hiralkothari
New member
Bancassurance
Introduction
With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. New entrants in the insurance sector had no difficulty in matching their products with the customers' needs and offering them at a price acceptable to the customer.
But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Further insurable population of over 1 billion spread all over the country has made the traditional channels of the insurance companies costlier. Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices.
With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. This union of the two sectors is what is known as Bancassurance.
What is Bancassurance?
Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, Bancassurance, tries to exploit synergies between both the insurance companies and banks.
Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the customer.
Advantages to banks
• Productivity of the employees increases.
• By providing customers with both the services under one roof, they can improve overall customer satisfaction resulting in higher customer retention levels.
• Increase in return on assets by building fee income through the sale of insurance products.
• Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products.
• Banks can cross sell insurance products Eg: Term insurance products with loans.
Advantages to insurers
• 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.
• Customer database like customers' financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly.
• Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily.
Advantages to consumers
• Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.
• Enhanced convenience on the part of the insured
• Easy access for claims, as banks is a regular go.
• Innovative and better product ranges
Bancassurance in India
Bancassurance in India is a very new concept, but is fast gaining ground. In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Highlights of the guidelines are reproduced below:
RBI guideline for banks entering into insurance sector provides three options for banks. They are:
• Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation;
• For banks which are not eligible for this joint-venture option, an investment option of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is available;
• Finally, any commercial bank will be allowed to undertake insurance business as agent of insurance companies. This will be on a fee basis with no-risk participation.
The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are:
• Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities.
• All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority.
• Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company.
• Banks cannot become insurance brokers.
Bancassurance in the 21st Century
Through a series of mergers, takeovers and joint ventures between banks and insurance companies, the past 20 years have seen the growth of bancassurance to become an increasingly dominant force in key financial services sectors across the globe: a trend that is set to continue.
The opportunities for the industry to target new customer segments and develop new products are currently immense. Emerging markets, changing employment patterns, growing disposable incomes and longer retirement periods mean that consumers have increasingly complex insurance and financial requirements.
Bancassurance in the 21st Century provides you with a detailed global overview of the bancassurance market and presents you with opportunities to maximize revenues from this growing sector.
- Presents a detailed overview of the current developments in the bancassurance industry from a global perspective.
- Examines the market environment, regulations, products, distribution and company activities in four regional financial services markets: Europe, Asia, Middle East and Africa and the Americas and looks at the activities, opportunities and future challenges each of these markets present in order to help you grow your business successfully in these regions.
- Explains how the diversification and innovation in distribution channels is a key component of the value chain and why improving effectiveness in branch networks is an important strategy for integrating and distributing life and investment products.
- Insightful studies into the opportunities and challenges facing players in China's booming insurance market, tensions surrounding cross-border consolidation in Italy and the opportunities surrounding prospective social security reforms in the US.
- Provides you with examples of how the leading bancassurance companies are tackling the challenges such as how Aviva generates business via partnerships with Spanish savings banks and ING targeting growth in South Korea through the development of financial solutions and new sales channels.
- Explains how the diversification and innovation in distribution channels is a key component of the value chain. It shows you how to implement strategies in order to improve effectiveness in branch networks and increase sales from life and investment products.
- Analyses the competitive environment and consolidation and looks at the techniques you need to adopt in order to re-focus strategies and operations to succeed in each region.
This timely report, written by leading author Susan Drury, provides a comprehensive analysis of the current developments in the global bancassurance industry. It examines the market environment, regulations, products, distribution and company activities in four regional financial services markets: Europe, Asia, Middle East/Africa and the Americas.
It offers insights into the activities, opportunities and future challenges that each of these markets present in order to help you grow your business successfully within these regions. The report also presents insightful company studies and reveals how various businesses have grown or not. With this information to hand you will be able to identify gaps in the market or formulate strategies in order to increase revenues from the bancassurance market.
About the Author
Susan Drury has worked for over 15 years in the financial services sector. She began her career in investment banking before becoming a specialist insurance and pension’s research analyst. She has written numerous reports and articles on this fast moving and complex sector. Susan is the former editor Life Insurance International." Her reports include "Life Insurance, Pensions and the European Wealth Market," Banking in South Africa: Changes and Challenges" and "Opportunities in Latin American Insurance." She has contributed to 'World Life Insurance Report' and 'Global Insurance Monitor.'
Bancassurance: emerging trends, opportunities and challenges
According to a recent sigma study, bancassurance is on the rise, particularly in emerging markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a foothold in markets with low insurance penetration and a limited variety of distribution channels.
Bancassurance, the provision of insurance services by banks, is an established and growing channel for insurance distribution, though its penetration varies across different markets. Europe has the highest bancassurance penetration rate. In contrast, penetration is lower in North America, partly reflecting regulatory restrictions. In Asia, however, bancassurance is gaining in popularity, particularly in China, where restrictions have been eased. The research shows that social and cultural factors, as well as regulatory considerations and product complexity, play a significant role in determining how successful bancassurance is in a particular market.
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 privatize 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.
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 standardized, single channel sales approach to adopting a multiple channel distribution strategy. Some bancassurers are also beginning to focus exclusively on distribution.
In some markets, face-to-face contact is preferred, which tends to favor 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 realize 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.
Strategic Challenges
These developments are expected to challenge traditional bancassurers in the following ways:
The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own.
Increasing sales of non-life products, to the extent those risks are retained by the banks, require sophisticated products and risk management.
The sale of non-life products should be weighted against the higher cost of servicing those policies.
Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims.
Banking on Bancassurance
________________________________________
Though much ado was made about bancassurance, an alternate channel to hawk risk products through banks, the channel is yet to pick up pace as of today. Most of the insurance companies have already tied up with banks to explore the potential of the channel that has been a success story in Europe and legislations are also in place. For insurance companies and banks the convergence brings about benefits for both but then what’s stopping it from taking off in a big way?
Bancassurance primarily banks on the relationship the customer has developed over a period of time with the bank. And pushing risk products through banks is a cost-effective affair for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost is more than welcome.
SBI Life Insurance Company a predominant player in bancassurance is positive about the channel bringing about a transformation in the way insurance has been sold so far. The company is banking heavily on bancasurance and plans to explore the potential of State Bank of India’s 9000 plus branches spread across the country and also its 4000 plus associate banks - one of the reasons why SBI Life Insurance is not laying much emphasis on increasing its agent force from the present 3000.
The company plans to appoint Certified Insurance Facilitators (CIFs) in a phased manner at its branches. For now around 320 CIFs, one from each of its bank branches have been identified for the purpose in addition to setting up insurance counters at its banking outlets. The number is expected to go up to 500. ‘Out of our present business of around Rs 150-200 crore bancassurance has brought in 50 percent while corporate agency and the agent channel have contributed about 10 percent and 40 percent respectively’, says Pradeep Pandey, Head, PR, SBI Life Insurance Company. The company aims at acquiring 75 percent of the total business through bancassurance and the balance through the other channels by 2007.
Various models are used by banks for bancassurance. One is the insurance salesman of the respective company being posted in the bank, the other is where a select group of wealth management people of the bank sell insurance and the third is where the bank employees are incentivised to hawk insurance products.
But the pertinent question is how far will bancassurance 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. Says Pradeep Pandey’ I agree that in our country insurance awareness is low but with falling interest rates, banks are on the look out for additional revenue and bancassurance can provide them fee based income –insurance is one outlet where income can be gained. And the cost that banks have to incur is minimal. With all the other infrastructure in place already, the cost is only about training a few individuals’.
And will products sold through bancassurance be any different? ‘The products sold will be the same. In the first phase we plan to sell endowment and pension’ opines Mr Pandey, SBI Life Insurance. On the contrary Shivaji Dam, CEO, OM Kotak Mahindra Life Insurance begs to differ,’Yes products will have to be different to be sold through bancassurance. They will have to be term and savings products with not much of complications. In other words products that are static and simple’
OM Kotak Mahindra Life Insurance has tied up with Dena Bank and its own Kotak Bank for bancassurance. The company is targeting around 10 percent of the business during its start up phase. Adds Shivaji Dam,’ Our focus will not be the affluent class but the middle class’ But in case of SBI Life there is no such emphasis on a segment of the population perhaps considering the wide reach its bank branches have even in the remotest corners of the country. Also SBI Life plans to offer its complete basket of products but OM Kotak will be selling select products.
Insurers are no doubt optimistic about the channel but it does come with a few limitations. While sale of insurance comes at a lower cost through this channel in comparison to the agency route and the insurance company gains much through the large bank network spread across the country the potential can be impeded if bank officials do not actively generate leads.
Also 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.
Insurance companies are positive about the bancassurance channel raking in volume business at a low cost and banks have been salivating over the fee-based income that it will bring. But unless products are simple, easy to understand and easy to market much of the benefits the bancassurance channel holds, may remain only on paper.
Some of the Bancassurance tie-ups in India are:
Insurance Company Bank
Birla Sun Life Insurance Co. Ltd. Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank
Dabur CGU Life Insurance Company Pvt. Ltd Canara Bank, Lakshmi Vilas Bank, American Express Bank and ABN AMRO Bank
HDFC Standard Life Insurance Co. Ltd. Union Bank of India
ICICI Prudential Life Insurance Co Ltd. Lord Krishna Bank, ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, and Punjab and Maharashtra Co-operative Bank.
Life Insurance Corporation of India Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central Co-operative Bank, Janata Urban Co-operative Bank, Yeotmal Mahila Sahkari Bank, Vijaya Bank, Oriental Bank of Commerce.
Met Life India Insurance Co. Ltd. Karnataka Bank, Dhanalakshmi Bank and J&K Bank
SBI Life Insurance Company Ltd. State Bank of India
Bajaj Allianz General Insurance Co. Ltd. Karur Vysya Bank and Lord Krishna Bank
National Insurance Co. Ltd. City Union Bank
Royal Sundaram General Insurance Company Standard Chartered Bank, ABN AMRO Bank, Citibank, Amex and Repco Bank.
United India Insurance Co. Ltd. South Indian Bank
Issues to be tackled
Given the roles and diverse skills brought by the banks and insurers to a Bancassurance tie up, it is expected that road to a successful alliance would not be an easy task. Some of the issues that are to be addressed are:
1. The tie-ups need to develop innovative products and services rather than depend on the traditional methods. The kinds of products the banks would be allowed to sell are another major issue. For instance, a complex unit-linked life insurance product is better sold through brokers or agents, while a standard term product or simple products like auto insurance, home loan and accident insurance cover can be handled by bank branches
2. There needs to be clarity on the operational activities of the bancassurance i.e., who will do the branding, will the insurance company prefer to place a person at the bank branch, or will the bank branch train and put up one of its own people, remuneration of these people.
3. Even though the banks are in personal contact with their clients, a high degree of pro-active marketing and skill is required to sell the insurance products. This can be addressed through proper training.
4. There are hazards of direct competition to conventional banking products. Bank personnel may become resistant to sell insurance products since they might think they would become redundant if savings were diverted from banks to their insurance subsidiaries.
Factors that appear to be critical for the success of bancassurance are
1. Strategies consistent with the bank's vision, knowledge of target customers' needs, defined sales process for introducing insurance services, simple yet complete product offerings, strong service delivery mechanism, quality administration, synchronized planning across all business lines and subsidiaries, complete integration of insurance with other bank products and services, extensive and high-quality training, sales management tracking system for reporting on agents' time and results of bank referrals and relevant and flexible database systems.
2. Another point is the handling of customers. With customer awareness levels increasing, they are demanding greater convenience in financial services.
3. The emergence of remote distribution channels, such as PC-banking and Internet-banking, would hamper the distribution of insurance products through banks.
4. The emergence of newer distribution channels seeking a market share in the network.
Conclusion
With huge untapped market, insurance sector is likely to witness a lot of activity - be it product innovation or distribution channel mix. Bancassurance, the emerging distribution channel for the insurers, will have a large impact on Indian financial services industry. Traditional methods of distributing financial services would be challenged and innovative, customized products would emerge.
Banks will bring in customer database, leverage their name recognition and reputation at both local and regional levels, make use of the personal contact with their clients, which a new entrant cannot, as they are new to the industry.
In customer point of view, a plethora of products would be available to him. More customized products would come into existence and that too all within a hands reach.
Finally Success of the bancassurance would mostly depend on how well insurers and banks understand each other's businesses and seize the opportunities presented, weeding out differences that are likely to crop up.
Introduction
With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. New entrants in the insurance sector had no difficulty in matching their products with the customers' needs and offering them at a price acceptable to the customer.
But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Further insurable population of over 1 billion spread all over the country has made the traditional channels of the insurance companies costlier. Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices.
With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. This union of the two sectors is what is known as Bancassurance.
What is Bancassurance?
Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, Bancassurance, tries to exploit synergies between both the insurance companies and banks.
Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the customer.
Advantages to banks
• Productivity of the employees increases.
• By providing customers with both the services under one roof, they can improve overall customer satisfaction resulting in higher customer retention levels.
• Increase in return on assets by building fee income through the sale of insurance products.
• Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products.
• Banks can cross sell insurance products Eg: Term insurance products with loans.
Advantages to insurers
• 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.
• Customer database like customers' financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly.
• Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily.
Advantages to consumers
• Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.
• Enhanced convenience on the part of the insured
• Easy access for claims, as banks is a regular go.
• Innovative and better product ranges
Bancassurance in India
Bancassurance in India is a very new concept, but is fast gaining ground. In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Highlights of the guidelines are reproduced below:
RBI guideline for banks entering into insurance sector provides three options for banks. They are:
• Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation;
• For banks which are not eligible for this joint-venture option, an investment option of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is available;
• Finally, any commercial bank will be allowed to undertake insurance business as agent of insurance companies. This will be on a fee basis with no-risk participation.
The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are:
• Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities.
• All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority.
• Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company.
• Banks cannot become insurance brokers.
Bancassurance in the 21st Century
Through a series of mergers, takeovers and joint ventures between banks and insurance companies, the past 20 years have seen the growth of bancassurance to become an increasingly dominant force in key financial services sectors across the globe: a trend that is set to continue.
The opportunities for the industry to target new customer segments and develop new products are currently immense. Emerging markets, changing employment patterns, growing disposable incomes and longer retirement periods mean that consumers have increasingly complex insurance and financial requirements.
Bancassurance in the 21st Century provides you with a detailed global overview of the bancassurance market and presents you with opportunities to maximize revenues from this growing sector.
- Presents a detailed overview of the current developments in the bancassurance industry from a global perspective.
- Examines the market environment, regulations, products, distribution and company activities in four regional financial services markets: Europe, Asia, Middle East and Africa and the Americas and looks at the activities, opportunities and future challenges each of these markets present in order to help you grow your business successfully in these regions.
- Explains how the diversification and innovation in distribution channels is a key component of the value chain and why improving effectiveness in branch networks is an important strategy for integrating and distributing life and investment products.
- Insightful studies into the opportunities and challenges facing players in China's booming insurance market, tensions surrounding cross-border consolidation in Italy and the opportunities surrounding prospective social security reforms in the US.
- Provides you with examples of how the leading bancassurance companies are tackling the challenges such as how Aviva generates business via partnerships with Spanish savings banks and ING targeting growth in South Korea through the development of financial solutions and new sales channels.
- Explains how the diversification and innovation in distribution channels is a key component of the value chain. It shows you how to implement strategies in order to improve effectiveness in branch networks and increase sales from life and investment products.
- Analyses the competitive environment and consolidation and looks at the techniques you need to adopt in order to re-focus strategies and operations to succeed in each region.
This timely report, written by leading author Susan Drury, provides a comprehensive analysis of the current developments in the global bancassurance industry. It examines the market environment, regulations, products, distribution and company activities in four regional financial services markets: Europe, Asia, Middle East/Africa and the Americas.
It offers insights into the activities, opportunities and future challenges that each of these markets present in order to help you grow your business successfully within these regions. The report also presents insightful company studies and reveals how various businesses have grown or not. With this information to hand you will be able to identify gaps in the market or formulate strategies in order to increase revenues from the bancassurance market.
About the Author
Susan Drury has worked for over 15 years in the financial services sector. She began her career in investment banking before becoming a specialist insurance and pension’s research analyst. She has written numerous reports and articles on this fast moving and complex sector. Susan is the former editor Life Insurance International." Her reports include "Life Insurance, Pensions and the European Wealth Market," Banking in South Africa: Changes and Challenges" and "Opportunities in Latin American Insurance." She has contributed to 'World Life Insurance Report' and 'Global Insurance Monitor.'
Bancassurance: emerging trends, opportunities and challenges
According to a recent sigma study, bancassurance is on the rise, particularly in emerging markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a foothold in markets with low insurance penetration and a limited variety of distribution channels.
Bancassurance, the provision of insurance services by banks, is an established and growing channel for insurance distribution, though its penetration varies across different markets. Europe has the highest bancassurance penetration rate. In contrast, penetration is lower in North America, partly reflecting regulatory restrictions. In Asia, however, bancassurance is gaining in popularity, particularly in China, where restrictions have been eased. The research shows that social and cultural factors, as well as regulatory considerations and product complexity, play a significant role in determining how successful bancassurance is in a particular market.
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 privatize 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.
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 standardized, single channel sales approach to adopting a multiple channel distribution strategy. Some bancassurers are also beginning to focus exclusively on distribution.
In some markets, face-to-face contact is preferred, which tends to favor 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 realize 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.
Strategic Challenges
These developments are expected to challenge traditional bancassurers in the following ways:
The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own.
Increasing sales of non-life products, to the extent those risks are retained by the banks, require sophisticated products and risk management.
The sale of non-life products should be weighted against the higher cost of servicing those policies.
Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims.
Banking on Bancassurance
________________________________________
Though much ado was made about bancassurance, an alternate channel to hawk risk products through banks, the channel is yet to pick up pace as of today. Most of the insurance companies have already tied up with banks to explore the potential of the channel that has been a success story in Europe and legislations are also in place. For insurance companies and banks the convergence brings about benefits for both but then what’s stopping it from taking off in a big way?
Bancassurance primarily banks on the relationship the customer has developed over a period of time with the bank. And pushing risk products through banks is a cost-effective affair for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost is more than welcome.
SBI Life Insurance Company a predominant player in bancassurance is positive about the channel bringing about a transformation in the way insurance has been sold so far. The company is banking heavily on bancasurance and plans to explore the potential of State Bank of India’s 9000 plus branches spread across the country and also its 4000 plus associate banks - one of the reasons why SBI Life Insurance is not laying much emphasis on increasing its agent force from the present 3000.
The company plans to appoint Certified Insurance Facilitators (CIFs) in a phased manner at its branches. For now around 320 CIFs, one from each of its bank branches have been identified for the purpose in addition to setting up insurance counters at its banking outlets. The number is expected to go up to 500. ‘Out of our present business of around Rs 150-200 crore bancassurance has brought in 50 percent while corporate agency and the agent channel have contributed about 10 percent and 40 percent respectively’, says Pradeep Pandey, Head, PR, SBI Life Insurance Company. The company aims at acquiring 75 percent of the total business through bancassurance and the balance through the other channels by 2007.
Various models are used by banks for bancassurance. One is the insurance salesman of the respective company being posted in the bank, the other is where a select group of wealth management people of the bank sell insurance and the third is where the bank employees are incentivised to hawk insurance products.
But the pertinent question is how far will bancassurance 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. Says Pradeep Pandey’ I agree that in our country insurance awareness is low but with falling interest rates, banks are on the look out for additional revenue and bancassurance can provide them fee based income –insurance is one outlet where income can be gained. And the cost that banks have to incur is minimal. With all the other infrastructure in place already, the cost is only about training a few individuals’.
And will products sold through bancassurance be any different? ‘The products sold will be the same. In the first phase we plan to sell endowment and pension’ opines Mr Pandey, SBI Life Insurance. On the contrary Shivaji Dam, CEO, OM Kotak Mahindra Life Insurance begs to differ,’Yes products will have to be different to be sold through bancassurance. They will have to be term and savings products with not much of complications. In other words products that are static and simple’
OM Kotak Mahindra Life Insurance has tied up with Dena Bank and its own Kotak Bank for bancassurance. The company is targeting around 10 percent of the business during its start up phase. Adds Shivaji Dam,’ Our focus will not be the affluent class but the middle class’ But in case of SBI Life there is no such emphasis on a segment of the population perhaps considering the wide reach its bank branches have even in the remotest corners of the country. Also SBI Life plans to offer its complete basket of products but OM Kotak will be selling select products.
Insurers are no doubt optimistic about the channel but it does come with a few limitations. While sale of insurance comes at a lower cost through this channel in comparison to the agency route and the insurance company gains much through the large bank network spread across the country the potential can be impeded if bank officials do not actively generate leads.
Also 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.
Insurance companies are positive about the bancassurance channel raking in volume business at a low cost and banks have been salivating over the fee-based income that it will bring. But unless products are simple, easy to understand and easy to market much of the benefits the bancassurance channel holds, may remain only on paper.
Some of the Bancassurance tie-ups in India are:
Insurance Company Bank
Birla Sun Life Insurance Co. Ltd. Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank
Dabur CGU Life Insurance Company Pvt. Ltd Canara Bank, Lakshmi Vilas Bank, American Express Bank and ABN AMRO Bank
HDFC Standard Life Insurance Co. Ltd. Union Bank of India
ICICI Prudential Life Insurance Co Ltd. Lord Krishna Bank, ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, and Punjab and Maharashtra Co-operative Bank.
Life Insurance Corporation of India Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central Co-operative Bank, Janata Urban Co-operative Bank, Yeotmal Mahila Sahkari Bank, Vijaya Bank, Oriental Bank of Commerce.
Met Life India Insurance Co. Ltd. Karnataka Bank, Dhanalakshmi Bank and J&K Bank
SBI Life Insurance Company Ltd. State Bank of India
Bajaj Allianz General Insurance Co. Ltd. Karur Vysya Bank and Lord Krishna Bank
National Insurance Co. Ltd. City Union Bank
Royal Sundaram General Insurance Company Standard Chartered Bank, ABN AMRO Bank, Citibank, Amex and Repco Bank.
United India Insurance Co. Ltd. South Indian Bank
Issues to be tackled
Given the roles and diverse skills brought by the banks and insurers to a Bancassurance tie up, it is expected that road to a successful alliance would not be an easy task. Some of the issues that are to be addressed are:
1. The tie-ups need to develop innovative products and services rather than depend on the traditional methods. The kinds of products the banks would be allowed to sell are another major issue. For instance, a complex unit-linked life insurance product is better sold through brokers or agents, while a standard term product or simple products like auto insurance, home loan and accident insurance cover can be handled by bank branches
2. There needs to be clarity on the operational activities of the bancassurance i.e., who will do the branding, will the insurance company prefer to place a person at the bank branch, or will the bank branch train and put up one of its own people, remuneration of these people.
3. Even though the banks are in personal contact with their clients, a high degree of pro-active marketing and skill is required to sell the insurance products. This can be addressed through proper training.
4. There are hazards of direct competition to conventional banking products. Bank personnel may become resistant to sell insurance products since they might think they would become redundant if savings were diverted from banks to their insurance subsidiaries.
Factors that appear to be critical for the success of bancassurance are
1. Strategies consistent with the bank's vision, knowledge of target customers' needs, defined sales process for introducing insurance services, simple yet complete product offerings, strong service delivery mechanism, quality administration, synchronized planning across all business lines and subsidiaries, complete integration of insurance with other bank products and services, extensive and high-quality training, sales management tracking system for reporting on agents' time and results of bank referrals and relevant and flexible database systems.
2. Another point is the handling of customers. With customer awareness levels increasing, they are demanding greater convenience in financial services.
3. The emergence of remote distribution channels, such as PC-banking and Internet-banking, would hamper the distribution of insurance products through banks.
4. The emergence of newer distribution channels seeking a market share in the network.
Conclusion
With huge untapped market, insurance sector is likely to witness a lot of activity - be it product innovation or distribution channel mix. Bancassurance, the emerging distribution channel for the insurers, will have a large impact on Indian financial services industry. Traditional methods of distributing financial services would be challenged and innovative, customized products would emerge.
Banks will bring in customer database, leverage their name recognition and reputation at both local and regional levels, make use of the personal contact with their clients, which a new entrant cannot, as they are new to the industry.
In customer point of view, a plethora of products would be available to him. More customized products would come into existence and that too all within a hands reach.
Finally Success of the bancassurance would mostly depend on how well insurers and banks understand each other's businesses and seize the opportunities presented, weeding out differences that are likely to crop up.
