Banc Assurance

Bancassurance

UNIVERSITY OF MUMBAI

T.Y.B.B.I

( V SEMESTER )

A PROJECT ON

“BANCASSURANCE”

ACADEMIC YEAR

2013 – 2014

BY

GRISHMA.D.PATEL

ROLL NO : 139

PROJECT GUIDE

PROF. SHEWTA PANDEY

MALINI KISHOR SANGHVI COLLEGE OF

COMMERCE & ECONOMICS.

VILE PARLE (W).

MUMBAI

Malini kishor sanghvi college of commerce and economics

Bancassurance

DECLARATION

I Mrs.Grishma D patel , Student of Malini Kishor Sanghvi College of Commerce & Economics Studing in T.Y.B.Com (Banking and Insurance) Semester V , hereby declare that I have completed the project on “BANCASSURANCE” in the academic year 2013-2014. The information submitted herein is true and original to the best of my knowledge.

Date of Submission Signature of Student

(Grishma.D.Patel)


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CERTIFICATE

This is to certify that miss Grishma.D.Patel , of T.Y.B.Com (BANKING & INSURANCE – SEMESTER V) of Malini Kishor Sanghvi College of Commerce and Economics has successfully completed the project on “BANCASSURANCE” for the academic year 2013-2014. The information submitted is true and original to the best of my knowledge.

Signature of Principle

Signature of co-ordinator Signature of project Guide


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ACKNOWLEDGEMENT

I would like to thank Malini Kishor Sanghvi College of Commerce & Economics & the faculty members of BBI for giving me an opportunity to prepare a project on “ “BANCASSURANCE”. It has truly been an invaluable learning experience. Completing a task is never one man’s efforts. It is often the result of invaluable contribution of number of individuals in direct or indirect way in shaping success and achieving it.

I would like to thank principal of the college Dr. (Mrs.) Krushna Gandhi and Co-ordinator Prof .Shweta Pandey for granting permission for this project. I would like to extend my sincere gratitude and appreciation to Prof: Shweta pandey who guided me in the study of this project . It has indeed been a great learning, experiencing and working under him during the course of the project.

I would like to thank the librarian of the college for helping me in finding out the relevant material for my project. I would like to appreciate all my colleagues and family members who gave me support and backing and always came forward whenever a helping hand was needed. I would like to express my gratitude to all those who gave me the possibility to complete this thesis.


Bancassurance

EXECUTIVE SUMMARY

Bancassurance is no longer just a buzzword.It is a well known concept today in world wide banking.It has become the most discussed topic in banking and insurance circles today.It has many forms models and structures and can be adapted to fit into any legal,economic or regulatory framework. However,no single way of doing bancassurance can be considered as the best practices.

The Banking and Insurance industries have change rapidly in the changing and challenging economic environment throughout the world. In this competitive and liberalized environment everyone is trying to do better than others and consequently survival of the fittest has come into effect.This has given rise to new form of business wherein two big financial institutions have come together and have integrated all their strengths and efforts and have created a new means of marketing and promoting their product and services.On one hand it is the banking sector which is very competitive and on the other hand in insurance sector which has lot of potential for growth.When these two join together.it gives birth to BANCASSURANCE.Bancassurance is nothing but the collaboration between bank and an insurance company wherein the bank promises to sell insurance products to its customers in exchange of fees.It is a mutual relationship between a bank and an insurers.


Bancassurance

INTRODUCTION TO BANCASSURANCE

Bancassurance is the combination of the true synergies and respectives strengths of the bank and insurer. In simple words, “Bancassurance” means providing banking and insurance services under one roof, and by one institution. This is possible when a single institution is allowed to transact insurance and banking activities.

BANCASSURANCE MODELS

Thanks to the innovation in the financial services,the movement towards “One-Stop Financial Supermarket” is catching up. With the evolution of interconnected financial services, more and more financial institutions are forced to offer wide range sophisticated products to their clients.It is no longer possible for any financial institution operating in globalized market to survive without additional sources of


Bank sells the insurance product to bank

customer for fee or commission under a distribution alliance

Joint venture by a bank with an insurance company.

Bank offers services for both- banking and

insurance but pass on the insurance funds to an

insurer for actuarial management.

Designing product have characteristics of both

banking and insurance for common customer base.

Acquistion;

Bank acquires an insurance company

Bank invest in an insurance

company ,without risk perception

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revenues.This has prompted two big clases of financial institution to combine their strengths and create a new means of marketing their products and services.on ine side is the banking sector which is traditionally known to be more competitive and on the other side is the insurance sector,which has vast untapped potential of growth.When these two sector join ,the result is BANCASSURANCE


BANKING SECTOR

(Competitive) INSURANCE SECTOR

(potential Growth)

BANCASSURANCE

Bancassurance

MEANING


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Bancassurance

SCOPE FOR BANCASSURANCE IN INDIA

By now, it has become clear that the growth of economy not only depends on stronger and vibrant financial sector but also necessitates providing with more sophisticated and variety of financial and banking products and services. Krueger (2004) pointed out that the history of theNorth America is a case in reference of one of financial and deepening in tandem with economic growth. As India is being considered one of the fast developing economy among the emerging market economies, financial sector has also grown much vibrant with the financial reforms.

In fact, in recent years, a large number of papers have been published by RESERVE BANK OF INDIA, that explains ‘economic growth’ especially in reference to India and China. Significantly, Indian economy has recorded an average growth of over 8.5 per cent for the last four years, with macroeconomic and financial stability (RBI, 2006) and indications are that it may grow at even better rate in the near future provided there is good monsoon. Data and experiences explain that in coming years, other than banking products, non banking products like derivatives, insurance schemes become more attractive to people. Moreover, as India has already more than 200 million middle class population coupled with vast banking network with largest depositors base, there is greater scope for use of bancassurance. For instance as at end March 2005, there were more 466 lakh bank accounts with scheduled commercial banks. It is worth being noted that, Swiss Re (2002) in its study on Asia pointed out that bancassurance penetration is expected to tangibly increase in Asia over next 5 years and this has been greatly proved.

In simple words, it is aptly put that bancassurance has promised to combine insurance companies’ competitive edge in the “production” of insurance products with banks’ edge in their distribution, through their vast retail networks (Knight, 2006)


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Best practices of Bancassurance

Bancassurance is unwinding itself. From being just another offering from a bank’s product basket, it has become an important bookmark in a banks’ strategy document. Extreme competitive pressure on interest income worldwide has led banks to redraw their strategies and demand more from Bancassurance. The result is visible in increased number of tie ups, mergers or cross-shareholding between banks and insurance companies. It is being manifested in different forms all around the world.

The move towards Bancassurance however has been a roller coaster ride; sometimes slow and sketchy and in some cases spectacular.

What is it that makes Bancassurance a success?

What are the best practices in Bancassurance? What are the pitfalls that must be avoided?

Product Integration:

The success of Bancassurance lies in understanding the life cycle of Bancassurance and integrating the product and distribution mix according to the stages of the life cycle. Most Bancassurance partnerships go through three stages: early stage, youth stage and mature stage.

Early stage is basically the passive mode of Bancassurance. This stage involves predominantly product bundling and there is hardly any sales pitch. Simple insurance products like term life, car insurance, home insurance and travel insurance are bundled with core banking products like credit cards or savings account and offered as a packaged product to the bank’s customers. Customers generally don’t have a choice as the cost of insurance is not shown separately but factored in the product being sold by the bank.

Bancassurance moves into the youth stage as the banks’ hunger for fee income grows. Insurance products are sold on a standalone basis rather being bundled. The emphasis is on higher commission (fee income) and therefore sales efforts and processes are beefed up. Typically, whole life, universal life and unit linked investment products are sold at this stage.

The mature stage comes after the bank has gained enough experience and confidence in selling insurance products. There is a desire to do something different


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at this stage. Risk taking options are considered. In certain countries, regulators allow banks to take underwriting risks so that they can issue their own policies. At other places, joint ventures or acquiring a stake in any insurance company or even setting up an insurance subsidiary is contemplated. United States, Saudi Arabia, India and Vietnam are among many countries where banks are allowed to do insurance manufacturing compared to strict insurance distribution in other countries, e.g. Canada.

Goal Congruence vs Conflict

Goal Congruence

All Bancassurance models rest on three pillars, viz. Bank, Customers and Insurance Company. Each of them has their own goals and objectives. Banks may be interested in maximizing their fee income while insurance companies may be looking at volume expansion so as to reach the critical mass. The customers would obviously look at convenience and cost reduction. Similarly at other times, banks may look at product diversification but the insurance company may look at customer acquisition. Therefore, unless there is goal congruence amongst all the partners in Bancassurance, it can’t succeed.

Goal conflict, on the other hand defines the shape, the Bancassurance model is likely to take in due course. If the banks and insurance companies are at loggerheads to occupy the same space, e.g. market share or customer ownership; the path to Bancassurance gets bumpy and customers stand to lose. In South Korea, insurance companies are campaigning vigorously to stop banks from selling insurance products and the dispute has taken political overtones.

Being a relatively new business model in most non-European countries, the regulators worldwide are still struggling to find the formula to encourage the best practices in Bancassurance and promote goal congruence.


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Right Partnership:

Goal congruence leads to selection of right partner. Selecting a right partner is of paramount importance for the success Bancassurance. Like in marriage, partners must be compatible and therefore utmost care needs to be exercised. Partners bring their strengths to the table, e.g. banks bring the brand or distribution network and insurance companies stitch the products based on their market knowledge and risk-taking abilities. The combined synergy leads to customer satisfaction and each partner is able to achieve its stated goals.

Selection of a right partner is also the most difficult part in the entire process of making Bancassurance work. From a bank’s perspective, the size of the insurance company or the commission structure it offers to the bank should not be the sole criteria. Rather creativity, product innovation, customer support, IT systems and long term commitment should be the guiding principle in the selection of a partner. Similarly, insurance companies should demand long term commitment and sharing of revenue based on underwriting profits from the bank.

There are some very complex partnership compatibility matrix available which may assist banks in analyzing, comparing and selecting a right partner.

Product and Distribution Mix:

Product roll-out and distribution strategy closely follows the partner selection process. Products have to be in line with the customer profile of the bank and distribution channel must be in sync with the product being offered. Customer base needs to be segmented in a scientific way and could be based on income, age, occupation, sex, etc. and products should be developed with the specific customer segment in mind.

Product differentiation is another key factor contributing to the success of Bancassurance. Standard and off-the-shelf insurance products have no place in Bancassurance. Exclusive and customer-centric products with add-ons like premium payment in instalment or free additional coverage may work wonders. Similarly, a product may need to be sold through multiple channels, e.g. direct mailer, call centre and through branch network. It is important to remember that all products can’t be sold through all channels. The strength analysis of various distribution channels vis-à-vis a particular product is a must before a product is rolled out.

Recent Trends in Bancassurance:

BancaTakaful is the single largest phenomenon that has influenced the


Bancassurance

Bancassurance growth and development in recent months. Ever increasing number of Islamic Banks in the Middle East and Far Eastern region has given impetus to BancaTakaful as these banks look to pure Islamic insurance (Takaful) rather than source a conventional insurance product. Islamic banks are not only distributing Takaful products, they have also been engaged in manufacturing of insurance products by way of either buying stakes in new Takaful companies or setting up their own Takaful subsidiary. HSBC Bank has been setting up Takaful entities worldwide and is one of the prime movers in BancaTakaful.

Other important shift in Bancassurance has been the focus on non-life insurance products. Banks already in Bancassurance have slowly been moving to general insurance products though the prime focus remains on life insurance. Recent foray into general insurance by banks are exemplified by Doha Bank who set up 100% owned insurance subsidiary Doha Bank Assurance Company in Qatar and Al Rajhi Bank in Saudi Arabia.

Innovation and Challenges:

The challenge of Bancassurance lies in innovation. Both partners, whether banks or insurance companies must be creative in thinking. Banks need to think differently and analyze (probably anticipate) customers’ requirements and put a demand on the partner insurance company to reciprocate. The insurance company on its part must be able to manufacture products in tandem with bank’s requirements.

Other challenges facing Bancassurance today are complexity of regulation, lack of long term vision and commitment from top management, too much emphasis on fee income and sometimes mis-selling by banks. Banks would do well to factor these before they embark on a Bancassurance journey.

The success of Bancassurance also lies in integrating it within the bank’s structure so as to harness its full potential. Each division within the bank whether corporate or retail, has to accept the new neighbourhood called Bancassurance and should be willing to share the leads and customer relationships. There are challenges ranging from assimilation process within the bank to the ownership of the customer; from profit sharing between multiple divisions within banks to bringing in the sales culture.

Finally:

Making Bancassurance work is more an art than a science. It requires human skills and intuitive approach rather than structured processes alone. Banks around the world have taken to various models of Bancassurance; some of them have succeeded while many stumbled. A successful Bancassurance at one place may not make a mark at other places for reasons related to cultural, social, legal,


Bancassurance

demographic and economic environment. Best practices therefore is to craft a model which leads to goal congruence for bank, customers and insurance company and that alone can lead to a successful Bancassurance.


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Need for bancassurance in India:-

Researches and present day statistics speak about the need of a well equipped financial structure for a country that helps it to grow economically. The financial resources in the hands of people should be channelized in effective manner so as to increase the returns from the basic financial structure of nation and also the quality of living of people. Insurance policies are instruments/products that play major role in upholding the financial structure of developed countries. Though the teething phase of insurance, one may say is just past, a desirable foothold is yet to be found. With growth in number of middle class families in the country, RBI recognized the need of an effective method to make insurance policies reach people of all economic classes in every corner of the nation. Implementing bancassurance in India is one such development that took place towards the cause. The need and subsequent development of bancassurance in India began for the following reasons:

To improve the channels through which insurance policies are sold/marketed so as to make them reach the hands of common man

To widen the area of working of banking sector having a network that is spread widely in every part of the nation

To improve the services of insurance by creating a competitive atmosphere among private insurance companies in the market


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BANCASSURANCE SWOT ANALYSIS

Banks are selling personal accident an baggage insurance directly to their credit card member as a value addition to their products.Banks also participate in the distribution of mortgage linked insurance products like fire ,motor, or cattle insurance to their customers.Banks can straightaway leverage their existing capabilities in terms of database and face-to-face contact to market insurance products to generate some income for themselves, which hitherto was not thought of.

Once bancassurance is embraced in india with full force,a lot will be stake.Huge capital investment will be required to create infrastructure particularly in IT and telecommunications, a call center will have to be created, top professionals of both industries will have to be hired, an R & D cell will need to be created to generate new ideas and products. It is therefore essential to have a SWOT analysis done in the context of bancassurance experiment in India.

Strengths:

Vast untapped market

In a country of 1 billion people there is a huge potential market for life insurance products. In India the penetration of the insurance sector in the rural and semi-urban areas is low. There is a market of 900 million for life insurance and 200 million for householder’s insurance policy. In addition to this the affluent section can be tapped for Overseas Mediclaim and Travel Insurance policies.

Huge pool of skilled professionals

Whether it is banks or insurance companies there is no dearth of skilled professionals in India to carry out a successful bancassurance venture.

Weakness:

Lack of networking among bank branches

In spite of growing emphasis on total branch mechanization (TBM) and full computerization of bank branches, the rural and semi-urban banks have still to see information technology as an enabler. Complete integration of branch network involves huge investments for creating IT and communication infrastructure.

Low savings rate

Though we have a huge market for insurance policies, the middle class who constitutes the bulk of this market is today burdened under inflationary pressures. The secret lies in inculcating savings habit but considering the amount of surplus


Bancassurance

funds available with the middle class for investing in future security, the ability to save is very nominal

Opportunities:

Data mining

Banks have a huge customer database which has to be properly leveraged. Target segments should be identified and tapped.

Wide distribution networks of banks provides a great opportunity to sell insurance products through banks

Another potential area of growth of bancassurance is exploiting the corporate customers and tying up for insurance of the employees of corporate clients

Threats:

Human Resource Challenges

Success in bancassurance venture requires a change in mindset. Though we have a large talent pool, the inability to sell complex insurance products on the part of bank professionals and their reluctance to learn can be severe setback. There has to be a change in the thinking, approach and work culture.

Non-response from the target groups can also pose a challenge as it happened in the USA in 1980s.


Bancassurance

Popularity of bancassurance

Conducive environment:

Progressive dismantling of laws relating to undertaking of insurance business by banks , increasing use of electronic channels and automation, growing needs for private retirement plans to complement public pensions, the concern for providing total financial services to customers, etc. have paved the way for bancassurance

Cost effectiveness:

Insurers look to bancassurance as an alternative cost-effective mode of distribution as against the costly agency services. It is estimated that 50% of the insurers cost structure is directly or indirectly related to distribution.

Fee-based income:

A bank expects to increase its fee-based income and overall productivity by leveraging its branch network, brand image and client base, by optimally using its assets/infrastructure and by positioning itself as an one stop shop with value added service for its customers, thereby increasing customer loyalty and retention. Bancassurance enables a bank to satisfy the risk protection needs of its clients without assuming underwriting risk.

Fund Management:

Life insurance where premium is about 55% of the insurance premium worldwide is basically a savings market. It is one of the methods to increase the deposits of banks. Both life and non-life insurance business provide additional flow of float funds besides fee-based income to banks, through the same channel of distribution and with the same people.

Innovations and efficiency:

Increased convergence of banking and insurance would lead to melding of their corporate cultures, skill and synergizing/innovating the ,marketing of financial services.


Bancassurance

Distribution channels in bancassurance

Traditionally, insurance products have been promoted and sold principally through agency systems in most countries. With new developments in consumers’ behaviors, evolution of technology and deregulation, new distribution channels have been developed successfully and rapidly in recent years. Bancassurers make use of various distribution channels:

-Career Agents-Special Advisers-Salaried Agents-Bank Employees / Platform Banking-Corporate Agencies and Brokerage Firms-Direct Response-Internet-e-Brokerage-Outside Lead Generating Techniques

The main characteristics of each of these channels are:

Career Agents:Career Agents are full-time commissioned sales personnel holding an agency contract. They are generally considered to be independent contractors. Consequently an insurance company can exercise control only over the activities of the agent which are specified in his contract. Despite this limitation on control, career agents with suitable training, supervision and motivation can be highly productive and cost effective. Moreover their level of customer service is usually very high due to the renewal commissions, policy persistency bonuses, or other customer service-related awards paid to them.

Many bancassurers, however avoid this channel, believing that agents might oversell out of their interest in quantity and not quality. Such problems with career agents usually arise, not due to the nature of this channel, but rather due to the use of improperly designed remuneration and/or incentive packages.

Special Advisers:Special Advisers are highly trained employees usually belonging to the insurance partner, who distribute insurance products to the bank's corporate clients. Banks refer complex insurance requirements to these advisors. The Clients mostly include affluent population who require personalised and high quality service. Usually Special advisors are paid on a salary basis and they receive incentive compensation based on their sales.


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Salaried Agents:Having Salaried Agents has the advantages of them being fully under the control and supervision of bancassurers. These agents share the mission and objectives of the bancassurers. Salaried Agents in bancassurance are similar to their counterparts in traditional insurance companies and have the same characteristics as career agents. The only difference in terms of their remuneration is that they are paid on a salary basis and career agents receive incentive compensation based on their sales. Some bancassurers, concerned at the bad publicity which they have received as a result of their career agents concentrating heavily on sales at the expense of customer service, have changed their sales forces to salaried agent status.

Platform Bankers:Platform Bankers are bank employees who spot the leads in the banks and gently suggest the customer to walk over and speak with appropriate representative within the bank. The platform banker may be a teller or a personal loan assistant and the representative being referred to may be a tarined bank employee or a representative from the partner insurance company.

Platform Bankers can usually sell simple products. However, the time which they can devote to insurance sales is limited, e.g. due to limited opening hours and to the need to perform other banking duties. A further restriction on the effectiveness of bank employees in generating insurance business is that they have a limited target market, i.e. those customers who actually visit the branch during the opening hours.

In many set-ups, the bank employees are assisted by the bank's financial advisers. In both cases, the bank employee establishes the contact to the client and usually sells the simple product whilst the more affluent clients are attended by the financial advisers of the bank which are in a position to sell the more complex products. The financial advisers either sell in the branch but some banks have also established mobile sales forces.

If bank employees only act as "passive" insurance sales staff (or do not actively generate leads), then the bancassurer's potential can be severely impeded. However, if bank employees are used as "active" centres of influence to refer warm leads to salaried agents, career agents or special advisers, production volumes can be very high and profitable to bancassurers.

Set-up / Acquisition of agencies or brokerage firms:

In the US, quite a number of banks cooperate with independent agencies or brokerage firms whilst in Japan or South Korea banks have founded corporate agencies. The advantage of such arrangements is the availability of specialists


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needed for complex insurance matters and -in the case of brokerage firms - the opportunity for the bank clients to receive offers not only from one insurance company but from a variety of companies. In addition, these sales channels are more conceived to serve the affluent bank client.

Direct Response:

In this channel no salesperson visits the customer to induce a sale and no face-to-face contact between consumer and seller occurs. The consumer purchases products directly from the bancassurer by responding to the company's advertisement, mailing or telephone offers. This channel can be used for simple packaged products which can be easily understood by the consumer without explanation.

Internet:

Internet banking is already securely established as an effective and profitable basis for conducting banking operations. The reasonable expectation is that personal banking services will increasingly be delivered by Internet banking. Bancassurers can also feel confident that Internet banking will also prove an efficient vehicle for cross selling of insurance savings and protection products. It seems likely that a growing proportion of the affluent population, everyone's target market, will find banks with household name brands and proven skills in e-business a very acceptable source of non-banking products.

There is now the Internet, which looms large as an effective source of information for financial product sales. Banks are well advised to make their new websites as interactive as possible, providing more than mere standard bank data and current rates. Functions requiring user input (check ordering, what-if calculations, credit and account applications) should be immediately added with links to the insurer. Such an arrangement can also provide a vehicle for insurance sales, service and leads.

E-Brokerage:

Banks can open or acquire an e-Brokerage arm and sell insurance products from multiple insurers. The changed legislative climate across the world should help migration of bancassurance in this direction. The advantage of this medium is scale of operation, strong brands, easy distribution and excellent synergy with the internet capabilities.

Outside Lead Generating Techniques:

One last method for developing bancassurance eyes involves "outside" lead


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generating techniques, such as seminars, direct mail and statement inserts. Seminars in particular can be very effective because in a non-threatening atmosphere the insurance counselor can make a presentation to a small group of business people (such as the local chamber of commerce), field questions on the topic, then collect business cards. Adding this technique to his/her lead generation repertoire, an insurance counselor often cannot help but be successful.

To make the overall sales effort pay anticipated benefits, insurers need to also help their bank partners determine what the “hot buttons” will be for attracting the attention of the reader of both direct and e-mail. Great opportunities await bancassurance partners today and, in most cases, success or failure depends on precisely how the process is developed and managed inside each financial institution. This includes the large regional bank and the small one-unit community bank.

Distribution Models Bancassurers have developed three basic distribution models: Integrative, Specialist and Financial Planning model.

Integrative / Generalist Model:

The integrative model distributes products through existing bank channels, and in its most well-known European version, branch bankers themselves sell insurance products to customers. Theoretically, this offers “One Stop Banking” and requires extensive training to branch staff. Bank staff are supposed to know the details of all the insurance products on offer. Telemarketing and direct mail are also examples of integrative approaches.

Specialist Model:

The specialist model distributes investment or other complex insurance products through product experts who are generally employees or representatives of the insurance company. Platform bankers help identify prospects who are then contacted by an insurance professional. This process requires less training bur requires higher compensation to support the referral process. This model may not meet all of customers’ needs since it lengthens the process of sale of even a simple insurance product which can otherwise be sold across the counter.

Financial Planning Model:

The “financial planning” model is the only “team” approach. This method offers each customer and prospect a full financial planning package addressing all of the individual's financial concerns, risk tolerances and location in the cycle of life. This


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process is beneficial for the customer, the bank and the insurer, as the customer is viewed “outside the numbers”. Bancassurers convey the message that they want to know all about the customer in relation to their current and future financial needs and want to assist them on all those aspects of their life.

To move a bank in the direction of becoming an effective user of the financial planning model, the bank’s sales force first has to be taught how to qualify prospects and make referrals and properly approach the customer/prospect. This process will include and actively involve the bancassurer’s project incharge who is best acquainted with pertinent federal and state regulations for the bank’s geographic market area.

Insurers' bank partners must then learn how to spot existing depositors/borrowers' “life triggers,” i.e., milestones in a life that represent insurance opportunities. Although bank representatives have always done this in conjunction with bank products, it is new to them to apply this concept to insurance products as well. For example, a younger depositor mentions he is withdrawing part of his savings to purchase his first car. Knowledgeable bank representatives or platform bankers would immediately understand the requirement for the car insurance and may be personal accident insurance. These bank staff functioning now as financial services representatives can provide such sound practical advice, i.e., an insurance product to fit customer current and future needs.

In general, a well-trained sales person can always count on certain “life triggers” -birth, death, divorce, career change or other catastrophic event—to lead his or her regular bank customers to new insurance products. If the bank’s personnel are shown how to capitalize upon these triggers using insurance products, they will automatically provide referrals to the insurance group and insurance sales will follow.

Either of these distribution models works under the right circumstances. What's most important is whether the model is compatible with the bank's customer base and the insurance company's strategic objectives. European bancassurance experience shows that the Financial Planning Model is an extremely productive way to reach a large number of bank customers.

Different bancassurance business models as given below are prevalent in different countries

Distribution agreements:In simplest form called “tied agent”, the bank’s personnel sell the products of one insurer exclusively, either in stand-alone basis or bundled with bank products.


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Strategic alliance:This is a higher degree of intervention in product development, service provision and channel management by way of bank investing sizably in insurance business without any contingent liability.

Joint venture:a large bank with a well developed customer database partners with a large insurer strong product and channel experience, to develop a powerful new 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 a bank and insurer, an insurance company may build buy a bank or a bank build/buy an insurance companyThus banks could associate themselves with insurance companies by becoming a distributor or by being a strategic investor or developing a joint venture or by becoming a promoter.


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THE KEY BENEFITS OF BANCASSURANCE FOR BANK CUSTOMERS

Ease of access

Customers have a natural and frequent level of contact with their bank. It is equally natural that when they visit their bank, they should find straightforward over-the-counter responses to all their financial needs, including precautionary savings, asset building, pensions, mortgage protection and protection against unforeseen life events. Mutualization within the customer base favors maximum access to protection (by mutualizing risks) and savings (by mutualizing costs).

SimplicityThe insurance products sold over-the-counter by banks have been specially developed to be simple to understand and simple to sell. Their rate structures are also designed for maximum customer accessibility.

Comprehensive adviceBancassurance dovetails perfectly with the range of retail banking services by offering bank customers not only savings products (like life insurance and pensions), but also loan protection products (for home loans, auto loans, etc.) and personal protection products. Customers are therefore able to buy a range of financial products from a single point of contact capable of covering all their needs. In the event of claim, they enjoy the further benefit of being looked after as part of the wider customer care relationship.

Attractive rates

Selling insurance products via retail banking networks usually has the effect of reducing distribution costs, because marketing expenses can be offset against more extensive ranges of banking products and greater volumes of customers. Products can therefore be marketed at rates that are more attractive to consumers.

SecurityThe solvency of the insurer selected by the bank and the legal guarantee of the institutional intermediary are both reassuring factors for end-user customers.


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Bancassurance : Emerging trendsand StrategIc 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.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 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 standardised, 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 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.


Bancassurance

Strategic challenges:

These developments are expected to challenge traditional bancassurers in the following ways:

1. The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own.

2. Increasing sales of non-life products, to the extent those risks are retained by the banks, require sophisticated products and risk management.

3. The sale of non-life products should be weighted against the higher cost of servicing those policies.

4.Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims.


Bancassurance

BENEFITS OF BANCASSURANCE TO BANKS AND

INSURANCE COMPANIES

a) The insurance company hopes to attract further business, from both existing and new policyholders, because of the fact that it can offer a wider range of services than before, i.e. it can give its customers access to banking as well as to insurance services. It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.

b) The economics of the Bancassurance operation may allow the insurer to offer products which are not feasible through the insurer’s existing channels. For example, sales costs incurred under existing channels may force premium rates for a product to be uncompetitive, so the product is not sold. The costs via the Bancassurance channel may be low enough to make it feasible.

c) The insurance company can offer to carry out the administration activities of the bancassurer’s business, if for example the bancassurer is a separate company. Combining the bancassurer’s business with the other business of the insurer can produce economies of scale in administration costs (including capital expenditure). This in turn allows the insurer to improve profitability and to price future products with narrower margins, which helps to make the insurer’s products more competitive.

d) For both bank and insurer there is a great opportunity to learn and to make improvements in their own operation. Each gets exposure to the other’s distinctive management styles, its objectives andmeasures and the pressures which it can exert and which it feels. The benefit comes when either company can implement changes as a result of the learning process.

BENEFITS OF BANCASSURANCE TO

CUSTOMERS

a) It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.

b) The people who are unaware of and/or are not in reach of insurance policies can be benefitted through widely distributed banking networks and better marketing channels of banks.

c) Increase in number of providers means increase in competition and hence people can expect better premium rates and better services from bancassurance as compared to traditional insurance companies.


Bancassurance

DEMERITS OF BANCASSURANCE

a) Data management of an individual customer’s identity and contact details may result in the insurance company utilizing the details to market their products, thus compromising on data security.

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

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


Bancassurance

Conclusion

With the opening up of insurance sector and with so many players entering the Indian Insurance Industry it is required by Insurance Companies to come up with well established infrastructure facilities with good call centre service to attract and provide information to customer regarding different good policies & their premium pay scheme.

The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. With almost half of the population likely to be in the 'wage earner' bracket by 2010, there is every reason to be optimistic that bancassurance in India will play a long inning.

Where legislation ahs allowed bancassurance had mostly been a phenomenal success and although slow to gain pace, is now taking of across Asia, especially now that banks are starting to become more diverse financial institution and the concept of universal banking is being adopted.

In the field of bancassurance banks will bring a customer database, leverage their name, recognition & reputation of both local and regional levels. If they are using personal contact with customers and non-customers then only they can success in the field of bancassurance.

But the proper implementation of bancassurance is still facing so many hurdles because of poor manpower management, lack of call centers, and no personal contact with customers, inadequate incentives to agents and unfullfilment of other essential requirements.

Finally we can say that the bancassurance would mostly depend on how well insurers and bankers understanding is with each other and how they are capturing the opportunity and how better service them are providing to their customers. Let us you all pay more attention towards the policies and enjoy the service provide by banks and Insurance Companies by the mode of Bancassurance.


Banc Assurance

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