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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!!