BANCASSURANCE

PRESENTED BY :KARMAN KAURBHAVSIMRAN SINGH

AN OUTLINE

Concept of Bancassurance

Need for Bancassurance in India

Growth of Bancassurance

Bancassurance-a win-win strategy

Demerits

Bancassurance Models

S.W.O.T. Analysis

Obstacles To Success

Regulations of RBI and IRDA

Fact File and Conclusion

BANKASSURANCE

“THERE IS NO STRONGER FORCE THAN AN IDEA WHOSE TIME HAS COME”

Bank + Insurance = Bancassurance

CONCEPT Bancassurance - a term coined by combining the two words

bank and insurance (in French) - connotes distribution of insurance products through banking channels

According to IRDA, ‘bancassurance’ refers to banks acting as corporate agents for insurers to distribute insurance products

According to Swiss Re 2002, the bancassurance is defined “as a strategy adopted by banks or insurance companies aiming to operate in the financial services market in a more or less integrated manner” and “is the distribution of insurance products by banks

NEED FOR BANCASSURANCE IN INDIA

Researches and present day statistics speak about the need of a well equipped financial structure for a country that helps it to grow economically.

The financial resources in the hands of people should be channelized in effective manner so as to increase the returns from the basic financial structure of nation and also the quality of living of people. Insurance policies are instruments/products that play major role in upholding the financial structure of developed countries.

Though the teething phase of insurance, one may say is just past, a desirable foothold is yet to be found. With growth in number of middle class families in the country, RBI recognized the need of an effective method to make insurance policies reach people of all economic classes in every corner of the nation.

Implementing bancassurance in India is one such development that took place towards the cause.

GROWTH OF BANCASSURANCE

Growth of Bancassurance Breaking the monopoly of public sector both in

the life and non-life segments More need for constant innovations in marketing

mix Concept of banks selling insurance products was

well received in many parts of the world Bancassurance can be practised on a very vast

canvas

Reasons for growing phenomena of Bancassurance

Life insurance premium represents 55% of the world insurance premium, and as the life insurance is basically a saving market. So it is one of the methods to increase deposits of banks.

Insurers have been turning in ever-greater numbers to alternative modes of distribution because of the high costs they have paid for agent services. These costs became too much of a burden for many insurers compared to the returns they generated.

Insurers operate through bancassurance own and control relationships with customers. Insurers found that direct relationships with customers gave them greater control of their business at a lower cost. Insurers who operate through the agency relationship are hardly having any control on their relationship with their clients.

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

In addition to acting as distributors, several banks have recognised the potential of insurance in India and have taken equity stakes in insurance companies. This is perhaps the precursor of a trend we have seen in the United Kingdom and elsewhere where banks started off as distributors of insurance but then moved to a manufacturing role with fully owned insurance subsidiaries

Insurer• Sales & marketing expertise for insurance

products• Profit maximization selling insurance

products• Strong technical expertise• Product know-how• Financial strength• Brand

Bank• Customer base and relationships

• Distribution network• Brand

50% 50%Insurance

Who bring what to the Partnership…

BANCASSURANCE IS A WIN-WIN STRATEGY

BANKS

• Customer Relationship

• Product Diversification

• Fee Income• Access Funds

CUSTOMERS

• Reduced price• Convenience• One stop shop• High quality and

Better service

INSURANCE COMPANIES

• Expand customer base

• Cost Reduction• Increase in volume

and profit• Share services with

banks• Improved brand

equity• Marketing

experience

BANKS

Customer Relationship

Product Diversification

Fee Income

Access Funds

CUSTOMERS

Reduced price

Convenience

One stop shop

High quality and Better service

INSURANCE COMPANIES

Expand customer base

Cost Reduction

Increase in volume and profit

Share services with banks

Improved brand equity

Marketing experience

Demerits of bancassurance× Data management of an individual customer’s identity and contact

details may result in the insurance company utilizing the details to market their products, thus compromising on data security.

× There is a possibility of conflict of interest between the other products of bank and insurance policies (like money back policy). This could confuse the customer regarding where he has to invest.

× Better approach and services provided by banks to customer is a hope rather than a fact. This is because many banks in India are known for their bad customer service and this fact turns worse when they are responsible to sell insurance products. Work nature to market insurance products require submissive attitude, which is a point that has to be worked on by many banks in India. 

BANKASSURANCE- MODELS/STRATEGIES

Integrated model Successful in Europe, players in countries like France,

Italy, and Spain operate either through fully owned insurance subsidiaries or through joint ventures that have an exclusive distribution agreement with the bank

Non-integrated modelBanks sell insurance through authorized financial

advisers as bank staff are not allowed to sell. For instance, UK

Open architecture modelBanks usually have non-exclusive distribution

agreements with several insurance companies

Referral Model Bank shares clients’ data base, parts with only the

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

Corporate Agency Popular in India - bank as an institution acts as a

corporate agent for the insurance company for the purpose of distribution of insurance products for a fee/commission

Integrated Model Bank and an insurance company together manufacture,

distribute and bear all the risks associated with that business

SWOTAnalysis

STRENGHT

THREATSOPPORTUNITIES

WEAKENESS

STRENGHTS

Huge pool of skilled professionals Established credibility of the banks Wide network of branches, even in the

remotest areas Understanding about the attitude and

behaviour of the consumers Market expansion for insurance companies Trained staff, brand name and reliability High untapped market potential

WEAKNESSES

Rural branches not under CBS, and under-staffed

No ready availability of trained staff Lack of personalized service Differences in approaches between banks and

insurance companies Customers constrained by time Inflexibility of the products

OPPORTUNITIES

Huge untapped market Requirements of urban customers can be tapped Database can be used to find homogenous group Cross-selling of insurance products for banking

products Corporate and salaried customers can be

targeted for specific products claiming convenience and ease of access

THREATS

Changes in work culture and attitude difficult among bank employees

Non-response from targeted customers May affect the portfolio of banks if insurance is

perceived as a substitute for bank savings There may be loss of business confidence Competition between existing players Unsuitable marketing strategy and personnel

may result in more harm than benefit

In traditional roles neither insurers or banks can effectively do bancassurance.

Satisfied customer increased penetration of insurance products

BANK CAPABILITIES INSURANCE CO.’S CAPABILITIES

*own proprietary database * developing insurance products* Strong name recognition & * face to face selling reputation (local & regional) * underwriting experience* Managing multiple distribution * managing long tail products channels* Cross selling banking products

COLLABORATION IS THE KEY

* Poor manpower management

* Lack of sales culture within the banks

* No involvement by the branch manager

* Insufficient product promotions

* Failure to integrate marketing plan

* Marginal database expertise

* Poor sales channel linkages

* Negative altitude towards insurance.

OBSTACLES TO SUCCESS

Regulations under RBI and IRDA The Reserve Bank of India and the insurance development and regulatory authority

have a set of guidelines for companies that couple to form bancassurance. Factors regulated by RBI and IRDA ,

Based on the equity a bank should hold in joint venture The highest allowable value of equity The type of banks and insurance companies that can couple together and The operation of bancassurance

Guidelines drafted by IRDA to promote open architecture in bancassurance. Currently a bank has a tie-up with only one life insurer and one non-life insurer.

But in the new model the banks necessarily have to have multiple tie-ups The country is divided into zones and every bank has to choose multiple

insurers within the zones. With this the customer will have a wider range of insurance products offered by different insurers. It will also lead to a deeper penetration in the selling of insurance products

Bancassurance companies SBI life insurance Company LIC of India is tied up with Vijaya bank, Oriental bank of

commerce, Corporation bank ICICI Lombard Bajaj Allianz general Insurance Co. Ltd Birla Sun life Insurance Co. Ltd Barclays – MetLife India Axis bank – MetLife India

FACT FILE Insurance industry has been growing at a commendable

rate Bancassurance has grown rapidly during the last 5 years Private sector banks and private sector insurance

companies have been more active and therefore beneficiaries of bancassurance

Private sector’s (banks and insurers) performance has been better than Public sector (banks and insurers)

Further research is needed to investigate the relative failure of public sector in regard to bancassurance

Bancassurance offer huge business potential for banks and insurance companies because of growing economy and banking and insurance sector

CONCLUSION

In Indian context bancassurance also need to be viewed from societal perspective and if successful can be a long lasting solution for the prevalent problem of financial exclusion

The growth in insurance business on account bancassurance can also result in reduced cost of insurance, of course, in the long-run

Policy makers, regulators and players themselves must make concerted efforts for the success of bancassurance

ThankYou !