 1999

Any scheduled commercial bank will bepermitted to undertake insurance business

as agent of insurance companies on feebasis, without any risk participation.

Subsidiaries of banks will also be allowedto undertake distribution of insuranceproducts on agency basis.


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contdcontd Banks, that satisfy eligibility criteria shall be

permitted to set up a joint venture company forundertaking insurance business with risk

participation subject to safeguards. Themaximum equity contribution such a bank canhold in the joint venture company will be 52percent of the paid up capital of the insurancecompany.

In cases where a foreign partner contributes,the maximum equity contributed by themshould be 26 percent of paid up capital.


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Industry EvolutionIndustry EvolutionUp to 1999 1999 till 2002 2003 onwards

No. ofplayers

LIC Monopoly

No Private Players allowed

Private Playersallowed

12 new insurers

12 Private Players

LIC loses 12% share

DistributionFocus

Agency only

800K LIC agents

Agency modelreplicated

Little confidence inBA

Confidence in BA

BA takes 20% + shareamong Private Players

Alignment of mostBanks for exclusive

arrangements

Regulatory

Environment

LIC of India Act

Insurance Act 1938

IRDA Act 1999

Primarily Agencydriven regulations

BA regulationsbecome clearer.Multiple models

allowed- CA, Referral,Broking


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Regulatory ContextRegulatory Context Referral and Corporate Agency models

Corporate Agency requires selling skills developed withBank

Referral model requires Insurers sales force to sell

Referral models may be reviewed

Current arrangements made on basis of long termcontinuance

Significant resources already in place

Cooperative Banks only selectively allowed


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contdcontdReferral arrangements under review:

Allows best advice from insurers specializedadvisers

Resource commitment low from Bank

Banks not able to create large insurance salesforces

Bank staff continue focus on banking activities


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BancAssuranceBancAssurance -- IndianIndian

OpportunityOpportunity

Currency

6%PF/Retirement

Funds

21%

Insurance

13%Government

Bonds

13%

Bank Deposits

39%

Mutual Funds

2%

Shares &

Debentures

6%

Currency PF/Retirement Funds Insurance

Government Bonds Mutual Funds Shares & Debentures

Bank Deposits

Total Household Savings ofRs.2,76,831


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BancAssuranceBancAssurance IndianIndian

OpportunityOpportunity India has a high Savings rate of 21% of GDP- a massive insurable

market

Banks are major players in t

h

e Indian Financial system:

Command over 40% of household investments

Extensive coverage:

66000 branches (32000 rural and 14700 semi urban) Enormous retail account base of 440 mn deposit accounts

Total deposit base of Rs. 11,23,393 Cr

A logical opportunity for Insurers to reach such customers throughBanks


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Future Trends inFuture Trends in

BancAssuranceBancAssurance

Currentscenario

Short term-2006-2007

Some Banks yet to firm up

partnerships

Insurers partnered with

Select Banks under CorpAgency or Referral

Change in regulations

could impact currentarrangements

Most Banks have short-

term agreements; a

stage of realignments

may occur

Stage of Polarization:

Emergence of winners

Strong alignments withBanks with cross

investments and

exclusivity

Broking arrangements

Middle term-2007-2010

Long term-2010 onwards


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Challenges in BancAssuranceChallenges in BancAssurance

Two of the greatest challenges facing bancassurancetoday:

To persuade customers to commit to regularsavings plans (where most banks have beenineffective)

To provide advice and sell more complexproducts, especially pensions, and particularly tomore affluent customers.


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THANK YOU!!THANK YOU!!

bancassurance & irda act[1]

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