INTRODUCTION TO BANCASSURANCE

BANCASSURANCE’ as a term itself tells us what does it means. It’s a combination of the

term ‘Bank’ and ‘Insurance’. It means that insurers have started selling there products

through banks. It’s a new concept to Indian market but it is very widely used in western and

developed countries. It is profitable both to Banks and Insurance companies and has a very

bright future to be the most develop and efficient means of distribution of Insurance product

in very near future.

Insurance company can sell both life and non-life policies through banks. The share of

premium collected by banks is increasing in a decent manner from the time it was introduced

to the Indian market. In India Bancassurance is guided by Insurance Regulatory and

Development Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and

insurance company have to meet particular requirement to get into Bancassurance business.

The banking business is also generating more profit by more premium collected by them and

they also receive commission like normal insurance agent which increase there profits and

better reputation for the banks as there service base also increase and are able to provide more

service to customers and even more customer are attracted towards banks.

It is even profitable for Insurance Company as they receive more and more sales and higher

customer base for the company. And they have to directly deal with an organization which

reduce there pressure to deal with each customer, face to face.

In all, Bancassurance has proved to be a boom in whole Banking and Insurance arena.

SBI BANCASSURANCE STANDPOINT-

Though much ado was made about bancassurance, an alternate channel to hawk risk products

through banks, the channel is yet to pick up pace as of today. Most of the insurance

companies have already tied up with banks to explore the potential of the channel that has

been a success story in Europe and legislations are also in place. For insurance companies

and banks the convergence brings about benefits for both.

State Bank of India- the largest Bank of India has been into the Bancassurance arena since

long.

Being aware of the advantages that Bancassurance offers, the bank has tied up with two

major insurance players for fulfilling the insurance needs of the bank. The bank offers life

insurance products through SBI LIFE INSURANCE COMPANY LTD., and offers General

insurance products to its customers through NEW INDIA ASSURANCE COMPANY LTD.

SBI Life Insurance Company a predominant player in bancassurance is positive about the

channel bringing about a transformation in the way insurance has been sold so far. The

company is banking heavily on bancassurance and plans to explore the potential of State

Bank of India’s 10000 plus branches spread across the country and also its 4000 plus

associate banks - one of the reasons why SBI Life Insurance is not laying much emphasis on

increasing its agent force.

The company has appointed Certified Insurance Facilitators (CIFs) in a phased manner at its

branches. For now around 320 CIFs, one from each of its bank branches have been identified

for the purpose in addition to setting up insurance counters at its banking outlets. The number

is expected to go up to 500. The company aimed at acquiring 75 percent of the total business

through bancassurance and the balance through the other channels by 2007.

Coming towards SBI’s General Insurance Business, State Bank of India, the country's largest

Bank and New India Assurance Co. Ltd, India's largest non- life insurance company have tied

up for distributing general insurance policies of New India through SBI's branch network.

For New India a tie up with SBI, the country's largest bank with a 10000 strong branch

network is a major boost. The tie up between the two largest players in their respective fields

has enabled SBI to leverage its unmatched branch network and customer base to cross sell a

range of general insurance products and thus opened up a new revenue stream. For New

India, the tie up with SBI has enabled it to tap into SBI's huge network and customer base.

Thus we may say that, SBI has the largest banking network in the county. The bank is

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

upper, middle and lower income segments and corporate segment. Therefore,

Bancassurance has proved to be a great windfall for the bank.

UTILITIES OF BANCASSURANCE

FOR BANKS

As a source of fee income

Banks’ traditional sources of fee income have been the fixed charges

levied on loans and advances, credit cards, merchant fee on point of sale transactions for

debit and credit cards, letter of credits and other operations. This kind of revenue stream has

been more or less steady over a period of time and growth has been fairly predictable.

However shrinking interest rate, growing competition and increased horizontal mobility of

customers have forced bankers to look elsewhere to compensate for the declining profit

margins and Bancassurance has come in handy for them. Fee income from the distribution of

insurance products has opened new horizons for the banks and they seem to love it.

From the banks’ point of view, opportunities and possibilities to earn fee

income via Bancassurance route are endless. A typical commercial bank has the potential of

maximizing fee income from Bancassurance up to 50% of their total fee income from all

sources combined. Fee Income from Bancassurance also reduces the overall customer

acquisition cost from the bank’s point of view. At the end of the day, it is easy money for the

banks as there are no risks and only gains.

Product Diversification

In terms of products, there are endless opportunities for the banks. Simple

term life insurance, endowment policies, annuities, education plans, depositors’ insurance and

credit shield are the policies conventionally sold through the Bancassurance channels.

Medical insurance, car insurance, home and contents insurance and travel insurance are also

the products which are being distributed by the banks. However, quite a lot of innovations

have taken place in the insurance market recently to provide more and more Bancassurance-

centric products to satisfy the increasing appetite of the banks for such products.

Insurers who are generally accused of being inflexible in the pricing and

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

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

experiment and have set up specialized Bancassurance units within their fold. Examples of

some new and innovative Bancassurance products are income builder plan, critical illness

cover, return of premium and Takaful products which are doing well in the market. The

traditional products that the

Building close relations with the customers

Increased competition also makes it difficult for banks to retain their customers.

Banassurance comes as a help in this direction also. Providing multiple services at one place

to the customers means enhanced customer satisfaction. For example, through bancassurance

a customer gets home loans along with insurance at one single place as a combined product.

Another important advantage that bancassurance brings about in banks is development of

sales culture in their employees. Also, banking in India is mainly done in the 'brick and

mortar' model, which means that most of the customers still walk into the bank branches.

This enables the bank staff to have a personal contact with their customers. In a typical

Bancassurance model, the consumer will have access to a wider product mix - a rather

comprehensive financial services package, encompassing banking and insurance products.

FOR INSURANCE COMPANIES

Stiff Competition

At present there are 15 life insurance companies and 14 general insurance

companies in India. Because of the Liberalization of the economy it became easy for the

private insurance companies to enter into the battle field which resulted in an urgent need to

outwit one another. Even the oldest public insurance companies started facing the tough

competition. Hence in order to compete with each other and to stay a step ahead there was a

need for a new strategy in the form of Bancassurance. It would also benefit the customers in

terms of wide product diversification.

High cost of agents

Insurers have been tuning into different modes of distribution because of the high

cost of the agencies services provided by the insurance companies. These costs became too

much of a burden for many insurers compared to the returns they generate from the business.

Hence there was a need felt for a Cost-Effective Distribution channel. This gave rise to

Bancassurance as a channel for distribution of the insurance products.

Rural Penetration

Insurance industry has not been much successful in rural penetration of insurance

so far. People there are still unaware about the insurance as a tool to insure their life.

However this gap can be bridged with the help of Bancassurance. The branch network of

banks can help make the rural people aware about insurance and there is also a wide

scope of business for the insurers. In order to fulfill all the needs bancassurance is needed.

Multi channel Distribution

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

sell the insurance products. For this they are using various distribution channels. The

insurance is sold through agents, brokers through subsidiaries etc. In order to make the

most out of India’s large population base and reach out to a worthwhile number of

customers there was a need for Bancassurance as a distribution model.

Targeting Middle income Customers

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

policies to a more upscale client base. The middle income group people got very less

attention from the agents. So through the venture with banks, the insurance companies

can recapture much of the under served market. So in order to utilize the database of the

bank’s middle income customers, there was a need felt for Bancassurance.

LEGAL REQUIREMENTS PERTAINING TO BANCASSURANCE

In our country the banking & insurance sectors are regulated by two different entities. They

are a under: -

* Banking is fully governed by RBI &

* Insurance sector is by IRDA

Bancassurance being the combination of the two sectors comes under the purview of both the

regulators. Each of the regulators has given out detailed guidelines for banks getting into

insurance sector.

Guidelines given by RBI

The Reserve Bank of India has given certain guidelines for banks entering into the insurance

sector. They are as follows: -

1. 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 IRDA

The Insurance Regulatory and Development Authority has given certain guidelines for the

Bancassurance. They are as follows: -

1) Chief Insurance Executive: Each bank that sells insurance must have a chief Insurance

Executive to handle all the insurance matters & activities.

2) Mandatory Training: All the people involved in selling the insurance should under-go

mandatory training at an institute accredited by IRDA & pass the examination conducted by

the authority.

3) Corporate agents: Commercial banks, including co-operative banks and RRBs, may

become corporate agents for one insurance company.

4) Banks cannot become insurance brokers.

BENEFITS of BANCASSURANCE

Bancassurance is a tool, which is beneficial to bank, customer & Insurer at a time.  There are

certain benefits of bancassurance which are:

(1) From the banks point of view: -

Productivity of the employees increases.

By selling the insurance product by their own channel the banker can increase their

income.

By providing customers with both the services under one roof, they can improve

overall customer satisfaction resulting in higher customer retention levels.

Increase in Return on Assets by building fee income through the sale of insurance

products.

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

customers to sell insurance products.

The Bankers have extensive experience in marketing.  They can easily attract

customers & non-customers because the customer & non-customers also bank on

banks.

Banks are using different value added services life-E. Banking telebanking, direct

mail & so on they can also use all the above-mentioned facility for Bancassurance

purpose with customers & non-customers.

(II) From the Insurer Point of view:

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, and therby increase their business.

Customer database like customers' financial standing, spending habits, investment and

purchase capability can be used to customize products and sell accordingly.

Since banks have already established relationship with customers, conversion ratio of

leads to sales is likely to be high. Further service aspect can also be tackled easily.

By cutting cost Insurers can serve better to customers in terms lower premium rate

and better risk coverage through product diversification.

(III) From the customers' point of view:

Comprehensive financial advisory services under one roof. i.e., insurance services

along with other financial services such as banking, mutual funds, personal loans etc.

Enhanced convenience on the part of the insured

Easy access for claims, as banks are a regular go.

Innovative and better product ranges

The other benefits include:

Better customer retention and stronger relationships.

Clear competitive advantage in the rural areas.

Possibility that the insurer’s account as well as the accounts from the claimants will

remain with the bank.

Insurance products can augment the value of the banking products and services.

Banks are in better position to offer complete integrated financial solutions.

THE WIN – WIN CONDITION FOR BANKS AND INSURANCE

COMPANIES

BANKS INSURANCE

Customer Retention Revenue and channel of

Diversification

Satisfaction of more financial

needs under same roof

Quality customer access

Revenue Diversification Establish a low cost

acquisition channel

Profitable resource utilization Creation of brand image

Establish sales oriented

culture

Quicker Geographical reach

Enrich work environment Leverage service synergies

with bank

BANCASSURANCE VENTURES MUST HAVE CLEAR OBJECTIVES

INSURERS BANKS

Be aligned with good Public image of bank Penetrate client base further with

more products

Forge relationship earlier in customer’s life Leverage positive image

Lower acquisition costs Increase customer loyalty & retention

CUSTOMERS

Buy lower-costs products

Buy more products from a Single source

Get better, more efficient Service

THE INDIAN CONTEXT of BANCASSURANCE

In India, no company is allowed to transact both insurance and banking business. They are

kept separate. In fact, even a company registered, as an insurer has to choose between life and

non-life business. It cannot do both. Therefore, the banks in India cannot have the

advantages, which are available in the European context.

There are joint ventures in India between banks and foreign insurers. State Bank of India,

HDFC, ICICI and Vysya Bank are example. But apart from a greater willingness to help each

other, the joint venture will not give either party a greater advantage in the other's business.

The joint venture is an entirely independent unit of Operation with separate personnel and

funds and subject to different regulations.

The only way in which banks can be associated with the insurance business in India is by

becoming a corporate agent, for remuneration. The bank can do so for a particular life insurer

and/or particulars non-life insurer. The bank cannot develop any of its intimate contacts with

the customers. Since 2000many banks and insurers have agreed to arrangement for mutual

benefits. The LIC has tied with more than one bank. So also have other insurers.

For more than a hundred years, insurance business had been sold through insurance agent

and their supervisors. This system had not been very satisfactory. The efforts to make the

agents more professional had not yielded very satisfactory results, despite incentives and

training programmes. Many of them continue to treat the agency business casually, as just a

source of additional income. The turnover had been high and the efforts of replenishing the

strength, costly. The banks have skilled staff, to which the procurement of insurance can

reassigned as a duty. This was an opportunity made available after the regulation of IRDA.

In India, there are a number of reasons why bancassurance could play a natural role in the

insurance market. First, banks have a huge network across the country. Second, banks can

offer fee-based income for the employees for insurance sales. Third, banks are culturally

more acceptable than insurance companies. Dealing with (life) insurance, in many parts of

India, conjure up an image of a bad omen. Some bank products have natural complementary

insurance products. For example, if a bank gives out a home loan, it might insist on a life

insurance cover so that in case of death of the borrower, there is no problem in paying off the

home loan.

Bancassurance is: “The provision of a complete range of banking, investment and

insurance product and services, to meet the individual needs of the customers of the bank

and its associates.”

ABOUT THE TOPIC

What is BANCASSURANCE?

With the opening up of the insurance sector and with so many players entering

the Indian insurance industry, it is required by the insurance companies to come up with

innovative products, create more consumer awareness about their products and offer them at

a competitive price. Since the banking services, insurance and fund management are all

interrelated activities and have inherent synergies, selling of insurance by banks would be

mutually beneficial for banks and insurance companies. With these developments and

increased pressures in combating competition, companies are forced to come up with

innovative techniques to market their products and services. At this juncture, banking sector

with it's far and wide reach, was thought of as a potential distribution channel, useful for the

insurance companies. This union of the two sectors is what is known as Bancassurance.

Bancassurance is defined as ‘Selling Insurance products through banks’. The word 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.

Bancassurance in its simplest form is the distribution of insurance products through a bank’s

distribution channels. It is the provision of insurance and banking products and service

through a common distribution channel or through a common base.

Banks, with their geographical spreading penetration in terms of customer’s reach of all

segments, have emerged as viable source for the distribution of insurance products. It takes

various forms in various countries depending upon the demography and economic and

legislative climate of that country. 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.

The motives behind bancassurance also vary. For Banks, it is n means of product

diversification and source of additional fee income. 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 products and delivery at

the doorsteps.

With the liberalization of the insurance sector and competition tougher than ever before,

companies are increasingly trying to come out with better innovations to stay that one-step

ahead. Progress has definitely been made as can be seen by the number of advanced products

flooding the market today - products with attractive premiums, unitized products, unit-linked

products and innovative riders.

Currently, insurance agents are still the main vehicles through which insurance products are

sold. But in a huge country like India, one can never be too sure about the levels of

penetration of a product. It therefore makes sense to look at well-balanced, alternative

channels of distribution.

Nationalized insurers are already well established and have an extensive reach and presence.

New players may find it expensive and time consuming to bring up a distribution network to

such standards. Yet, if they want to make the most of India's large population base and reach

out to a worthwhile number of customers, making use of other distribution avenues becomes

a must. Alternate channels will help to bring down the costs of distribution and thus benefit

the customers. Hence, bancassurance seems to be the need of the hour for Indian banks as

well as insurance companies.

Meaning

Bancassurance is the distribution of insurance products through the bank's distribution

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

channels of the banking services along with a complete range of banking and investment

products and services. To put it simply, Bancassurance, tries to exploit synergies between

both the insurance companies and banks.

Bancassurance can be important source of revenue. With the increased competition and

squeezing of interest rates spread, profits are likely to be under pressure. Fee based income

can be increased through hawking of risk products like insurance.

Bancassurance if taken in right spirit and implemented properly can be win-win situation for

the all the participants' viz., banks, insurers and the customer.

ORIGIN

The banks taking over insurance is particularly well-documented with reference to the

experience in Europe. Across Europe in countries like Spain and UK, banks started the

process of selling life insurance decades ago and customers found the concept appealing for

various reasons.

Germany took the lead and it was called “ALLFINANZ”. The system of bancassurance was

well received in Europe. France taking the lead, followed by Germany, UK, Spain etc. In

USA the practice was late to start (in 90s). It is also developing in Canada, Mexico, and

Australia.

In India, the concept of Bancassurance is very new. With the liberalization and deregulation

of the insurance industry, bancassurance evolved in India around 2002.

MODELS OF BANCASSURANCE

I. STRUCTURAL CLASSIFICATION

a) Referral Model

Banks intending not to take risk could adopt ‘referral model’ wherein they merely

part with their client data base for business lead of commission. The actual transaction with

the prospective client in referral model is done by the staff of the insurance company either at

the premises of the ban0k or elsewhere. Referral model is nothing but a simple arrangement,

wherein the bank, while controlling access to the clients data base, parts with only the

business leads to the agents/ sales staff of insurance company for a ‘referral fee’ or

commission for every business lead that was passed on. In fact a number of banks in India

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

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

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

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

b) Corporate Agency

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

‘Corporate Agency’, wherein the bank staff as an institution acts as corporate agent for the

insurance product for a fee/commission. This seems to be more viable and appropriate for

most of the mid-sized banks in India as also the rate of commission would be relatively

higher than the referral arrangement. This, however, is prone to reputational risk of the

marketing bank. There are also practical difficulties in the form of professional knowledge

about the insurance products. This could, however, be overcome by intensive training to

chosen staff, packaged with proper incentives in the banks coupled with selling of simple

insurance products in the initial stage. This model is best suited for majority of banks

including some major urban cooperative banks because neither there is sharing of risk nor

does it require huge investment in the form of infrastructure and yet could be a good source

of income. This model of bancassurance worked well in the US, because consumers generally

prefer to purchase policies through broker banks that offer a wide range of products from

competing insurers.

c) Insurance as Fully Integrated Financial Service/ Joint ventures

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

more comprehensive and intricate relationship between insurer and bank, where the bank

functions as fully universal in its operation and selling of insurance products is just one more

function within. This includes banks having wholly owned insurance subsidiaries with or

without foreign participation. The great advantage of this strategy being that the bank could

make use of its full potential to reap the benefit of synergy and therefore the economies of

scope. This may be suitable to relatively larger banks with sound financials and has better

infrastructure. As per the extant regulation of insurance sector the foreign insurance company

could enter the Indian insurance market only in the form of joint venture, therefore, this type

of bancassurance seems to have emerged out of necessity in India to an extent. There is great

scope for further growth both in life and non-life insurance segments as GOI is reported have

been actively considering to increase the FDI’s participation up to 49 per cent.

II. 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 bank’s 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 bank’s 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 bank’s own

products, e.g., credit card, housing loans, education loans, etc. Many banks in India, in recent

years, has been aggressively marketing credit and debit card business, whereas the

cardholders get the ‘insurance cover’ for a nominal fee or (implicitly included in the annual

fee) free from explicit charges/ premium. Similarly the home loans / vehicle loans, etc., have

also been packaged with the insurance cover as an additional incentive.

III. Bank Referrals

There is also another method called 'Bank Referral'. Here the banks do not issue the

policies; they only give the database to the insurance companies. The companies issue the

policies and pay the commission to them. That is called referral basis. In this method also

there is a win-win situation everywhere as the banks get commission, the insurance

companies get databases of the customers and the customers get the benefits.

OBJECTIVES OF THE STUDY

Primary objective: To assess the present scenario of Bancassurance in India and how

it is gaining world wide acceptance with special reference to SBI.

OTHER OBJECTIVES:

To know about the benefits of Bancassurance to the banks, insurance companies

and to the customers.

To study the progress of SBI in the direction of Bancassurance.

To find out the strengths and weaknesses of SBI in the Bancassurance arena.

Finally, to conclude the findings and suggest the necessary corrective measures

and recommendations regarding the future growth prospects of SBI.

RESEARCH METHODOLOGY

Research methodology is a systematic way, which consists of series of action steps, necessary

to effectively carry out research and the desired sequencing to these steps. The marketing

research is a process of involves a no. of inter-related activities, which overlap and do rigidly

follow a particular sequence. It consists of the following steps:-

Formulating the objective of the study

Designing the methods of data collection

Selecting the sample plan

Collecting the data

Processing and analyzing the data

Reporting the findings

Report of findings

Data Analysis

Data Collection

Sample Design

Research Design

Objective of Study

RESEARCH DESIGN

Research design specifies the methods and procedures for conducting a particular study. A

research design is the arrangement of conditions for collection and analysis of the data in a

manner that aims to combine relevance to the research purpose with economy in procedure.

Research design is broadly classified into three types as

Exploratory Research Design

Descriptive Research Design

Causal Research Design

I have chosen the descriptive research design.

DESCRIPTIVE RESEARCH DESIGN:

Descriptive research studies are those studies which are concerned with described the

characteristics of particular individual.

In descriptive as well as in diagnostic studies, the researcher must be able to define clearly,

what he wants to measure and must find adequate methods for measuring it along with a clear

cut definition of population he want to study. Since the aim is to obtain complete and

accurate information in the said studies, the procedure to be used must be carefully planned.

The research design must make enough provision for protection against bias and must

maximize reliability, with due concern for the economical completion of the research study.

SAMPLE DESIGN

A Sample Design is a definite plan for obtaining a sample from a given population. It refers

to the technique to the procedure adopted in selecting items for the sampling designs are as

below:

SAMPLE SIZE:

The substantial portions of the target customer that are sampled to achieve reliable result are

50.

The cost and time limitation completed me to select 50 respondents as sample size

SAMPLING METHOD:

In this marketing research project, I am using Random sampling method.

A random sample gives every unit of the population a known and non-zero probability of

being selected. Since random sampling implies equal probability to every unit in the

population, it is necessary that the selection of the sample must be free from human

judgment.

SAMPLE TECHNIQUE

I have taken the Statistical tool of percentage method to analysis and interpretation of the

collected data.

DATA COLLECTION

The study was conducted by the means of personal interview with respondents and the

information given by them were directly recorded on questionnaire.

For the purpose of analyzing the data it is necessary to collect the vital information. There are

two types of data:-

PRIMARY DATA:-

Primary data can be collected through questionnaire. The questionnaire can be classified into

four main types.

Structured non disguised questionnaire

Structured disguised questionnaire.

Non structured non disguised questionnaire

Non –structured disguised questionnaire.

For my market study, I have sleeted structured non-disguised questionnaire because my

questionnaire is well structured, listing of questions are in a prearranged order and where the

object of enquiry is revealed to the respondents. To making a well-structured questionnaire,

we have adopted three types of questions-

Open ended question

Dichotomous questions

Multiple choice questions

These types of questions are easy to understand and easy to give required answers.

Secondary Sources of Data

The research methodology adopted for this project is Secondary.

The secondary data is that data which have already been collected by someone else and

which have already been passed through the statistical process. Such data may be in

published or unpublished form.

Thus, it has the following merits: -

o It is an instant method to get the data.

o Large area can be covered in very less time.

o It is cost effective and various kinds of problems are evaded.

On the other hand, it suffers from following demerits: -

o The data available might not have been collected for the same purpose.

o Authenticity of data is not there.

o Problems of person may remain unsolved and hence data may be

unreliable.

The information and data has been collected from various secondary sources which are as

following:

Books

Websites

Financial Newspapers

Financial reports of SBI

SWOT ANALYSIS:

Banking and Insurance are very different businesses. Banks have less risk but the

insurance has a greater risk. Even though, banks and insurance companies in India are yet to

exchange their wedding rings, Bancassurance as a means of distribution of insurance

products is already in force in some form or the other.

Banks are selling Personal Accident and Baggage Insurance directly to their

Credit Card members as a value addition to their products. Banks can straightaway leverage

their existing capabilities in terms of database and face-to face contact to market insurance

products to generate some income for themselves, which previously was not thought of.

The sale of insurance products can earn banks very significant commissions

(particularly for regular premium products). In addition, one of the major strategic gains from

implementing bancassurance successfully is the development of a sales culture within the

bank. This can be used by the bank to promote traditional banking products and other

financial services as well. Bancassurance enables banks and insurance companies to

complement each other’s strengths as well.

It is therefore essential to have a SWOT analysis done in the context of

bancassurance experiment in India. A SWOT analysis of Bancassurance is given below:

STRENGTHS:

In a country like India of one billion people where sky is the limit there is a vast

untapped potential waiting for life insurance products. Our other strength lies in a

huge pool of skilled professionals whether it is banks or insurance companies who

may be easily relocated for any bancassurance venture.

Banks have the credibility established with their constituents because of a variety of

services and schemes provided by them. They also enjoy pride of place in the hearts

of people because of their long presence and sustained image.

Banks also enjoy a wide network of branches, even in the remotest areas that can

facilitate taking up the task on a large and massive scale, simultaneously.

Banks are very well aware with the psychology of the customers because of their

interaction with the customers on regular basis. Because of this the bankers can guess

the attitude and diverse needs of the customers and could change the face of insurance

distribution to personal line insurance.

People rely more upon LIC and GIC for taking insurance. If the products of LIC and

GIC are provided through bancassurance it would be an added advantage to the

insurance companies.

With the help of banks trained staff, its brand name and the confidence and reliability

of people on the banks, the selling of insurance products can be done in a more proper

way.

Other than all these things there is a huge potential for insurance sector, as the

population of India is high and a large part of it has remained untapped till now. So

this can create an added advantage for both banks and insurers.

WEAKNESSES:

In spite of growing emphasis on total branch mechanism and full computerization of

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

technology as an enabler. The IT culture is unfortunately missing completely in all of

the future collaborations. The internet connections are also not properly provided to

the staff.

To undertake the distribution of the insurance products, the bank employees have to

undergo certain minimum period of training, followed by a test and then get

themselves licensed. Moreover the standards of the examination have been raised in

the recent past making it difficult for many examinees to clear the same.

There is lack of personalized services because the traditional insurance agent is

considered a member of the family and hence is able to render a personalized service

during and after the sales process. However that may not be the case in regards to a

bank employee.

There are many differences in the way of thinking and business approaches of bankers

and the managers of insurance companies. Banks are traditionally “demand-driven”

organizations with a reactive selling philosophy. Insurance organizations are usually

“need-driven” and have an aggressive selling philosophy.

The visit of a customer to the bank is to have a simple transaction like deposit or

withdrawal. Busy customers will have no time to have a discussion on a long-term

durable purchase like insurance across the counter. Also, the visits in urban or metro

branches are going to be fewer because of ATM’s and e-banking.

Another drawback is the inflexibility of the products i.e. it cannot be tailor made to

the requirements of the customer. For a bancassurance venture to succeed it is

extremely essential to have in-built flexibility so as to make the product attractive to

the customers.

OPPORTUNITIES:

There is a vast untapped potential waiting to be mined particularly for life

insurance products. There are more than 900 million lives waiting to be given a life

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

There are many people in many areas that are still unaware about the insurance and its

various products and are waiting that somebody should come and give them the

information about it.

In urban and metro areas, where the customers are willing to get many services like

lockers and safe deposit systems and other products and services from banks, there is

a good opportunity to market many property related general insurance policies like

fire insurance, burglary insurance and medi-claim insurance etc.

Banks' database is enormous even though the goodwill may not be the same. This

database has to be dissected and various homogeneous groups are to be churned out in

order to position the Bancassurance products. With a good IT infrastructure, this can

really do wonders.

Banks in their normal course of functions lend finance in the form of loans for cars, or

for buying a house to clients etc. They can take advantage of this by cross-selling the

insurance products and combine it as a package.

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

corporate customers and tying up for insurance of the employees of corporate clients,

which would be an avenue with easy access. In most cases banks provide salary

disbursement and loan facilities but here they can provide insurance cover as well.

THREATS:

Success of a Bancassurance venture requires change in approach, thinking and work

culture on the part of everybody involved. The work force at every level are so well

entrenched in their classical way of working that there is a definite threat of resistance

to any change that Bancassurance may set in. Any relocation to a new company or

subsidiary or change from one work to a different kind of work will not be easily

acceptable by the employees.

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

many joint ventures took place between banks and insurance 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

this may create an adverse feeling in the minds of the bankers that such products may

lessen the sales of regular bank saving products. Also selling of investment and good

return products may affect the FD Portfolio of the banks.

There would be a problem of “Reputational Contagion” i.e. loss of market confidence

towards one in a venture leading to loss of confidence on the other because of

identical brand recognition, similar management and consolidated financial reporting

etc.

If no strict norms are there for such ventures then many unholy ventures may take

place which may give rise to tough competition between bancassurers resulting in

lower prices and the Bancassurance venture may never break because of such

situations.

The most common obstacles to success of Bancassurance are poor manpower

management, lack of a sales culture within the bank, no involvement by the branch

manager, insufficient product promotions, failure to integrate marketing plans,

marginal database expertise, poor sales channel linkages, inadequate incentives,

resistance to change, negative attitudes toward insurance and unwieldy marketing

strategy.

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?

Yes 80%

No 20%

Yes

No

Interpretation: -

Among those who surveyed, 80% of respondents were aware that their

bank provided bancaasurance.

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 didn’t know anything about it and the services

provided by their banks.

Have You Taken An Insurance Policy From Your Bank?

Yes34%

No66%

No

Yes

Interpretation :

Among the people who were surveyed, there were only 34% people who

had taken insurance policy from their respective banks.

Remaining 66% respondents didn’t opt to take a policy from their banks.

23%

63%

18%

42%

0

10

20

30

40

50

60

70

The Kind Of Insurance Policy Taken From The Bank :-

Deposit Based Loan Based Life Insurance Others

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.

80% 28% 65% 40%

0

10

20

30

40

50

60

70

80

90

Reasons For Taking An Insurance Policy :-

Security Savings Brand Image of Bank 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 were 4o% 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.

On Your Choice Which Mode Of Insurance Distribution Channel

Would You Prefer To Buy The Policy From?

Banks23%

Brokers7%

Agents50%

Insurance companies

20%

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.

Which Bank Do You Feel Would Excel In Bancaasurance? Rate

Them Accordingly

38%

90%

70%

0

10

20

30

40

50

60

70

80

90

100

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.

Do You Think Bancassurance Has A Good Future?

No,5%

Yes,95%

Yes

No

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 ATM’s, Internet banking etc the banks will soon go virtual so

there is not much scope for it.

FINDINGS

Although the concept is simple enough in theory, but in practice it has been found to

be far from straightforward.

Almost many people have a fair idea about Bancassurance and that their banks sell

various insurance products. But still few people don’t know about Bancassurance as a

concept.

It has been also found out that the banks have various opportunities to cross sell

insurance products. The insurance companies also have the opportunity to take

advantage of the bank’s 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 insurance

companies. 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

better future 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

still unaware about insurance. So the insurance companies have a huge potential

market in the years to come.

The banks fail to provide personalized services as are provided by the agents. So

banks will have to improve in that area. They should provide after sales services to the

customers.

Banks now-a-days are trying to provide each and every service to its customers. So by

providing insurance, banks can add one more service to their list.

LIMITATIONS OF THE STUDY

Although I had a wonderful experience in completing my project, yet I faced little

difficulties. Every task has its own limitations, and so did the study undertaken by me had.

They were as follows:

The project is based entirely on the secondary data and hence the authenticity depends

wholly on the truthfulness of the data available from the secondary sources.

Time was too short to do an analysis of the present scenario of Bancassurance,

prevalent in the country.

While an attempt has been made to explore the scope and fulfill the objectives of the

study, yet it required a great deal. Thus, more expertise and experience was needed

for conducting the study extensively.

RECOMMENDATIONS

The Insurance companies need to design products specifically for distributing through

banks. Trying to sell traditional products may not work so effectively.

The employees of the banks who are selling insurance products must be given proper

training 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 in

selling the insurance products.

Banks should also do the settlement of claims which will increase the trust and

reliability of the customers on the banks.

In India, since the majority of the banking sector is in public sector which has been

widely 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 in these banks.

A formal and standard agreement between these banks and the insurance companies

should 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 resolve

conflicts arising in future.

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

markets, rather than adjusted to insurer’s specifications.

Banks and Insurance companies should apply all the skills and potential in this area

and take advantage of the same and they should improve the products from time to

time according to the needs of the customers.

CONCLUSION

The life Insurance Industry in India has been progressing at a rapid growth since

opening up of the sector.  The size of country, a diverse set of people combined with

problems of connectivity in rural areas, makes insurance selling in India a very difficult task. 

Life Insurance Companies require good distribution strength and tremendous man power to

reach out such a huge customer base.

The concept of Bancassurance in India is still in its nascent stage, but the tremendous

growth and the potential reflects a very bright future for bancassurance in India. With the

coming up of various products and services tailored as per the customers needs there is every

reason to be optimistic that bancassurance in India will play a long inning.

But the proper implementation of bancassurance is still facing so many hurdles

because of poor manpower management, lack of call centers, no personal contact with

customers, inadequate incentives to agents and unfullfilment of other essential requirements.

I have experienced a lot during the preparation of the project. I had just a simple idea

about Bancassurance. But after a detailed research in this topic I have found how important

bancassurance can be for bankers, insurers as well as the customers. I am contented that all

my objectives have been met to its fullest.

I have also experienced that though Bancassurance is not being utilized to its fullest but

it surely has a bright future ahead. India is at the threshold of a significant change in the way

insurance is perceived in the country. Bancassurance will definitely play a defining role as an

alternative distribution channel and will change the way insurance is sold in India.

The bridge has been reached and many are beginning to walk those cautious steps

across it. Bancassurance in India has just taken a flying start. It has a long way to go ………..

after all The SKY IS THE LIMIT!

Bibliography

Insurance watch.

Business world.

Business today.

Theories and Practices in Insurance.

Webliography

www.insuremagic.com

www.google.com

www.sbilife.com

www.india infoline.com

QUESTIONARE

Name:

Sex: Male Female

Occupation:

Age:

Phone no. :

1. Are you aware of bancassurance?

Yes No

2. Have you taken an insurance policy from your bank?

Yes No

3. The kind of insurance policy taken from the bank?

Deposit based loan based

Life insurance Others

4. Reasons for taking an insurance policy?

Security Savings

Brand image of bank Brand image of

insurance

5. On your choice which mode of insurance distribution channel would you

prefer to buy the policy from?

Insurance company Bank

Broker Agent

6. Which bank do you feel would excel in bancaasurance? Rate them

accordingly

Public sector banks Private sector Banks

Foreign Bank

7. Do you think bancassurance has a good future?

Yes No