study on bancassurance model of insurance distribution in reference of kotak life insurance

Jitendra Virahyas

[email protected]

1 | P a g eDeepshikha College of Technical Education, Jaipur

A

Project Study Report

On

Training Undertaken at

KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD

“A Detailed Study on Bancassurance Model of Insurance Distribution in Reference of Kotak Life Insurance”

Submitted in partial fulfillment forthe Award of degree of

Master of Business Administration

Submitted By: Submitted To:

Aaaa BbbbMBA Part- III

Dr. Sonal JainH.O.D.Deepshikha College of Technical Education, Jaipur


2009-2011

Preface

The Harder You Work…… The Luckier You Get.

The liberalization of the Indian insurance sector has been the subject of much heated debate for some

years. The policy makers where in the catch 22 situation wherein for one they wanted competition,

development and growth of this insurance sector which is extremely essential for channeling the

investments in to the infrastructure sector. At the other end the policy makers had the fears that the

insurance premier, which are substantial, would seep out of the country; and wanted to have a cautious

approach of opening for foreign participation in the sector.

As one of the rare occurrences the entire debate was put on the back burner and the IRDA saw the day

of the light thanks to the maturing polity emerging consensus among factions of different political

parties. Though some changes and some restrictive clauses as regards to the foreign participation were

included the IRDA has opened the doors for the private entry into insurance.

Whether the insurer is old or new, private or public, expanding the market will present multitude of

challenges and opportunities. But the key issues, possible trends, opportunities and challenges that

insurance sector will have still remains under the realms of the possibilities and speculation. What is the

likely impact of opening up India’s insurance sector

It was a privilege for us to work in a reputed organization- Kotak Mahindra Old Mutual Life Insurance

Ltd. This has given us an opportunity to work in a truly professional environment where team work

score over individual effort, where there is a helpful atmosphere.


A well planned, properly executed and evaluated training helps a lot in inoculating good

work culture. It provides linkage between student and industry in order to develop the awareness of

individual approach to problem solving based on the broad understanding of plant machinery, process

and mode of operation of individual organization. The project on “Study of Bancassurance Model of

Insurance Distribution” has been made to facilitate effective understanding about the marketing

aspects.

The project training has provided me an opportunity to gain practical experience, which has

helped me to increase my sphere of knowledge to a greater extent. I have tried to summarize all our

experience and knowledge acquired up till now, in this report. This project is a keen effort to obtain the

expected results and fulfill all the information required.

At the end annexure and bibliography are given for effective understanding.

I am grateful to Kotak Mahindra Old Mutual Life Insurance Ltd for providing required

support.

Thank you for your interest in my project report


Acknowledgements

I express my sincere thanks to my project guide, Mr. Nitesh Bbbb (Chief Manager, Alternate Channel,

Rajasthan; Kotak Life Insurance), for guiding me right form the inception till the completion of the

project. I sincerely acknowdege him for extending their valuable guidence, support to literature, critical

reviews of project and the report and above all the moral support for he had provided to me with all

stages of the project.

I would also like to thank the supporitnig staff of Kotak Life Insurance Department of Jaipur, for their

help and cooperation throughuot our project.

(Signature)

Name

Aaaa Bbbb


Executive Summary

Life is full of surprises, some pleasant and some not so pleasant. Our families and we have to live with

these uncertainties. Preparing for the uncertainties of life is what Insurance is all about. Why waste

precious moments contemplating tomorrow, when we have to live today? Insurance is a tool, a solution

for delegating the worries concerning tomorrow onto a trustworthy institution so that you can start living

today.

In other words, Insurance is a legal contract that protects people from the financial costs that result from

Loss of life, loss of health, lawsuits, or property damage. Insurance provides a means for individuals

and societies to cope with some of the risks faced in everyday life. People purchase contracts of

insurance, called policies, from a variety of insurance organizations.

Almost everyone living in modern, industrialized countries buys insurance, for instance, laws in most

states require people who own a car to buy insurance before driving it on public roads. Lenders require

anyone who finances the purchase of a home or car with borrowed money to insure that property.

Business partners take out life insurance on each other to make sure that business will succeed even if

one of the partners dies.

The primary purpose of life insurance is therefore protection of the family in the event of death. Today,

insurance is also seen as a tool to plan effectively for the future years, retirement, and for children's

future needs. Today, the market offers insurance plans that not just cover the life and but at the same

time grow wealth too. When we insure our life, in effect what we are doing is insuring our earning

capacity. This guarantees that our dependants will be able to continue living without financial hardships

even in case of our demise.

Kotak Mahindra Old Mutual Life Insurance Limited was established in 2000 as a joint venture between

Kotak Mahindra Bank Ltd. (74%) and Old Mutual plc, London (26%). In the life insurance market, Kotak

Life Insurance, one of the fastest growing companies in India; from FY 2005 to 2006 it demonstrated a

substantial premium income growth.


TABLE OF CONTENTS

S.

NO.

Descriptions Page

no.

1. Introduction to the industry 7-23

2. Introduction to the Organization 24-33

3. Research Methodology

1. Title of the Study

2. Duration of the Project

3. Objective of the Study

4. Types of Research

5. Collection Method and Sample Size

6. Scope of Study

7. Limitation of Study

34-36

4. Introduction to the topic 37-62

5. Facts and Findings 63

6. Data Analysis and Interpretation 63-68

7. Swot Analysis 68-69

8. Conclusion 80-83

9. Recommendation and Suggestion 83

10. Appendix --

11. BIBLIOGRAPHY 84


Insurance

Introduction

Insurance, in law and economics, is a form of risk management primarily used to hedge against

the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a

loss, from one entity to another, in exchange for payment. An insurer is a company selling the

insurance; an insured or policyholder is the person or entity buying the insurance policy. The insurance

rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage,

called the premium.

Terminology

Insured

The policyholder - the person(s) protected in case of a loss or claim.

Insurer

The insurance company.

Premium

The amount of money an insurance company charges for insurance coverage

Agent

A licensed person or organization authorized to sell insurance by or on behalf of an insurance

company.

Fund Value

Total value of units that you hold in the fund.

Switch of Funds

Switch is a facility available only in Unit Linked policies allowing the Policyholder to change the

investment pattern by moving from one Investment Fund/s to another among the Investment

Funds offered under the underlying product of the Company.


Assignment

This term refers to the process of legal transference, by which the policyholder can pass on his

interest to another person. An assignment can be made by an endorsement on the policy

document or as a separate deed. Assignment can be of two types

(1) Conditional assignment, (2) Absolute Assignment

Insurance means a contract (policy) in which an individual or entity receives financial protection or

reimbursement against losses from an insurance company. The company pools clients' risks to

make payments more affordable for the insured. In simple terms it is a contract between the person who

buys Insurance and an Insurance company who sold the Policy. By entering into contract the Insurance

Company agrees to pay the Policy holder or his family members a predetermined sum of money in case

of any unfortunate event for a predetermined fixed sum payable which is in normal term called

Insurance Premiums.

Insurance is basically a protection against a financial loss which can arise on the happening of an

unexpected event. Insurance companies collect premiums to provide this protection. By paying a very

small sum of money a person can safeguard himself and his family financially from an unfortunate

event. For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance

company , the family members of insured person receive a fixed compensation in case of any

unfortunate event like death. There are different kinds of Insurance Products available such as Life

Insurance, Vehicle Insurance, Home Insurance, Travel Insurance, Health or Mediclaim Insurance etc.

Major Types of Insurances

Life insurance: Descendant’s family receives financial benefits. Life insurances also offer

paid proceeds to the beneficiary.

General Insurance: All other type of insurance are covered under this

o Automobile insurance: Usually automobile insurances cover damages and legal

financial expenditures of the automobile driver.

o Health insurance: Health insurance covers the expenditures associated to treatment

and medical expenditures.


http://www.ndtvprofit.com/2008/01/16195839/What-is-Insurance.html



o Credit insurance: Borrowers often fail to repay debts, loans and mortgages due to

certain unavoidable circumstances, credit insurances can be of great help during such

crisis.

o Property insurance: Property protection insurance provides protection from risks

associated to theft, fire, floods etc.

Life Insurance

Life insurance or life assurance is a contract between the policy owner and the insurer, where the

insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals'

death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay

a stipulated amount called a premium at regular intervals or in lump sums.

Why do we need Life Insurance?

We need Life Insurance because typically the need for income continues for those who are financially

dependent on you, but there is no guarantee of your ability to earn consistently and for the rest of your

life. Life insurance can help you safeguard the financial needs of your family.

This need has become even more important due to steady disintegration of the prevalent joint family

system, and emergence of nuclear families. The need to protect your family's ever growing needs is

why you need Life Insurance.

Replacement of Income

Life insurance products can provide support to the family and take care of the family's financial

requirements. It provides a lump-sum or periodic payments to help replace the income stream, in case

of an unfortunate event or an untimely demise of the breadwinner.

Lifestyle Maintenance

Life insurance products can help you build a corpus to protect and maintain your lifestyle against

fluctuations in your future income.

Costs of Education

You need to support your child with a sound educational background, to help your child achieve his/her

dreams. Life insurance products can help you fulfill these needs, whether you are there or not.

Retirement Expenses


Retirement is an age when an individual has fulfilled almost all his responsibilities and looks forward to

relaxing. Life insurance products can help you lead a secure and tension free retired life by ensuring

that you get guaranteed pension.

Mortgage and Debt protection

With increasing consumerism and ever-rising demands, loans and debts are now part of life. Life

insurance products help you ensure that your family is not unduly burdened with their repayments, in

case of an unfortunate event or an untimely demise of the breadwinner.

Hardships Protection

Life insurance provides a sense of security to the income earner and to his/her family. Buying life

insurance frees the individual from various unnecessary financial burdens that can otherwise make one

spend sleepless nights.

Life Insurance V/S Other Investments

Most investment options make your money work harder, but there are no substitutes to life

insurance. Because only a life insurance policy gives you both - risk cover against your life, as

well as returns on your money invested.

Life insurance allows long term savings to be made in a relatively painless manner because of

the low and convenient investments made through premiums. Moreover, it encourages 'forced

thrift' which means the insured is made to pay premiums and save money, which he/she may not

do in the regular course of life.

Should you require loans, say for building a house, it can be easily obtained against a life

insurance policy. Amongst the most known benefits of Life Insurance is the savings on your

income taxes.

Life insurance cannot be compared with any other form of investment as life insurance gives you

a life long benefit and returns on your money when it is most required.

Insurance premiums are linked to age of the life insured and the earlier you buy, the lower are

the premium requirements. Besides, the money stays invested for a longer time and thereby

maximizing your returns through the power of rupee compounding. So, a life insurance policy is

an ideal tool to gain security and ensure savings.

Most importantly it provides you with that unique sense of security and peace of mind that no

other form of investment provides.


How Life Insurance Works

There are three parties in a life insurance transaction; the insurer, the insured, and the owner of the

policy (policyholder), although the owner and the insured are often the same person. For example, if Mr.

Rajan buys a policy on his own life, he is both the owner and the insured. But if Mrs. Anita, his wife,

buys a policy on Rajan’s life, she is the owner and he is the insured. The owner of the policy is called

the grantee (he or she will be the person who will pay for the policy). Another important person involved

is the beneficiary. The beneficiary is the person or persons who will receive the policy proceeds upon

the death of the insured. The beneficiary is not a party to the policy, but is designated by the owner, who

may change the beneficiary unless the policy has an irrevocable beneficiary designation. With an

irrevocable beneficiary, that beneficiary must agree to changes in beneficiary, policy assignment, or

borrowing of cash value.

The policy, like all insurance policies, is a legal contract specifying the terms and conditions of the risk

assumed. Special provisions apply, including a suicide clause wherein the policy becomes null if the

insured commits suicide within a specified time for the policy date (usually two years). Any

misrepresentation by the owner or insured on the application is also grounds for nullification. Most

contracts have a contestability period, also usually a two-year period; if the insured dies within this

period, the insurer has a legal right to contest the claim and request additional information before

deciding to pay or deny the claim.

The face amount of the policy is normally the amount paid when the policy matures, although policies

can provide for greater or lesser amounts. The policy matures when the insured dies or reaches a

specified age. The most common reason to buy a life insurance policy is to protect the financial interests

of the owner of the policy in the event of the insured's demise. The insurance proceeds would pay for

funeral and other death costs or be invested to provide income replacing the deceased's wages. Other

reasons include estate planning and retirement. The owner (if not the insured) must have an insurable

interest in the insured, i.e. a legitimate reason for insuring another person’s life. The insurer (the life

insurance company) calculates the policy prices with intent to recover claims to be paid and

administrative costs, and to make a profit.

General Insurance

Insurance of the non life assets are called general insurance, this includes loss of asset against water,

fire, earthquake etc. There are products that cover property against burglary, theft etc. The non-life

companies also offer policies covering machinery against breakdown, there are policies that cover the

hull of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road.


Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life

insurance business.

In respect of insurance of property, it is important that the cover is taken for the actual value of the

property to avoid being imposed a penalty should there be a claim. Where a property is undervalued for

the purposes of insurance, the insured will have to bear a ratable proportion of the loss. For instance if

the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say

Rs.50/-, the maximum claim amount payable would be Rs.25/- (50% of the loss being borne by the

insured for underinsuring the property by 50%)

Functions of Insurance

Primary functions

1. Provide protection: Insurance cannot check the happening of the risk, but can provide for the

losses of risk.

2. Collective bearing of risk: Insurance is a device to share the financial losses of few among

many others.

3. Assessment of risk: Insurance determines the probable volume of risk by evaluating various

factors that give rise to risk.

4. Provide certainty: Insurance is a device, which helps to change from uncertainty to certainty.

Secondary functions

1. Prevention of losses: Insurance cautions businessman and individuals to adopt suitable device

to prevent unfortunate consequences of risk by observing safety instructions.

2. Small capital to cover large risks: - Insurance relives the businessman from security

investment, by paying small amount of insurance against larger risks and uncertainty.

3. Contributes towards development of larger industries.

Other Function

Means of savings and investment: Insurance companies are business houses. The product they sell

is financial protection. To succeed and survive, they must cover their costs, which include payments to

cover the losses of policyholders, as well as sales and administrative expenses, taxes and dividends.


Brief History – India

The insurance sector in India has completed all the facets of competition – from being an open

competitive market to being nationalized and then getting back to the form of a liberalized market once

again. The history of the insurance sector in India reveals that it has witnessed complete dynamism for

the past two centuries approximately

With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life

insurance started in the year 1818. This Company however failed in 1834. In 1829, the Madras

Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the

enactment of the British Insurance Act and in the last three decades of the nineteenth century, the

Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay

Residency. This era, however, was dominated by foreign insurance offices which did good business in

India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the

Indian offices were up for hard competition from the foreign companies.

Some of the important milestones in the life insurance business in India are:

1907: The Indian Mercantile Insurance Ltd. set up the first company to transact all classes of

general insurance business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life

insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non life insurance businesses.

1938: Earlier legislation was consolidated and amended by the Insurance Act with the objective

of protecting the interests of the insuring public.


1956: 245 Indian and foreign insurers and provident societies were taken over by the central

government and nationalized. LIC formed by an Act of parliament, viz. LIC Act, 1956 with

a capital contribution of Rs 5 crores from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the

Triton Insurance Company Ltd, the first general insurance company established in the

year 1850 in Calcutta by the British.

1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of

conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins

and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general

insurance business in India with effect from 1st January 1973.

1973: 107 insurers amalgamated and grouped into four companies viz. the National Insurance

Company Ltd., the New India Assurance Company Ltd, the Oriental Insurance Company

Ltd, and the United India Insurance Company Ltd. GIC incorporated as a company.

1993: Insurance Sector Reforms (Malhotra Committee).

1999: Insurance Regulatory Development Authority (IRDA).


Insurance Sector Reforms

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra

was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra

committee was set up with the objective of complementing the reforms initiated in the financial sector.

The reforms were aimed at creating a more efficient and competitive financial system suitable for the

requirements of the economy keeping in mind the structural changes currently underway and

recognizing that insurance is an important part of the overall financial system where it was necessary to

address the need for similar reforms.

The Government of India liberalized the insurance sector in March 2000 with the passage of the

Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private

players and allowing foreign players to enter the market with some limits on direct foreign ownership.

Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance

company. There is a proposal to increase this limit to 49 percent. The opening up of the sector is likely

to lead to greater spread and deepening of insurance in India and this may also include restructuring

and revitalizing of the public sector companies.

Insurance Sector during Post Reforms - A snapshot

There has been considerable time lag between reforms in the insurance sector and the rest of the

financial sector, particularly in comparison with the banking sector. However, following the

implementation of Malhotra Committee’s far reaching recommendations; the insurance sector had

undergone sweeping changes during the later 1990s and 2000 onwards. IRDA was established in the

year 2000 as an exclusive Regulatory Authority for the insurance sector through the enactment of IRDA

Act, 1999. A number of amendments were brought in various insurance related statutes, viz., Insurance

Act, 1938, LIC Act, 1956 and General Insurance Business Nationalization Act, 1972 (GIBA). The

Progress in the overall developments in the insurance sector was swift and more prominent after the

establishment of IRDA. The four public sector non-life insurance companies were de-linked from being


subsidiary of the General Insurance Company of India. Now they operate independently and compete

with each other. The upshot of these developments was the breakage of monopoly by public sector in

the insurance sector paving the way for the entry of private entities into the insurance market and the

era of competition set in with availability of wide range of insurance products in the market than ever.

Insurance Business in India

Insurance business in India is divided into four classes:

1) Life Insurance

2) Fire Insurance

3) Marine Insurance and

4) Miscellaneous Insurance.

Life Insurers transact life insurance business; General Insurers transact the rest.

No composites are permitted as per law.

Insurance Products in India

Life Insurance

Popular Products: Endowment Assurance (Participating), and Money Back (Participating). More than

80% of the life insurance business is from these products.


General Insurance

Fire and Miscellaneous insurance businesses are predominant. Motor Vehicle insurance is compulsory.

IRDA

Insurance Regulatory and Development Authority (IRDA) was constituted in 1999 by an Act of

Parliament to protect the interests of the policyholders and to regulate, promote and ensure orderly

growth of the insurance industry. IRDA consists of a ten member team that comprises a Chairman, five

whole-time members and four part-time members. IRDA allows registration of new players in the

insurance field. It also has the authority to renew, modify, withdraw, suspend or cancel such registration.

IRDA ensures protection of the interests of the policy holders in matters concerning assigning of policy,

nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy

and other terms and conditions of contracts of insurance. It specifies requisite qualifications, code of

conduct and practical training for intermediary or insurance and agents. After creation of IRDA,

insurance sector has seen tremendous growth. Before IRDA came into force there were only two

players in the insurance field, namely, Life Insurance Corporation of India (LIC) and General Insurance

Corporation of India (GIC). Since then 23 new players have entered in the insurance sector.

Life Insurance Industry in India

The US$ 41-billion Indian life insurance industry is considered the fifth largest life insurance market, and

growing at a rapid pace of 32-34 per cent annually, according to the Life Insurance Council. Since the

opening up of the insurance sector in India, the industry has received FDI to the tune of US$ 525.6

million. The government is likely to reintroduce the Insurance Bill which proposes to increase the FDI

cap in private sector insurance companies from 26 per cent to 49 per cent.

The total number of life insurers registered with the Insurance Regulatory Development Authority (IRDA)

has gone up to 23, with registration of the India First Life Insurance Company Limited, a joint venture life

insurance company promoted by Bank of Baroda and Andhra Bank, India and Legal & General Middle

East Limited, UK.


The Life Insurance Corporation (LIC) posted a 50 per cent growth in new premium collection in the first

nine months of the 2010 fiscal, increasing its market share to 65 per cent from 56 per cent a year ago.

LIC’s new premium collection touched US$ 9.58 billion in the April-December 2009 period while the

combined business of the 22 private insurers grew to US$ 5.07 billion from the previous year, as per

data collated by the Insurance Regulatory and Development Authority (IRDA). Overall the industry grew

at 29 per cent in the April-December period of the fiscal year 2010.

The life insurance industry had earlier been expected to grow by 15 per cent in the 2010 fiscal year and

cross the US$ 54.1 billion mark in total premium income by the end of March 2010, according to

industry body, Life Insurance Council. However, industry experts now believe that India's life insurance

industry is likely to grow by around 10 per cent in 2010 over the previous year, mainly due to increased

efficiency but also due to expansion in small towns and villages.


Insurance Penetration in India – An International Comparison


Insurance Density in India – An International Comparison


Growth of Insurance Industry in India

0

500000

1000000

1500000

2000000

2500000

2003 2004 2005 2006 2007 2008

Growth of Life and Non-life Inssurance in India

Life insurance

Non-Life Inssurance


Present Distribution Channels for Insurance Products in India

Insurance industry in India for fairly a longer period relied heavily on traditional agency (individual

agents) distribution network IRDA. As the insurance sector had been completely monopolized by the

public sector organizations for decades, there was slow and rugged growth in the insurance business

due to lack of competitive pressure. Therefore, the zeal for discovering new channels of distribution and

the aggressive marketing strategies were totally absent and to an extent it was not felt necessary. The

insurance products, by and large, have been dispensed mainly through the following traditional major

channels:

1. Individual agents

2. Direct sales staff

3. Bancassurance

4. Corporate agent

5. Agency Office

6. Brokerage firms

It was only after IRDA came into existence as the regulator, the other forms of channels, viz., corporate

agents including Bancassurance, brokers (an independent agent who represents the buyer, rather than

the insurance company, and tries to find the buyer the best policy by comparison shopping2), internet

marketing and telemarketing were added on a professional basis in line with the international practice.

As the insurance sector is poised for a rapid growth, in terms of business as well as number of new

entrant, tough competition has become inevitable. Consequently, addition of new and number of

distribution channels would become necessary.


Insurance Distribution Channels


The Kotak Mahindra Group

Overview

Kotak Mahindra is one of India's leading financial organizations, offering a wide range of financial

services that encompass every sphere of life. From commercial banking, to stock broking, to mutual

funds, to life insurance, to investment banking, the group caters to the diverse financial needs of

individuals and corporate. The Kotak Mahindra Group was born in 1985 as a non-banking financial

organization and known as Kotak Capital Management Finance Limited. The company was promoted

by Uday Kotak, Sidney A. A. Pinto and Kotak & Company. Industrialists Harish Mahindra and Anand

Mahindra took a stake in 1986, and that's when the company changed its name to Kotak Mahindra

Finance Limited. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was

given the license to carry on banking business by the Reserve Bank of India (RBI) and Kotak Mahindra

Bank was instituted. Kotak Mahindra Finance Ltd. is the first company in the Indian banking history to

convert to a bank.

The group has a net worth of over Rs. 7,900 crore and has a distribution network of branches,

franchisees, representative offices and satellite offices across cities and towns in India and offices in

New York, London, San Francisco, Dubai, Mauritius and Singapore. The Group services around 7

million customer accounts.

Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra Old Mutual Life Insurance is a joint venture between Kotak Mahindra Bank

Ltd. (74%) along with its affiliates and Old Mutual plc (26%). Kotak Mahindra Old Mutual Life

Insurance is one of the fastest growing insurance companies in India and has shown remarkable growth

since its inception in 2001. It employs around 5,565 people in its various businesses and has a

distribution network of 214 branches across 152 cities. It is one of the most consistent performers in


terms of growth in Indian insurance industry. Kotak Life Insurance is known for its cutting-edge products

and excellent fund performance among its competitors.

Old Mutual PLC.

Old Mutual plc is an international savings and wealth management company based in the UK.

Originating in South Africa in 1845, it is among the top 50 largest companies in the FTSE100 index. The

group has a balanced portfolio of businesses offering Asset Management, Life Assurance, Banking and

General Insurance Services in over 40 countries, with a focus on South Africa, Europe and the United

States, and a growing presence in Asia Pacific. The Company has major assets in the United

Kingdom and in the United States, where the majority of its funds under management were located

before the Skandia deal took place. With Skandia acquisition, it is the 3rd largest UK Insurer and 8th

largest European Insurer.

Old Mutual plc owns some of the largest companies in the following areas in South Africa

No. 1 - Life Insurance Company

No. 1 - Asset Management Company

No. 4 - Bank

No. 2 - Non-Life Insurance Company

Progress till date

Kotak Life Insurance continues to demonstrate a consistent, value-based growth in a challenging and

competitive environment. The company holds the reputation of being one of the most capital efficient

users in the life insurance space and in the top quartile of companies in the industry in terms of

Premium to Capital ratio – a measure of capital efficiency for the industry. The Paid-up Share Capital of

the Company stands at Rs. 510 crores (March 2010). The


Company has raised the bar in capital efficiency by expanding the business with an infusion of merely

30 Crores and no requirement of additional capital in the year 2009-10.

The company has a Pan-India presence with 214 branches across 152 cities. The expansion was

focused on Tier II cities which provided favourable business potential and enabled targeting of a larger

segment of the semi-urban and rural population resulting into 43% growth in rural policies.

The company has a strong fund performance history – leaders in capital guarantee performance. It is

also ranked among the top performers in terms of average premium per policy. With a strong and

competitive product basket offering some of the most innovative products in the industry, it is

considered to be a quality player in Indian life insurance industry.

Business and Distribution Channels

The business of the Company is broadly divided into three major channels:

a. Tied Agency

The Company has a reputation of creating and maintaining a professionally-trained life advisor force

that is capable of providing the appropriate advice and customised solutions to consumers. It has

increased the strength of its life advisor to 42,083 at the end of the FY 2009. The company has also

invested heavily on training in order to maintain stringent standards for its life advisors. To encourage,

develop and support successful life advisors and to enhance their skills, it has introduced some

innovative programmes whereby life advisors are sponsored for “Certified Financial Planner” (CFP)

degree or a “Kotak Financial Planner” course. The company continues to focus on employee

productivity and to be among the top in the industry on the basis of premium per employee.


b. Alternate Channels

After its inception in 2001, Kotak Life Insurance has concentrated significantly on building the Alternate

Channel of distribution through Bancassurance, Corporate Agents, Brokers and Referral arrangements.

This has expanded and shaped the business considerably in terms of both value and scale. It has a

strong relationship with its parent company Kotak Mahindra Bank Ltd. with the Bank being a significant

contributor to the Alternate Business with. It has also tie ups with small co-operative banks in various

parts of the country. Other companies of the Kotak Group are also expected to contribute significantly to

the growth. As on 31st March, 2009, it has 100 corporate agents and 127 empanelled brokers. Its

channel partners include large distribution houses like Cholamandalam and large broking houses like

Bajaj Capital, Anand Rathi and Karvy. With capital efficiency being the continuous focus area, the

alternate channel provides tremendous potential and promise to build a cost effective business for the

firm.

Kotak Life Insurance has three major Alternate Channels of distribution-

Group companies/Bancassurance (CAT A)

Nationalized Brokers (CAT B)

Corporate Agency (CAT C)

c. Group Insurance

The Company provides a range of products from Term Insurance, Credit Insurance to Gratuity and

Superannuation Schemes to cater to its group clientele. Strong relationships within the Kotak Group as

also the IRDA licensed Insurance Brokers have resulted in generation of significant business in this

segment. The company generated a premium income of Rs. 148.28 crores (2008 – Rs. 131.58 crores)

from the group insurance business representing a growth of 13% at the end of FY 2009.


Product Portfolio

Protection • Kotak Term Plan

• Kotak Preferred Term Plan

• Kotak Eternal Life Plan

• Kotak Loan Protection Plan

Retirement • Kotak Retirement Income Plan (UL & Traditional)

• Kotak Second Innings Plan

Wealth creation -

traditional

• Kotak Child Advantage Plan

• Kotak Endowment Plan

• Kotak Money Back Plan

• Kotak Capital Multiplier Plan

• Kotak Surakshit Jeevan

Wealth creation -

market linked

• Kotak Headstart Child Plans

• Kotak Platinum Edge Plan

• Kotak Safe Investment Plan II

• Kotak Super Advantage


History

In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by Ford Credit International

(FCI) and FCI acquired the stake in Ford Credit Kotak Mahindra (FCKM) held by Kotak Group.

In May 2006, Kotak Group bought 25% stake held by Goldman Sachs in Kotak Capital and Kotak

Securities.


Since its inception, it's been a steady and confident journey to growth and success -

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 The Auto Finance division is started

1991The Investment Banking Division is started. Takes over FICOM, one of India's largest

financial retail marketing networks

1992 Enters the Funds Syndication sector

1995

Brokerage and Distribution businesses incorporated into a separate company - Kotak

Securities. Investment Banking division incorporated into a separate company - Kotak

Mahindra Capital Company

1996 The Auto Finance Business is hived off into a separate company - Kotak Mahindra Prime

Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a

significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles. The

launch of Matrix Information Services Limited marks the Group's entry into information


distribution.

1998Enters the mutual fund market with the launch of Kotak Mahindra Asset Management

Company.

2000

Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.

Kotak Securities launches its on-line broking site (now www.kotaksecurities.com).

Commencement of private equity activity through setting up of Kotak Mahindra Venture

Capital Fund.

2001 Matrix sold to Friday Corporation

Launches Insurance Services

2003Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company

to do so. – Single conversion of NBFC into bank by RBI in Indian History

2004 Launches India Growth Fund, a private equity fund.

2005Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime (formerly

known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak Mahindra.

Launches a real estate fund


2006Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and

Kotak Securities

Group Management

Mr. Uday Kotak - Executive Vice Chairman & Managing Director

Mr. C. Jayaram - International business

Mr. Dipak Gupta - Indian business, HR Heads reports from all functions

Key group companies and their businesses

Kotak Mahindra Bank: The Kotak Mahindra Group's flagship company, Kotak Mahindra Finance Ltd

which was established in 1985, was converted into a bank- Kotak Mahindra Bank Ltd in March 2003

becoming the first Indian company to convert into a Bank. Its banking operations offer a central platform

for customer relationships across the group's various businesses. The bank has presence in

Commercial Vehicles, Retail Finance, Corporate Banking, Treasury and Housing Finance.

Kotak Mahindra Old Mutual Life Insurance Limited: Kotak Mahindra Old Mutual Life Insurance

Limited is a joint venture between Kotak Mahindra Bank Ltd. and Old Mutual plc. Kotak Life Insurance

helps customers to take important financial decisions at every stage in life by offering them a wide range

of innovative life insurance products, to make them financially independent.

Kotak Mahindra Capital Company: Kotak Mahindra Capital Company Limited (KMCC) is India's

premier Investment Bank. KMCC's core business areas include Equity Issuances, Mergers &

Acquisitions, Structured Finance and Advisory Services.


Kotak Securities: Kotak Securities Ltd. is one of India's largest brokerage and securities distribution

houses. Over the years, Kotak Securities has been one of the leading investment broking houses

catering to the needs of both institutional and non-institutional investor categories with presence all over

the country through franchisees and coordinators. Kotak Securities offers online (through

www.kotaksecurities.com) and offline services based on well-researched expertise and financial

products to non-institutional investors.

Kotak Mahindra Prime: Kotak Mahindra Prime Limited (KMP) (formerly known as Kotak Mahindra

Primus Limited) has been formed with the objective of financing the retail and wholesale trade of

passenger and multi utility vehicles in India. KMP offers customers retail finance for both new as well as

used cars and wholesale finance to dealers in the automobile trade. KMP continues to be among the

leading car finance companies in India.

Kotak Mahindra Asset Management Company: Kotak Mahindra Asset Management Company

(KMAMC), a subsidiary of Kotak Mahindra Bank, is the asset manager for Kotak Mahindra Mutual Fund

(KMMF). KMMF manages funds in excess of Rs 30,000 crore and offers schemes catering to investors

with varying risk-return profiles. It was the first fund house in the country to launch a dedicated gilt

scheme investing only in government securities.

Kotak's International Business: With a presence outside India since 1994, the international

subsidiaries of Kotak Mahindra Bank Ltd. operating through offices in London, New York, Dubai, San

Francisco, Singapore and Mauritius specialize in providing asset management services to specialist

overseas investors seeking to invest into India. The offerings are differentiated India investment

solutions that span all major asset classes including listed equity, private equity and real estate. The

subsidiaries also lead manage and underwrite international issuances of securities. With its

commendable track record, large presence on the ground and a team of dedicated staff in India, Kotak’s

international arm is suitably positioned for managing assets in the Indian Capital markets.


Research Methodology

Title of the Study

A Detailed Study on Bancassurance Model of Insurance Distribution in Reference of Kotak Life

Insurance

Duration of the Project

The project was undertaken for 52 day (21st June 2010 to 10th August 2010)

Objectives of Study

To study various business models for Insurance Industry.

To understand the concept of Bancassurance as one of the alternative for insurance distribution.

To study the viability for different Bancassurance models in context to Indian Insurance industry.

To evaluate the alternative of ‘Financial Holding Company’ as a successful model for

Bancassurance development.

Type of Research

It is a Descriptive Research and the main objective of descriptive research is to learn about who, what,

when and how. It includes study and fact finding inquiries of different kinds. Thus the major purpose of

descriptive research is the description of the state of affairs, as it exists at present.


Framework of Analysis

The study has been undertaken to examine and understand the marketing aspect for a business

playing a crucial role in the growth. The framework of study concern with structure of marketing channel.

Scope of Study

Development of industries depends on several factors such as financial, technology, quality of the

services and social responsibility. Out of these, marketing aspects assume a significant role in

determining the growth of industries. All of the organization operation virtually affects its need for cash

that create aims to explore this product.

Limitation of the Study

Throughout the study utmost care has been taken to avoid biases, errors so as to ensure authenticity

and accuracy. But there is possibility for some discrepancies to come in between due to following

limitations:

Respondents may give their biased opinion, as they know the identity of Management Trainee.

It was difficult to get appointment from the person whom I know because of their busy schedule.

Since the project had to be completed within eight weeks, it was too short a time to convert the

prospective advisors.

Since the study involved a through analysis of the insurance market and relative study of various

players offering the similar products and that of similar, it required a dedicated labor in term of

both time and effort. Since the curriculum did not permit more time, the study had to be very

limited.


Assumption is made that views and suggestion given by the respondent are his factual

knowledge about information.

The study is not free from communication error.

My study is based on responses of client and guidance of corporation only, which may not give a

true picture.

Last but not the least and the most deciding factor paucity of time.


Bancassurance

Introduction

The Indian insurance sector has undergone a sea change in the last eight years, ever since the sector

was opened up for private players. Traditionally, insurance products are sold only through individual

agents and they account for a major chunk of the business in retail segment. With the opening up of this

sector to private players, competition has become more intense and the public sector major LIC has

been challenged with a flood of new products and new means of marketing. Instead of falling back on

the individual agents for business, new insurance companies have started to experiment with other

channels such as bancassurance and insurance brokers.

Bancassurance - a term coined by combining the two words bank and insurance (in French) - connotes

distribution of insurance products through banking channels. Bancassurance encompasses terms such

as ‘Allfinanz’ (in German), ‘Integrated Financial Services’ and ‘Assurebanking’. This concept gained

currency in the growing global insurance industry and its search for new channels of distribution. Banks,

with their geographical spread and penetration in terms of customer reach of all segments, have

emerged as viable sources for the distribution of insurance products.

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

distribution channels”. In concrete terms Bancassurance - describes a package of financial services that

can fulfil both banking and insurance needs at the same time. It takes various forms in various countries

depending upon the demography and economic and legislative climate of that country. Demographic

profile of the country decides the kind of products Bancassurance shall be dealing in with, economic

situation will determine the trend in terms of turnover, market share, etc., whereas legislative climate will

decide the periphery within which the Bancassurance has to operate.

The business of banking around the globe is changing due to integration of global financial markets,

development of new technologies, universalization of banking operations and diversification in non-

banking activities. Due to all these movements, the boundaries that have kept various financial services


separate from each other have vanished. The coming together of different financial services has

provided synergies in operations and development of new concepts. One of these is bancassurance.

Bancassurance has been successful in Europe, France (from where it originated), Italy, Belgium and

Luxembourg. Bancassurance was not much popular in USA as Glass Steagall Act, 1933 prevented

banks of USA from entering into alliance with financial service providers, therefore putting a ban on

bancassurance. As a result of this, Life insurance was primarily sold by insurance agents, who focused

mainly on wealthier class of people, which lead to majority of American middle class households

uninsured. With US government repealing the act, and after the passage of Gramm-Leach Bliley Act,

1999, the concept of Bancassurance started gaining momentum in USA also.

Coming to India, bancassurance is a new buzzword in India. It originated in India in the year 2000 when

the Government issued notification under Banking Regulation Act which allowed Indian Banks to do

insurance distribution. It started picking up after Insurance Regulatory and Development Authority

(IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. As per the concept of

Corporate Agency, banks can act as an agent of one life and one non-life insurer. Currently

bancassurance accounts for a share of almost 25-30% of the premium income amongst the private

players in India.


In India, ever since espousing of financial reforms following the recommendations of First Narasimhan

Committee, the contemporary financial landscape has been reshaped. Banks, in particular, stride into

several new areas and offer innovative products, viz., merchant banking, lease and term finance, capital

market / equity market related activities, hire purchase, real estate finance and so on. Thus, present-day

banks have become far more diversified than ever before. Therefore, their entering into insurance

business is only a natural corollary and is fully justified too as ‘insurance’ is another financial product

required by the bank customers.

The Reserve Bank of India being the regulatory authority of the banking system, recognising the need

for banks to diversify their activities at the right time, permitted them to enter into insurance sector as

well. Furtherance to this line, it issued a set of detailed guidelines setting out various ways for a bank in

India to enter into insurance sector. In the insurance sector, the Insurance Regulatory and Development

Authority (IRDA), despite its recent origin in 2000, avowed to regulate and develop the insurance sector

in India through calibrated policy initiatives. Given India’s size as a continent, it has however a very low

insurance penetration and low insurance density. As opposed to this, India has a well entrenched wide

branch network of banking system which only few countries in the world could match with. On the one

hand we have a very low insurance penetration and low insurance density as compared with the

international standards; on the other hand, India has a widely stretched and well established banking

network infrastructure. It is this contrasting situation to assimilate the two systems by way of

‘bancassurance strategy’ to reap the benefits of synergy. It is against this backdrop that a new

‘bancassurance strategy’ was explored by the private players and supported by the regulatory

authorities which integrates banking and insurance sector to harness the synergy and its allied

problems and prospects in the Indian context.

Above all, in India still vast majority of banking operations are conducted through the manual operations

at the banks’ branch level with relatively less automation such as ATMs, Tele-banking, internet banking,

etc., unlike many developed countries. This stands out as an added advantage for the banks to have

direct interface with the customers, to understand their needs/ tastes and preferences, etc., and

accordingly customize insurance products. In fact there is also greater scope for innovation of new

insurance products in the process. Bancassurance therefore is uniquely suited to exploit the economies

of scope for the banks in India. Significantly, even customers stated to prefer for banks entering into

insurance. For instance, a survey conducted by FICCI revealed that 93 per cent of the respondents

have preferred banks selling insurance products. Therefore bancassurance can be a feasible activity

and viable source of additional revenue for the banks.


The motives behind Bancassurance also vary. For banks it is a means of product diversification and a

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 product and delivery at doorsteps. Actually, everybody is a winner here.

The outlook for bancassurance remains positive. While development in individual markets will continue

to depend heavily on each country’s regulatory and business environment, bancassurers could profit

from the tendency of governments to privatise health care and pension liabilities. In emerging markets,

new entrants have successfully employed bancassurance to compete with incumbent companies. Given

the current relatively low bancassurance penetration in emerging markets, bancassurance will likely see

further significant development in the coming years.

Bancassurance Ventures – Requirement of clear objectives


Penetrate client base further with more products.

Leverage Positive Image

Increase customer

Buy lower-costs productsBuy more products from a Single sourceGet better, more efficient Service

Be aligned with good public image of bank Forge relationship earlier in customer’s life Lower acquisition costs

Bancassurance in Indian Context

In India, Bancassurance is a novel concept. Insurance and Banking are two different sectors and are

regulated by different entities:

1. All Banks come under the control of Reserve Bank of India (RBI)

2. Insurance sector follow the guidelines of Insurance Regulatory Development Authority (IRDA)

Hence ,the banks entering into Insurance business has to follow the norms of both RBI and

IRDA. Banks can act as a corporate agent for any one of life or non life insurers. But cannot

become insurance brokers for more than one life or non life insurers.

RBI Guidelines

1. Any Commercial Bank can undertake insurance business as an agent of insurance company on fee

basis. There is no risk participation for such banks.

2. Joint Ventures will be allowed for financially strong banks who are wishing to undertake insurance

business with risk participation if they satisfy the following criteria:

- Net worth of the bank should not be less than Rs. 500 crore

- Capital Adequacy Ratio should not be less than 10% in the bank

- There should be reasonable level of Non Performing Assets (NPA)

- The bank should have earned net profit continuously for last three years

- If there is any subsidiary, in such cases, the performance of subsidiaries should be satisfactory

3. Banks which are not eligible for joint venture participation can opt up to

- 10% of the net worth of bank (or)

- Rs. 50 Crores whichever is lower

Besides this, the requirements relating to the Non Performing Assets, Capital Adequacy Ratio and Net

Profit maintained has to be followed as per the rules mentioned in the participation of banks in Joint

ventures.

In the 2001 Report on Currency and Finance, the RBI laid down its views in more concrete term. “The

Reserve Bank, in recognition of the symbiotic relationship between banking and the insurance


industries, has identified three routes of banks’ participation in the insurance business, viz., (i) providing

fee-based insurance services without risk participation, (ii) investing in an insurance company for

providing infrastructure and services support and (iii) setting up of a separate joint-venture insurance

company with risk participation. The third route, due to its risk aspects, involves compliance to stringent

entry norms. Further, the bank has to maintain an ‘arms length’ relationship between its banking

business and its insurance outfit. For banks entering into insurance business with risk participation, the

prescribed entity (viz., separate joint-venture company) also enables to avoid possible regulatory

overlaps between the Reserve Bank and the Government/IRDA. The joint-venture insurance company

would be subjected entirely to the IRDA/Government regulations.”

IRDA Norms

According to IRDA, a private sector participant has to fulfil the following requirements to enter into the

insurance business:

1. Banks should have a minimum paid up capital of Rs.100 Crores

2. Investments have to be made in the policyholder funds only in India.

3. There is a restriction of international companies to the minority equity holdings up to 26%.

4. Each bank selling insurance should have a Chief Insurance Executive to handle all the activities and

matters relating to the insurance.

5. Commercial Banks, Co-operative Banks and Regional Rural Banks may become the corporate

agents for one insurance company.

6. Banks can act as a corporate agent for any one of life or non life insurers. But cannot become

insurance brokers for more than one life or non life insurers.

IRDA has also notified regulations relating to registration of insurers, their assets and liabilities, conduct

of business, licensing of insurance agents etc.


Few Bancassurance Tie-ups in India

Bank Insurance Company

1. Barclays2. J&K Bank3. Karnataka Bank4. Dhanlakshmi Bank

Metlife India

1. DBS Bank2. American International Group

Tata AIG

1. Karur Vysya Bank 2. Centurion bank3. Syndicate Bank4. Lord Krishna Bank

Bajaj Allianz

1. ABN-Amro 2. Bank of Rajasthan3. Lakshmi Vilas Bank 4. IndusInd Bank5. Punjab & Sind Bank

Aviva Life Insurance Company

1. SBI2. BNP Paribas

SBI Life Insurance Company

1. Citi Bank2. Andhra Bank3. Bank of Muscat4. Development Credit Bank5. IDBI Bank6. Deutsche Bank7. Catholic Syrian Bank

Birla Sun Life Insurance Co. Ltd.

1. Allahabad Bank National Insurance Company, LIC of India

1. Central Bank of India New India Assurance

1. HDFC Bank2. Indian Bank3. Bank of Baroda

HDFC Standard Life

1. ICICI Bank2. Allahabad Bank3. J & K Cooperative Bank

ICICI Lombard

1. AXIX Bank2. Vishweshwar Sahakari Bank

LtdMax New York Life


1. Corporation Bank 2. Punjab National Bank3. Oriental Bank of Commerce4. Centurion Bank5. Indian Overseas Bank6. South India Bank7. Dena Bank8. Sahara District Central Co-op

bank9. Vijaya Bank10.Janta Urban Co-operative bank

LIC of India


Models and Prospects of Bancassurance

Bancassurance has evolved in different models since its origins in the European Union (EU) in the mid-

1980s. The classic European model is an integrated one, with common ownership or some form of

exclusive commitment between the insurance provider and bank distributor. In the US, the model

involves virtually total separation between the two, while in many emerging markets like Asia-Pacific,

where foreign insurers compete for shelf space on the limited number of domestic bank distribution

platforms, a third structure is evolving. The different models drive profitability, product design and the

operational challenge. While comparable profit data across a range of bancassurers is fragmentary at

best, it would appear that the integrated European model not only combines both substantial

manufacturing and distribution margins in insurance products but also offers significant operational

economies in both the bank and front office. The available data thus indicates a relatively impressive

return on investment and client penetration for experienced, integrated European bancassurers like

KBC, Aviva and Crédit Agricole, as well as relative newcomers like HSBC in Asia-Pacific.

Broad Approaches/Models

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. Bank and an insurance company together manufacture, distribute

and bear all the risks associated with that business.

Non-integrated model: Banks sell insurance through authorized financial advisers as bank staff is not

allowed to sell. For instance, UK

Open architecture model: Banks 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 Although different

models of bancassurance are in vogue in India, corporate agency model is most popular.


Popular models for Bancassurance

Traditional Bancassurance

Where the manufacturing and distribution of insurance products are owned under one roof –

popular strategy in the 1990s

In Europe, banks have invested an estimate US $52 bn in insurance acquisitions since 1990

Examples: NAB -MLC, CBA -CFS, HBOS –Halifax Financial Services, HSBC –HSBC Life

Joint Ventures

JVs typically involve 50:50 ownership of a separate insurance subsidiary with the purpose of

cross-selling these products into retail customer base

The attractions of a JV over an outright acquisition are theoretically a potentially lower capital

outlay, as well as both parties having an equal share of risk

Examples: ANZ –ING, ABN Amro –Aviva, Banca Intesa –Alleanza


Distribution Arrangements

Distribution agreements are currently the least common bancassurance strategy among the

major banks, but are fast finding popularity

While this strategy requires the lowest overall capital commitment, the disadvantage is less

control for both parties, especially the insurer if the arrangement is non-exclusive

Examples: Barclays, Legal & General –Barclays act as a distributor for L&G in return for a

distribution commission

Bancassurance Models – Various Classifications

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 for commission. The actual transaction with the prospective client in referral

model is done by the staff of the insurance company either at the premise of the bank or elsewhere.

Referral model is nothing but a simple arrangement, wherein the bank, while controlling access to the

client’s 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 resorts to this

model and then move on to the other models.

b) Corporate Agency

The other form of non-risk participatory distribution channel is that of ‘corporate agency’, wherein the

bank staff is trained to appraise and sell the products to the customers. Here the bank as an institution

acts as corporate agent for the insurance products 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. Besides, resistance from staff to handle totally new service/product could not be

ruled out. 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. Interestingly, even in a developed country like US, banks stated to have

preferred to focus on the distribution channel akin to corporate agency rather than underwriting

business. Several major US banks including Wells Fargo, Wachovia and BB &T built a large distribution

network by acquiring insurance brokerage business. 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 where banks will have a

counter to sell/market the insurance products as an internal part of its rest of the activities. This includes

banks having a wholly owned insurance subsidiary with or without foreign participation. In Indian case,

ICICI bank and HDFC banks in private sector and State Bank of India in the public sector, have already

taken a lead in resorting to this type of bancassurance model and have acquired sizeable share in the

insurance market, also made a big stride within a short span of time. 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 extent of regulation of insurance sector, the foreign insurance

company could enter the Indian insurance market only in the form of joint ventures; therefore, this type

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

II. Product-based Classification

i) 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, e.g.,

Karur Vysya Bank Ltd selling of life insurance products of Birla Sun Insurance or non-life insurance

products of Bajaj Allianz General Insurance Company.

ii) Blend of Insurance with Bank Products

With the financial integration both within the country and globally, insurance is increasingly being viewed

not just as a ‘stand alone’ product but as an important item on a menu of financial products that helps

consumers to blend and create a portfolio of financial assets, manage their financial risks and plan for

their financial security and well being. This strategy aims at blending of insurance products as a ‘value

addition’ while promoting its 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.

Bancassurance models – Indian context

Distribution of agreements

Banks act as a tied agent and sell the insurance products of one insurer extensively in standalone basis or bundled with other bank products.

Strategic Alliance

In this case, Banks are indulged in high degree of intervention in product development, providing services and channel management in insurance business without any contingent liability.

Joint Venture

Here a large bank with well-developed customer database partners with a large insurance company with strong product and channel experience. This is done in order to develop a powerful distribution


model. Alternatively, a bank and insurance company may agree to have cross holdings between them to share the profits.

Financial Service Group

Under further integration between the bank and insurer, an insurance company can either build or buy a bank or build or buy an insurance company.

Bank Referral

Here, the banks instead of issuing policies to the customers, they give the database to the insurance companies. These insurance companies issue the policies to the customers and pay commission to banks for referral.

Suitability of bancassurance model

The industry players analyzed the various models in operation across the world, which provided them

with a wide variety of options and went for a model that seemed appropriate to them. While it is as yet

early to comment on the models the banks and insurance companies have decided to settle for, these

players are increasingly going in for the Corporate Agency model. This model is attractive for the banks

as it offers handsome returns (up to 35% in the first year of new business procured) involves very low

start-up costs (investment in the time and licensing of employees) and the business risk is underwritten

entirely by the insurance companies. Insurance products wrapped around the Bank’s loan and deposit

products have also been gaining in popularity due to their mass appeal and simple product design while

the referral model tie-ups have not been that successful. A few banks like Allahabad Bank and Bank of

India have even migrated from the referral model to the Corporate Agency model.

There are two developed country modalities that India might move to: the Continental European Model

and the American Model. India is moving towards the Continental European model. The peculiar

structure of the American model is an outcome of longstanding firewall between banks and insurance

companies and a prohibition of expansion of business for both insurance and banks across state lines.

This overhang is absent in India. Take the example of insurance business. There is no state by state

limit of insurance business. There are minimum business requirements for rural areas.


The Atlantic Divide of Bancassurance

Continental Europe United StatesProducts Simple Extended bankBrand Extended bank brand Co-brandChannel Bank branch Direct to customersSales Bank generalists TPM/SpecialistsOrganization Integrated SilosInsurance Carrier Few ManyChallenges Adapting to change IntegrationPenetration 30%+ 10%

Source: Marielle Theron’s presentation at the SwissRe India CEO Summit, 2003.

Comparing Bancassurance in Europe, Asia and India

Europe Asia (General) IndiaRegulation Liberalized Ranging from

Liberalized to forbidden

Supportive

Market growth Mature markets but pensionreforms can spur growth in the life insurance sector

High growth potential

High growth

Bancassurance model

Highly integrated models

Mostly distributionalliances and joint ventures

Distributive

Major drivers Tax concessions for lifeinsurance premium paidSqueeze on bank margins

Squeeze on bankmarginsInsurers’ growing costpressure and desire toexpand distributioncapabilityFinancial deregulationForeign companies usebancassurance to enter Asian market

Tax free statuson maturitySmall tax reliefon premiumNarrowing bank margin


Products Mainly life

insurance productsto maximize tax benefitsMostly single premium

Mainly life insuranceproducts linked to bankservices andincreasingly, productsgeared towards managed savings

Mainly non -unitizedRegular premium

Distribution Multi-bank branches

Mainly bank branches

Bank branches

Major players Domestic banks and insurers

Foreign companies are playing an important role.

Foreign companies areplaying an important role

Sophistication High Varied Low

Bancassurance – A Win-Win Strategy

Benefits to Banks

Improvement in profitability/productivity

Increase in customer loyalty

Increase in RoA without increasing Asset

Increase in shareholders’ value

Hedging credit risk, to some extent

Better utilization of manpower, branch network

Creation of sales-oriented culture

Benefits to Insurance Companies

Lower cost of customer acquisition

Penetration in virgin territory

Increase in volume and profit

Improved brand equity

Benefits to Customers

One stop shopping for all financial services


Lower cost of insurance

Hassle-free post-sales services

Comprehensive financial advisory services under one roof

Innovative and better product ranges

Easy access for claims, as banks is a regular go

Other benefits

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.

Why should banks enter in insurance?

There are several reasons why banks should seriously consider Bancassurance, the most

important of which is increased return on assets (ROA). One of the best ways to increase ROA,

assuming a constant asset base, is through fee income. Banks that build fee income can cover

more of their operating expenses, and one way to build fee income is through the sale of

insurance products. Banks those effectively cross-sell financial products can leverage their

distribution and processing capabilities for profitable operating expense ratios.

For the banks, income from bancassurance is the only non interest based income. By selling

insurance policies bank earns a revenue stream apart from interest. It is called as fee-based

income. This income is purely risk free for the bank since the bank simply plays the role of an

intermediary for sourcing business to the insurance company.

Another advantage banks have over traditional insurance distributors is the lower cost per sales

lead made possible by their sizable, loyal customer base. Banks also enjoy significant brand

awareness within their geographic regions, again providing for a lower per-lead cost when

advertising through print, radio and/or television. Banks that make the most of these advantages

are able to penetrate their customer base and markets for above-average market share.

By leveraging their strengths and finding ways to overcome their weaknesses, banks could

change the face of insurance distribution. Sale of personal line insurance products through banks

meets an important set of consumer needs. Most large retail banks engender a great deal of trust


in broad segments of consumers, which they can leverage in selling them personal line insurance

products. In addition, a bank’s branch network allows the face-to-face contact that is so important

in the sale of personal insurance.

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

culture in their employees. Productivity of the employees increases.

Until the entry of private insurers, state-owned insurance entities relied solely on the tied agency

force and their own employees. But agents and employees have their limitations. After a while,

the less aggressive ones see their sources and contacts dry up, and growth in the sale of new

policies decreases. Distances handicap those with a sales drive. Here banks excel. They have a

captive and growing customer base they can exploit to cross-sell products.

Banks can cross sell insurance products, eg. Term insurance products with loans.

Other strengths of the bank are their marketing and processing capabilities. Banks have

extensive experience in marketing to both existing customers (for retention and cross selling) and

non-customers (for acquisition and awareness). They also have access to multiple

communications channels, such as statement inserts, direct mail, ATMs, telemarketing, etc.

Banks' proficiency in using technology has resulted in improvements in transaction processing

and customer service.

By successfully mining their customer databases, leveraging their reputation and distribution

systems (branch, phone, and mail) to make appointments, and utilizing sales techniques, banks

can increase the conversion rates of insurance leads into sales and can increase sales

productivity to a ratio which would be more than enough to make bancassurance a highly

profitable proposition. Customer database like customers' financial standing, spending habits,

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

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.

In non-life insurance business, banks are looking to provide additional flow of revenues from the

same customers through the same channel of distribution and with the same people.

Deregulation of banking industry in India has given banks an opportunity to differentiate its

products and service and promote its strength and remove its weakness.

Technology has enabled the banks to design the innovative products that need to be promoted

and marketed.


Why should insurers enter in Bancassurance Tie-ups?

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.

India's rural market has huge potential that is still untapped by the insurance companies. Setting

up their own networks entails such a huge cost, that no company would be interested in doing so.

Bancassurance again comes as an answer. It helps the insurance companies to tap the market

at a much lower cost.

Insurers look to the Bancassurance as an alternative and consider it as a cost-effective mode of

distribution as against costly agency services. As for the Insurance Companies, they can

increase their business through banking distribution channel as banks have large and extensive

customer base. By cutting the cost of Insurance products, Insurance can serve the customers at

over premium rates and have better risk coverage through diversification of their products.

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 ratio of expenses to premiums, an important efficiency factor, it is noticed very well that

expenses ratio in insurance activities through bancassurance is extremely low. This is because

the bank and the insurance company is benefiting from the same distribution channels and

people.

Insurers have much to gain from marketing through banks. Personal-lines carriers have found it

difficult to grow using traditional agency systems because price competition has driven down

margins and increased the compensation demands of successful agents. Over the last decade,

life agents have sold fewer and larger policies to a more upscale client base. Middle-income

consumers, who comprise the bulk of bank customers, get little attention from most life agents.

By capitalizing on bank relationships, insurers will recapture much of this underserved market.

Insurance companies at best needs to invest only on training the frontline bank staff that too in

the case of corporate agency. In the case of referral arrangements, insurers’ own agents could

act upon the client’s data base supplied by the banks. Possibilities of cost saving and expected

revenue gain for insurance companies thus are high. Experience of banks’ staff in understanding


their clients’ requirements would help the insurer in greater deal to innovate new products or to

improvise the existing products at a greater speed.

Advantages to consumers

The most immediate advantage for customers is that, in insurance business the question of trust

plays a greater role, especially due to the inbuilt requirement of a long term relationship between

the insurer and the insured. The void between the less known newer private insurance

companies and the prospective insured could be comfortably filled by the banks because of their

well established and long cherished relationship. Under these circumstances, any new insurance

products routed through the bancassurance channel would be well received by the customers.

Above all, in the emerging scenario, customers prefer to have a consolidation and delivery of all

financial services at a single window in the form of ‘financial super market’, irrespective of

whether financial or banking transactions, because such availability of wide range of financial/

banking services and products relieves the customers from the painstaking efforts of scouting for

a separate dealer for each service/ product.

Customers could also get a share in the cost savings in the form of reduced premium rate

because of economies of scope, besides getting better financial counselling at single point.

Issues in Bancassurance

Banks

It is yet to be seen how far buying shelf space in a bank helps push sale of insurance. Besides

the target audience is limited to those individuals who visit the bank during the working hours.

And with technology changing at a rapid pace ATMs and internet banking have been reducing

the individual’s visits to the bank which could perhaps be a dampener for bancassurance.

Banks may have to part with confidential information about their clients.

Due considerations be given in performance appraisal for specified persons.

Possibility of banks using the long term insurance funds to meet their short term liquidity and the

problem of asset – liability management also could not be ruled out.


Issue of incentives for the staff should be resolved. But the Banking Regulations Act does not

permit financial incentives for bank employees. Insurance partners are therefore resorting to

other means. Unlike its private sector counterparts, which have tie-ups with foreign and private

sector banks, the LIC faces a major challenge pushing sales through public sector banks, the key

issue being its inability to incentivise bank employees to hawk its products.

Bancassurance tends to have greater influence where banking habits are well entrenched. In

Continental Europe, good examples can be found in countries like France, Belgium, and the

Netherlands. Customers there visit their banks more frequently than in other countries. In other

markets, where securities markets dominate, bancassurance developments have been relatively

mute. These also happen to be countries with English Law origin: Australia, Canada, United

Kingdom and United States.

A review of the tie-up arrangements with insurance companies from time to time is essential.

The trained manpower should be used exclusively for bancassurance.

Bank must go for life and general insurance simultaneously in order to obtain scale economies as

well as synergy

Initially, a joint approach (banker and insurer) to sales and after sales services could be adopted.

Insurance Companies

Legal issues: Regulatory authorities for both - banks and insurance companies are different in

India.

The top management of insurance companies, in particular public sector insurers must take

bancassurance more seriously and evolve comprehensive strategies to forge alliances with

banks.

In India all insurance companies in private sector of recent origin are in the process of stabilizing,

also highly aggressive due to tough competition. The over ambitiousness should not smack their

own limitation, especially in the case were insurance business is an internal organ of the

universal banking system. Especially in a situation such as large scale natural calamities, viz.,

Tsunami, earthquake, floods, etc., would have a serious debilitating impact on the banking

system, via insurance business. Therefore, the regulation and supervision needs to address the

institution as a ‘financial conglomerate’ rather than each institution individually.

Possibility of abuse of consumers by bankers from being coerced to buy insurance products

against their will need to be guarded, which RBI has been already emphasising in its circular.


Banks and Insurance Companies

One disadvantage that has come up in this model is that banks, after allying with one insurance

company may discontinue it to set up their own venture. Changing insurance partners due to

attractive benefits offered by a competing insurer is also not ruled out. Mergers and takeover

situations may also lead to a rein in bancassurance partners.

There seems to be lack of clarity between insurer and banks in regard to several operational

activities including for instance, marketing.

Banks are always sceptical on whom they choose for this tie-up. Most of the banks prefer to tie

up with an insurance set up that does not have a bank within the group. There is always the

chance, and hence fear, of data being captured by rival banks.

One pertinent issue is how far bancassurance will succeed when insurance is a product that is

sold not bought in our country. Insurance needs hard selling but banks have never been

aggressive about selling financial products.

Bancassurance involves addressing the cultural divide between banks, which take an institutional

approach to selling, and insurance, where selling is done by highly motivated individuals.

Blending these cultures has been a challenge in all markets, whatever the ownership

relationship. In addition, the relatively lower and historically more volatile returns on insurance

have been a factor in the banks’ view of the insurance segment.

The recent financial crisis of 2007-09 has had a traumatic impact on global bancassurance.

Sales of life and other long-term investment products have collapsed as banks prioritize deposits

to replenish their liquidity, and clients flee the equity market in favour of cash and liquidity.

Another issue raised by the crisis is the durability of long-term bancassurance links. While the

overall durability of joint ventures and ownership links has historically been quite positive, the

crisis has not only seriously damaged leading bancassurance competitors such as Fortis, KBC

and ING, who have been forced to retrench by massive asset losses, but has also driven many to

divest themselves of banking or insurance affiliates because of a need for capital in the

downturn.

Another area of concern is that of customer service and satisfaction.

Although expected, a restrictive feature of the bancassurance regulations is that they appear to

constrain the corporate agent to receiving only commission; profit-sharing arrangements would

seem to be ruled out. Many experts feel that this practice is unfortunate as profit sharing

agreements, which are increasingly common internationally, serve to align the interests of the


bank and the insurance company. Also, as products sold through bank channels can be highly

profitable, such agreements may be financially advantageous for banks. In the longer term a

profit-sharing agreement can help a bank move from being a distributor to a manufacturer of

insurance products thus leading to greater integration in the financial services marketplace.

With more integration between and among various constituents of financial sector, there is

greater possibility for ‘contagion effect’.

The problem of ‘conflict of interest’ would also arise in a different form; as banks are privy to a lot

of information about the customer, especially in the context of know your customer (KYC) system

being in place, these information could be used by the insurers for their unfair advantage.

The regulator of the insurance sector is of very recent origin unlike the banking sector regulatory

authority, viz., RBI. Although IRDA has done appreciable work within the short period, the

regulation itself is a learning experience; any major migration of risk from insurance to banking

would be more devastating if that was not handled appropriately at the right time.

In the absence of a unified regulator or a single regulator, the possibility for ‘regulatory arbitrage’

could not be ruled out. Presently there is no statutory compulsion that the regulators should part

with each other the sensitive information relating to their respective regulatory areas in order to

read the signal, if any, which has systemic implications. Conflicts of interest between different

regulators also could not be ruled out.

Differences in the risk characteristics in banking and insurance will persist, relating, in particular,

to the time pattern and degree of uncertainty in the cash flows and that has to be recognised and

appropriately handled.

The insurers’ internal risk management and control systems for managing their asset market

activities, and credit risk seems to be relatively less transparent unlike the banking system as

also the prudential regulatory and supervisory system towards insurance is relatively recent one

and less rigor as compared with the banking system, especially in the context of the banking

system moving towards the Basel II framework.

Ensuring transparency and disclosure on activity-wise may be difficult task for the regulators,

albeit it is essential.

Deficiency in bancassurance model

Bancassurance is turning out to be an unreliable model for insurance companies in some cases

as insurance companies may soon lose a large chunk of their business from bancassurance.


This is because banks are setting up their own insurance ventures on one hand and changing

insurance partners, lured by the hefty premium offered by a competing insurer, on the other.

According to industry observers, with more insurance companies starting operations, competition

has intensified and there is a huge premium on securing an arrangement with a bank.

Bancassurance model is weak when it comes to claims settlement. The Insurance Regulatory

and Development Authority of India (IRDA) have expressed concern over the performance of

banks with regard to claims settlement. Estimates suggest that around 80 per cent of the claims

that are filed are done with the help of agents. Under the bancassurance model, though banks

are efficient in handling credit insurance related claims; their performance is poor when it comes

to settlement of personal lines products.

The most common challenges to success 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.

Private sector insurance firms are finding ‘change management’ in the public sector a major

challenge. State-owned banks get a new chairman, often from another bank, almost every two

years, resulting in the distribution strategy undergoing a complete change. In the private sector,

the M&A activity is one of the causes for change.

The process of data exchange and sharing is eminent for successful implementation but there

was no collaboration between the life and general insurance councils. In segments such as motor

and health, data is not exchanged. It is an area of concern and work needs to be done.

The other conflict that most insurers face is when they have a bank within their own group. Half

of the insurance firms in India are part of a financial group that has a bank. They include ICICI

Bank, State Bank of India, ING Vysya, HDFC, Jammu & Kashmir Bank, and Kotak Mahindra

Bank. According to experts, there is a fear among banks that at some point in future their

insurance partner may end up cross-selling banking services to their policyholders.

Though the Insurance Regulatory and Development Authority (IRDA) is considering open

architecture, the insurance industry is divided over the issue. The move, which would allow a

bank to sell products of multiple insurance companies, is being opposed by most of the banks

that have floated insurance ventures. Insurance companies promoted by banks are opposing

multiple tie-ups.

Bancassurance, in its early stages in India, has brought about a host of cultural, HR and

Operational challenges along with it. The success of the players concerned would lie in how they


are able to overcome the same. For the banks it is the challenge of making their employees

cover new ground by first undergoing mandatory hours of training, clearing a written test, getting

themselves licensed and selling a new stream of products aggressively, in addition to their

regular banking products. For the insurance companies, it is the challenge of facilitating this

fledgling distribution channel to the fullest possible extent by designing appropriate products, a

very conducive operational environment especially for the medical and financial underwriting

process and designing effective training programs. Banks also have the vital task of managing

long-term insurance contracts by servicing it continuously till its logical conclusion thus resulting

in a perennial revenue stream.

Selling an insurance product is different from selling a banking product. Despite the creation of

awareness in the country, insurance continues to be sold and not bought. In contrast, customers

approach banks to buy a product and hence bank employees need not be as aggressive in

selling.

A common strategy of the leading insurance providers is to be present, as appropriate, in all the

major insurance distribution channels – company employee/agency, bancassurance and

independent brokers (IFAs). It is widely assumed that there will be a natural shift from agents to

banks to brokers as the market becomes wealthier, more sophisticated and willing to pay for

advice and choice. One challenge for the future of the bancassurance channel in this regard is

the growth of direct channels such as the Internet, in particular for simple products such as auto

and home insurance.

The flip side of the bancassurance as revealed by the international experience, are that, as some

of the products of insurance, especially from the long term savings point of view, resemble

closely that of the term deposits of the banks, there was apprehension that insurance products

would supplant the bank products instead of supplementing. There has also been problem that

not all the insurance products, the banks could market, in the European countries at least in the

initial stage. Furthermore, there were also resistances, in the initial stages, from the insurance

agents/ brokers due to apprehension of loss of business for them by channelling insurance

products through banks.

The difference in working style and culture of the banks and insurance sector needs greater

appreciation. Insurance is a ‘business of solicitation’ unlike a typical banking service, it requires

great drive to sell/ market the insurance products. It should, however, be recognized that

‘bancassurance’ is not simply about selling insurance but about changing the mindset of a bank.

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

widely disparaged for the lethargic attitude and poor quality of customer service, it needs to


refurbish the blemished image. Else, the bancassurance would be difficult to succeed in these

banks. Studies have revealed that the basic attitudinal incompatibility on the part of employees of

banks and insurance companies and the perception of customers about the poor quality of banks

had led to failures of bancassurance even in some of the Latin American countries.

Bankers in India are extremely naïve in insurance products as there were no occasions in the

past for the bankers to deal in insurance products; therefore they require strong motivation of

both monetary and non monetary incentives. This would be more so in the emerging scenario

due to complex innovations in the field of insurance / pension products at a rapid pace with the

entry of a number of foreign insurance companies with vast experience in the developed

countries’ framework.

Banks have all along been functioning strictly on a ‘traditional banking style’ with highly

compartmentalised manner. Now that the banking system enjoys more of ‘structural freedom’

exposing themselves to non-traditional activities such as insurance, derivatives, investments

banking, etc., there is possibility of migration of risks from the rest of the activities to the banking

system. Thus, the increased market integration and globalisation are demanding new realism on

the part of the regulator and supervisor for stricter prudential regulation and supervisor on ‘inter-

sector’ activities especially, considering the pace with which the system is moving.


Bancassurance – Findings and Facts

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)

Bancassurance offer huge business potential for banks and insurance companies because of

growing economy and banking and insurance sector

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 in the long-run

There is also scope for banks to explore other models of bancassurance. The major part of

business in bancassurance still happens only at the branch. The other streams such “out of

branch model” and “private banking and wealth management” is yet to pick up to a large extent.

Despite the numerous bancassurance tie-ups, it is not expected that all partnerships should

succeed. It all depends upon evolving the right model for the particular bank. For example, in the

case of Standard Chartered, Allianz Bajaj has deputed its own employees to work side by side

with the bank staff, who identify prospective customers. In its venture with Syndicate Bank, partly

on account of union issues, it has trained the bank employees to hawk its risk products.

Bancassurance – Analysis

The strategy of bancassurance has been highly successful in Europe, especially France and Portugal stated to be most successful in bancassurance wherein as much as 70 % of the insurance products were sold through the banking channel alone followed by Spain where more than 59 % of the insurance products were being sold through the banks. Almost 100% banks in France are selling insurance products.


In terms of ‘insurance penetration ratio’ (defined as ratio of insurance premium to GDP), a key indicator

of the spread of insurance coverage and insurance culture, India compares poorly by international

standards. The penetration ratio was less than one per cent in 1990s and it improved to 4.8% by end-

March 2006. As against this, a Survey Report of Swiss Re revealed that the penetration ratio as at end-

March 2006, in respect of some of the European countries, viz., UK and Switzerland at 16.5% and

11.0%. In Asia, Taiwan and South Korea had registered their respective ratio of as high as 14.5% and

11.1%. Insurance Penetration ratio for the World was placed at 7.5% far greater than that of India.

Most important factors for the success or otherwise of bancassurance in most of the countries cited in

the literature is the favourable legal system in the respective country, supported by the availability of

strong banking infrastructure coupled with the banking culture. The system of ‘relationship banking’

stated to have contributed amply in building up of bancassurance. It may be pointed out that a flexible

banking system catering to understand the needs and requirements of the customers intimately is

considered to be best suited for bancassurance. In other words, stronger the bank customer

relationship, higher the prospects for bancassurance. Above all, the reputations of the banks were also

stated to have played a key role in popularising the concept of bancassurance in Europe. Fiscal factors

in the form of tax incentives also played crucial role in some countries such as France. Literature has

also amply pointed out that besides diversifying their activity and optimizing the choice of products,

bancassurance have contributed sizably to the banks’ earnings in European countries especially when

there was tremendous pressure on the banks’ net interest margin due to stiff competition in the banking

industry. Moreover, as the banking system in most of the European countries have reached a state of

saturation with the traditional banking activities ‘bancassurance’ helped them in great deal to diversify

their activity and also stated to have lent a helping hand to the banks to retain their customers’ loyalty.

It also equally helped the insurance companies to spread out their market network at relatively shorter

time, efforts and above all with lower cost.

A recent study by Boston Consulting Group (BCG) and Bank Administration Institute in USA claims that

if banks made a major commitment to insurance and a more narrowly targeted commitment to investors,

within 5 years they could increase retail revenues by nearly 50%. It further states that

Banks could capture 10% to 15% of the total U.S. insurance and investment market by selling

products to 20% of their existing customers.

Banks' existing infrastructure enables them to operate at expense levels that are 30% to 50%

lower than those of traditional insurers.


Bancassurers bank-branch based sales system sells 3 to 5 times as many insurance policies as

a conventional as a conventional insurance sales and distribution force.

By simplifying Bancassurance products each back office bank employee can quintuple managing

policies compared to traditional insurers.

Potential of Bancassurance in India

The penetration of life insurance as a whole is abysmally low at 4.1 per cent of GDP in India.

Bancassurance currently accounts for one fourth of the total new premium collected. Going by the

number of the branches selling insurance products, it appears that it is yet to attain critical mass. Out of

the over 1.75 lakh branches of commercial and co-operative banks, hardly one-fourth are engaged in

selling insurance products. If more and more branches start to sell insurance products, particularly the

cooperative banks, the penetration of insurance may increase sizeably. Bancassurance will play a

crucial role in the overall development of the domestic insurance sector, with private insurers expected

to mop up 40 per cent of their premium income by 2012 through this distribution model. According to

Towers Watson India Bancassurance Benchmarking Survey 2009-10, this is significantly higher than

the current 25-28 per cent.

Banks are major players in the Indian Financial System:

67,000 branches (32,000 rural and 14,700 semi urban)

Enormous retail account base of 450 mn Deposit Accounts

Total deposit base of Rs. 43.6 trillion (USD 300 bn)

Brick & Mortar Model of Banking

Approximately 80% of Banking Transactions are done at the Bank Branches

Very High Trust in the Banking System

Bank Managers looked upon as “Financial Advisors”

Over 56.8% of Financial Household Savings lie with the Banks


Bancassurance – Performance in India

Kotak Life Insurance

The bancassurance channel contributed 22 per cent of the total business for Kotak Mahindra Old

Mutual Life Insurance in 2009-10. This business has come through Kotak Mahindra Bank, 22 co-

operative banks and the 400 branches pan-India.


Source: RBI Annual Report

LIC

Life Insurance Corporation of India, which accounts for 50 per cent of the total new business premium

collected in the industry, still depends considerably on individual agents and the business through the

bancassurance channel is limited, in relation to the overall business.

But lately although bancassurance accounts for just 2 per cent of LIC’s new business premium, it is

bracing up for the challenge. It has hired 800 people for referral tie-ups with several brokerages and

regional rural banks.

Aviva Life Insurance

For Aviva India, bancassurance was the capital-friendly way of making inroads into the Indian market in

a short span of time. In 2002, as much as 70 per cent of the company’s business came from

bancassurance. This has now dropped to 50 per cent. Aviva, which has an earlier tie-up with Canara

Bank, moved to Bank of Rajasthan for a new tie up. Its majority business coming from bancassurance

became a wonderful example of successful implementation of bancassurance in Indian context. But the

recent developments of Bank of Rajasthan being acquired by ICICI bank again put a gloomy picture in

front of the organization. It also re-emphasized about the fact that the industry as a whole and the

bancassurance model in particular have some volatility.


Bancassurance business conducted by companies

The bancassurance channel accounts for about 25% of the total new premium collected by the industry

in 2009. Private players are exploring this channel much thoroughly with almost 30% + of their premium

coming from bancassurance channel.

Company % of Policies

Kotak Life Insurance 21.2% in 2008, 22% in 2009

Aviva Life 70% in 2004, 50% in 2008

ICICI Prudential 30% in 2004, 33% in 2008

HDFC Standard Life 10% in 2002, 40% in 2008

Birla Sun Life 40% in 2004, 24% in 2009

SBI Life Insurance 50% in 2004, 33% in 2009

MetLife 25% in 2002, 27% in 2008

Source: Newspaper reports, various dates.

Bancassurance in India - A SWOT Analysis

Strengths: In a country of 1 Billion people, sky is the limit for personal lines insurance products. There

is a vast untapped potential waiting to be mined particularly 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.

Weaknesses: The IT culture is unfortunately missing completely in all of the future collaborators i.e.

banks, GIC & LIC. The middle class population that we are eyeing at are today overburdened, first by

inflationary pressures on their pockets and then by the tax net. Fortunately, LIC schemes get IT

exemptions but personal line products from GIC (mediclaim already has this benefit) like householder,

travel, etc. also need to be given tax exemption to further the cause of insurance and to increase

domestic revenue for the country.

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

the customer.


Opportunities: Banks' database is enormous even though the goodwill may not be the same as in case

of their European counterparts.

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

on the part of everybody involved. Our 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.

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

Long Term Drivers of Bancassurance in India

The staffing problem has redirected some banks to bancassurance and so has the reduction of bad loan

problem. But, they are not the long term drivers of bancassurance in India. The long term drivers in

India are going to be the following. (1) The culturally more acceptable banking transactions. Banking

does not have the same stigma that (life) insurance carries. This factor will diminish in importance over

time as people become more educated. (2) Banks can offer fee-based income for insurance sales. This

can be attractive under current rigid structure of wage benefits. At present, banks are prohibited from

offering commission to the bank employees for selling insurance products. Banks have found ways to

circumvent the problem. For example, they offer "car allowance" for the employees selling insurance.

(3) Narrowing bank margins are another key driver. (4) Banks have complementary products with

insurance products such as the auto insurance, home insurance or annuities. (5) When the pension

reform is undertaken (and it is in the works), banks can become natural institutional vehicles for private

pension products. In some countries, banks are explicitly prohibited from selling pension products (e.g.,

Australia). In some other countries, banks are the leading private pension providers (e.g., Mexico). (6)

Healthcare insurance sector can also benefit from bancassurance. In India, only 2.5 million people have

access to healthcare facilities. On the other hand, 5% of personal income is spent on healthcare. Banks

can distribute and facilitate administration of healthcare insurance. (7) In many countries, the absence

of banks from selling insurance seems to stem from regulatory reasons. In India, privatization of the

insurance sector signalled an accommodating approach from both the insurance regulator and the

banking regulator for banks entertaining the thoughts of selling insurance


Bancassurance Alliance Structure

Banking and insurance entities have more similarities than differences, characteristics that may favour

joint production and business synergies. Through diversification, the bancassurance approach reduces

the resources required to manage risk, which in turn results in lower costs. Bancassurance alliance

structures are classified into six categories stand on the bank whether direct cross-operation insurance

business activities by the aforementioned studies and the current status and business model of

bancassurance. The following alliance structures are introduced here –

I. Direct cross-operation

(a) Financial holding company (FHC): An FHC is a financial conglomerate that engages in at least

two different financial industries as a single entity, including the banking, security, and insurance

industries. FHC means a company that is established in accordance with India’s various financial

regulations act and has a controlling interest in a bank or insurance company.

Eg – Kotak Group

(b) Holding shareholding (HS): The bank makes equity investment in insurance companies. It

becomes an insurance companies’ limited liability shareholder.


(c) Establishing a new joint venture (JV): A bank and an insurance company jointly establish

another, new insurance company.

II. Indirect involvement

(a) Precompetitive alliances (PA): Indirect involvement means that the agreement or the cooperative

relationship is usually established according to the terms of a written contract. Moreover, it has a

specified duration and does not establish another, new company.

Eg- Aviva Life Insurance having distribution arrangement with Bank of Rajasthan Ltd.


Equity Investment

(b) Establishing insurance intermediaries (Agent/Broker): A bank invests to establish an insurance

“agency” or “brokerage” (IA or IB) company and then an agent or a broker contract with the

insurance companies. At the same time, the bank sells products of these insurance companies and

gains commissions. The difference between insurance agents and insurance brokers is that agents

can be a substitute for insurance companies to issue policies, insurance brokers cannot.

Alternatives

The above discussed alliance structures for Bancassurance development can be analyzed as the

alternatives for selection by the companies entering into Bancassurance tie-ups. These alternatives can

be summarized as below –


Evaluation criteria

Based on the general consensus among experts and previous research done on the subject, a

hierarchical structure is established for various evaluation criteria. The best choices for a

bancassurance structural model can be selected and assessed based on the alternatives discussed

above, four evaluation criterion and ten evaluation sub-criterion.

Hierarchical structure to select and evaluate the best bancassurance alliance structure from the executive management perspectives


I. Corporate culture differences

It is widely recognized that corporate culture differences between the partners of a merger are one of

the most common reasons for failure in mergers. In case of a bancassurance tie-up, typically banking

industry focuses on risk diversification and insurance companies focuses on risk management. Thus it

can be deduced that banking and the insurance companies have various degrees of difference,

including salary structure, information platform, management style, and organizational values etc.

(a) Functional difference: Banking and insurance companies have the main difference lying in their

different functions. Banking has the financial intermediary function; for example, providing payment,

trading clearing, savings, credit, and other tools. It promotes economic activities that can be carried

out smoothly. On the other hand, insurance industry is to provide risk management services for the

general public, and transfer or guarantee of hazard loss. It promotes general public life stability and

the stable operation of economic activities. These functional differences can be seen more

prominently in case of failed joint ventures and distribution arrangements where both the institutions

lack the capability of adapting and adjusting according to the functional preferences of each other.

(b) Sources and uses of funds: Banking and insurance are same in terms of sources of funding. The

majority of funding is from the public's savings funds (for example, the deposits of the banking

sector and the insurance premium income of the insurance), and the minority is from owners'

capital. The uses of funds though are totally different, such as the use of funds in banking industry

is clearly segregated into short, medium and long-term nature, while life insurance contract is long-

term in nature, non-life insurance contract is partial to short-term in nature and so are there uses of

funds. These differences are more prominent when there is no clear agreement or contract for such

purposes in a bancassurance tie-up.

(c) Operating risk: Both banking and insurance companies are facing operating risks including credit

risk, interest rate risk, foreign exchange risk, liquidity risk, off-balance sheet risk, market risk,

strategic risk and reputation risk etc. But as a result of banking and insurance having different

operation characteristics, the difference may have an impact mainly on insurance companies which

may have to face some probable due to forecast inaccuracy. These risk parameters can be of huge

impact when the top management of both the firms are different and thus focuses of reducing risk

in their own interest. In such case, a Financial Holding Company may resolve many of such issues

by having collective policy of reducing risk in both the subsidiary at the same time.


II. Operating synergy

It is a proven fact that the banks and insurance companies have synergies in the production of financial

services. Synergies may be obtained by sharing assets between business units if production based on

these assets are subject to declining average unit cost, thus generating economies of scale or scope. It

is also pointed out in the studies that operating synergies are the main source for economies of scale

and scope.

(a) Economies of scale: It implies that an expansion of the cross-sector consolidation may increase

the scale of the firm’s and decrease average costs. This can be achieved by focusing on volumes

in which case, distribution arrangement between banks and insurance companies have more merits

than Financial Holding Companies or Joint Ventures.

(b) Economies of scope: Economies of scope derive from offer of products or services diversification.

The concept of economies of scope relates to the ability of a firm to utilize one set of inputs to

provide a broader range of products and services. Thus by focusing on innovative product

development and well diversified product portfolio with a mix of banking and insurance products,

economies of scope can be achieved. It requires in-house capability and synergy in product

development process of both the banks and insurance companies which can be achieved in case

of having a parent company to overview the whole process in a more efficient and effective

manner.

III. Conflict of the member companies of the alliance

After establishment of alliance structure, alliance members may face the problems of conflicts of service

channels, revenues and costs allocation. It may lead to moral hazard and thereby affects the overall

operating performance of the bancassurance tie-up.

(a) Conflict of interest: It mainly occurs due to the similarity in interests of both the entities where the

priority associated with some interests by an entity causes damage to the interests of the other

party. For eg, the delay in insurance claims disputes may damage to original bank's well-image.

These conflicts can be minimized by having a common top management as in case of FHC which

enables speedy resolutions of such conflicts and developing policies to reduce occurrence of such

conflicts in an integrated manner.

(b) Channel conflict: The server channels for bancassurance include direct mail marketing, branch


office network, counter personnel, call centre and company websites etc. A channel conflict can

occur when the channels of alliance partners cross-sell each other’s products to the same

customers. In such cases, integration of the various channel partners with free information flow is

required which is very difficult to achieve in case of distribution arrangements between banks and

insurance companies. Most of the time, different channels

functions as a competitor in these distribution arrangements where probability of channel conflicts

increases to a great extent.

IV. Alliance managerial mechanism

Alliance management capability is a multi-dimensional construct which includes the ability to select

appropriate partners, to build trusting relationships, to absorb and apply new knowledge gained, to

develop tacit and codified routines etc. Effective alliance forms generate benefits either by reducing

costs or engaging in value-creation initiatives. Therefore, it is necessary to create an effective alliance

management mechanism to achieve those benefits.

(a) Customer Relationship Management: Customer Relationship Management (CRM) leverages

technology to coordinate business-customer interactions with the objective of building long-term

customer loyalty. Cross-selling can allow the firm to get more familiar with the customer’s

preferences and buying behaviour, thereby increasing its ability to satisfy the customer’s needs

more effectively. CRM abilities are more preferable by organizations having large scare operations

and integrated mechanism for both of the banking and insurance employees. Thus having a

common CRM platform is mainly possible in FHC model only.

(b) Alliance risk: It can be argued that different alliance structure models have different possibilities to

fail or do not live up to expectations. The goal of business generally is to find the suitable

alternative alliance to minimize the negative effects caused by alliance risk. These alliance risks are

more when the contracts are loosely bound and the alliances can be easily broken down. This is

the major disadvantage of distribution arrangements where banks can dictate its terms and thus

can easily back out of the contract. There is an increasing trends of such incidence resulting into

high importance associated with alliance risks while undergoing bancassurance tie-ups.

(c) Solvency capital: It is found that solvency capital appeared in both executives’ and supervisors’

criteria, although the groups had a slightly different formulation of the criterion: the executives


wanted to optimize the capital while the supervisors were concerned about the fulfilment of the

minimum capital requirements. The return on equity (ROE) is one of the most important

performance measures in financial enterprises, that is to say, the higher the return on equity, the

protection of creditors is greater. Therefore, company management must carefully optimize the

relation between working capital and balance sheet.


Results

The above analysis can be summarized in the following table -

Evaluation Criteria

Financial Holding

Company (FHC)

Holding Shareholding

(HS)

Joint Venture (JV)

Precompetitive Alliances (PA)

Establishing Insurance

Intermediaries (Agent/Brokers)

Corporate Cultural DifferencesFunctional DifferencesSources and uses of fundsOperating Risks

Operating SynergyEconomies of ScaleEconomies of ScopeConflict of the member companies of the AllianceConflict of InterestChannel Conflict

Alliance Managerial MechanismCustomer Relationship ManagementAlliance risk

Solvency Capital

Favourable

Slight Favourable

Unfavourable


Emerging Trends

Though bancassurance has traditionally targeted the mass market, bancassurers have begun to finely

segment the market, which has resulted in tailor-made products for each segment. The quest for

additional growth and the desire to market to specific client segments has in turn led some

bancassurers to shift away from using a standardised, single channel sales approach to adopting a

multiple channel distribution strategy. Some bancassurers are also beginning to focus exclusively on

distribution.

The outlook for bancassurance remains positive. While development in individual markets will continue

to depend heavily on each country’s regulatory and business environment, bancassurers could profit

from the tendency of governments to privatise health care and pension liabilities. In emerging markets,

new entrants have successfully employed bancassurance to compete with incumbent companies. Given

the current relatively low bancassurance penetration in emerging markets, bancassurance will likely see

further significant development in the coming years.

In some markets, face-to-face contact is preferred, which tends to favour bancassurance development.

Nevertheless, banks are starting to embrace direct marketing and Internet banking as tools to distribute

insurance products. New and emerging channels are becoming increasingly competitive, due to the

tangible cost benefits embedded in product pricing or through the appeal of convenience and

innovation.

Finally, the marketing of more complex products has also gained ground in some countries, alongside a

more dedicated focus on niche client segments and the distribution of non-life products. The drive for

product diversification arises as bancassurers realise that over-reliance on certain products may lead to

undue volatility in business income. Nevertheless, bancassurers have shown a willingness to expand

their product range to include products beyond those related to bank products.

A distinct feature of the recent trend in tie-up arrangements was that a number of cooperative banks

have roped in with bancassurance agreement. This has added advantage for insurer as well as the

cooperative banks, such as the banks can increase the non-fund based income without the risk

participation and for the insurers the vast rural and semi-urban market could be tapped without its own

presence.


Many bancassurers have made significant efforts to move up from the mass market client segment, for

which the early bancassurance model was designed, to more upscale segments such as the affluent,

SME and high net worth categories. At the same time, their product offering has broadened to include a

range of life and non-life offerings.

Insurance companies are targeting different market segments by affiliating with banks that do niche

banking. Take the example of Aviva. Aviva has evolved a three-layered strategy. The first layer is a tie-

up with ABN Amro and American Express. It caters to high net worth urban customers. The second

layer is a tie up with Bank of Rajasthan. Through this nationalized bank with wide network of branches,

it reaches customers across the length and breadth of the country. The third layer, at a regional level, a

tie-up with Lakshmi Vilas bank focuses on the region specific customers. This tie-up helps them reach

customers in rural and semi-urban centers in Tamil Nadu and Andhra Pradesh.

Global Bancassurance Trends

The key factors impacting development of Bancassurance across the globe are:

Regulatory Environment in the country

Tax Advantages attached to insurance products

Banking Habits –Is Visiting the Bank natural to customers?

Europe-Bancassurance accounts for 35% of the sales in the European life insurance market

and is the dominant distribution channel in a number of South European countries such as

Belgium, France, Italy, Spain and Portugal.

US–Bancassurance started developing post the crumbling of barriers set by the Glass-

Steagal Act in late 1990s

Asia–Bancassurance is in its nascent stage in Asian Life Insurance Market but is developing

very rapidly due to presence of Brick & Mortar Model of Banking in most of the Asian

countries.


Conclusion

The result shows that Financial Holding Company (FHC) in bancassurance alliance models is

preferable, as FHC have the advantages of operating synergy, multiple financial products research, risk

diversification effect and tax saving effect theoretically. However, because of the regulatory restrictions,

such as the minimum paid-up capital of the FHC is Rs 500 crore, many financial institutions are unable

to establish FHC. For that reason, they cooperate with each other via other alliance structure models.

For an insurer without a bank distribution network in the targeted market, the challenge is to find a major

bank prepared to offer access to its retail client base on acceptable terms. A critical such term is an

exclusive agreement with a single bank which permits alignment of front and back offices – effectively

straight through processing – and joint investment in marketing, training and product development. In

Europe, insurers like Aviva and CNP have been able to knit mutually satisfactory, long-term alliances

which have, so far, stood the test of time. But this has been achieved only by heavy investment in

systems, skilled specialist personnel and a management posture which is flexible enough to manage

the inevitable conflicts such as compensation and product selection. Over time, banks have been able

to play a leading role in many bancassurance alliances because of the contribution of their client base. It

is estimated that perhaps 70-75% of the overall profits of such an alliance are paid in one form or

another to the banking partner.

After the failures of some major bancassurance tie-ups in Indian insurance industry, there is an

increasing surge of banks coming up with insurance subsidiaries to control their insurance operations in

an efficient manner. This transformation of strategy in the Indian banking industry which is climbing up

the value chain to develop and distribute insurance products by itself reinsures the conclusion

mentioned here that now financial institutions are preferring Financial Holding Company for both

banking and insurance operations rather than having a distribution agreement between them. The

advantage of such arrangement clearly outweighs the risk associated with the alliance structure which

can be attributed to the increasing importance given to the bancassurance model of insurance

distribution.


Key Drivers for successful Bancassurance

• Commitment from the Top Management

• Involvement of Bank Branch Staff

• Target Customer Segments & Products

• Distribution Strategies

Commitment from the Top Management…

Commitment of Top Management –both Bank and Insurance Co.

o Bank Management to promote insurance as a CORE PRODUCT

o Insurer to provide all relevant sales and operational support

Clear & Comprehensive Agreement & Business Plan

Bank to give sufficient Weightage to Insurance products in the internal performance scorecard

Insurance sales to be included in Bank Officers Appraisal Process

Involvement of Bank Branch/Sales Staff…

Bank Branch/Sales staff to accept Insurance products as one of their CORE PRODUCTS

Constant motivation & incentivisation of Bank staff to sell insurance products

o Run Reward & Recognition Programs

o Develop some ‘Branch Champions’

o Progress Monitoring System

Bank Staff should be well coached by the Insurer


Collaboration is the key

Bank + Insurer = Benefit to the Customer

In their natural and traditional roles and with their current skills, neither banks nor insurance companies

could effectively mount a Bancassurance start-up alone. Collaboration is the key to making this new

channel work.


References (Bibliography)

Bancassurance – The Lessons of Global Experience in Banking and Insurance Collaboration, 3rd

Edition, Steven I Davis

Bancassurance – A feasible strategy for banks in India, Reserve Bank of India Occasional

Papers, Winter 2006, A Karunagaran

Bancassurance – Trends and Opportunities, 2nd Edition, Ravi Bbbb VV

Problems and Prospects of Bancassurance - An evidence from India, Ali Reza Momeni

Swiss Re (2009): World Insurance in 2008, Sigma No 3/ Switzerland.

Swiss Re (2002): Bancassurance Developments in Asia, Sigma No 7/ Switzerland.

Towers Watson India Bancassurance Benchmarking survey 2009-10

Bancassurance: A common platform for future of banking and insurance industry; Business Line

Article; May 13,2009

Bancassurance: A win-win model for insurance companies, banks; Business Line Article

www.bancassuranceworld.com

www.kotak.com

www.kotaklifeinsurance.com

www.irdaindia.org

www.rbi.org.in

Jitendra

[email protected]


http://www.rbi.org.in/

http://www.irdaindia.org/

http://www.kotaklifeinsurance.com/

http://www.kotak.com/

http://www.bancassuranceworld.com/

study on bancassurance model of insurance distribution in reference of kotak life insurance

Documents

insurance premier

contracts of insurance

indias insurance sector

indian insurance sector

rajasthan kotak life

project report

project training

project study report