ban cass urnace

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BANCASSURANCE IN INDIA

Submitted by:

Shobhit Saxena

Roll No. 14108


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Table of Contents

Introduction..3

What Is Bancassurance?............................................................................................................... ..............4

Meaning4

Origin5

Bancassurance Framework5

Scope For Bancassurance In India ...6

Why Should Banks Enter Insurance?.......................................................................................................7

Advantages To Insurers......8

Advantages To Consumers.9

Models Of Bancassurance...9

Existing Tie-Ups Between Insurance Companies And Banks ..12

Existing Relationship Between Insurance Companies And Banks ..12

RBI Norms For Banks..13

IRDA Norms For Insurance Companies.15

Reasons For Growing Phenomena Of Bancassurance...16

Growth In Some Of The Key Elements...17

Critical Success Factor..17

Distribution Channels18

Trends 20

Challenges...21

Swot Analysis.22

Recommendations.26

Example: Sbi Life Insurance....27

Conclusion..28

Bibliography.......29


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INTRODUCTION

The Banking and Insurance industries have changed rapidly in th e c h a n g i n g a n d

cha l lenging economic environment th roughout the world . In th is

competitive and liberalized environment everyone is trying to do better than others and

consequently survival of the fittest has come into effect

The life insurance industry in India has been progressing at a rapid pace since opening

up of the sector in 2000. The size of the country, a diverse set of people combined with

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

proposition. Life insurance companies require immense distribution strength and

tremendous manpower to reach out to such a huge customer base.

This distribution will undergo a sea change as various insurance companies are

proposing to bring insurance products into the lives of the common man by making

them available at the most basic financial point, the local bank branch, through

Bancassurance. Simply put, Bancassurance is the process through which insurance

products are sold to customers at their local banks. Bancassurance - a term coined by

combining the two words bank and insurance (in French) - connotes distribution of

insurance products through banking channels. 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.

With banking network of 65,000 branches serving more than 300 million retail banking

customers, insurance can be available at affordable prices to people even in remote

corners of the country.

The relationship is symbiotic; but there are challenges. 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. Even insurers and banks that seem ideally suited for a

Bancassurance partnership can run into problems during implementation.

One more important obstacle in development of Bancassurance in India has been a set

of regulatory barriers. Some of these have recently been cleared with the passage of theInsurance (Amendment) Act, 2002. Looking at the west where sales through the

banking network have been a roaring success, the Indian banking sector has far to go.

But one thing stands obvious. If insurance in India is to succeed, it can only be through

the Bancassurance channel.


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WHAT IS BANCASSURANCE?

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

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

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

them at a competitive price. Since the banking services, insurance and fundmanagement are all interrelated activities and have inherent synergies, selling of

insurance by banks would be mutually beneficial for banks and insurance companies.

With these developments and increased pressures in combating competition, companies

are forced to come up with innovative techniques to market their products and services.

At this juncture, banking sector with it's far and wide reach, was thought of as a

potential distribution channel, useful for the insurance companies. This union of the two

sectors is what is known as Bancassurance.

MEANING

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

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

distribution channels of the banking services along with a complete range of banking

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

synergies between both the insurance companies and banks.

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

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

income can be increased through hawking of risk products like insurance.

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

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

According to IRDA, Bancassurance refers to banks acting as corporate agents for

insurers to distribute insurance products. Literature on Bancassurance does not

differentiate if the Bancassurance refers to selling of lifeinsurance products or non-life

insurance products. Accordingly, Bancassuranceis defined to mean banks dealing in

insurance products of both life and non-life type in any forms.

It is also important to clarify that the term Bancassurance does not just refer specifically

to distribution alone. Other features, such as legal, fiscal, cultural and/or behavioural

aspects also form an integral part of the concept of Bancassurance (SCOR 2003).


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ORIGIN

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

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

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

for various reasons.

Germany took the lead and it was called ALLFINANZ. The system of Bancassurance

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

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

Mexico, and Australia.

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

deregulation of the insurance industry, Bancassurance evolved in India around 2002.

BANCASSURANCE FRAMEWORK


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SCOPE FOR BANCASSURANCE IN INDIA

It has become clear that as economy grows it not only demands stronger and vibrant

financial sector but also necessitates provision of more sophisticated and variety of

financial and banking products and services. As India is being considered one of the fast

developing economies among the emerging market economies, financial sector has alsobecome more vibrant with the financial reforms. In fact, in recent years, it is surmised

that even the global economic growth hinges on growth prospects of the emerging

economies like China and India to a greater extent. Experience also showed that

economic growth had strongly supported the expansion of middle income class in most

of the Asian countries, and now it is the turn of India. Experience reveals that at the

initial growing stage of the economy the primary financial needs are met by the banking

system and thereafter as the economy moves on to higher levels, the need for the other

non-banking financial products including insurance, derivatives, etc., are strongly felt.

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 2009, there were more than 543 lakh bank

accounts with scheduled commercial banks. In simple words, it is aptly put that

Bancassurance haspromised to combine insurance companies competitive edge in the

production of insurance products with banks edge in their distribution, through their

vast retail networks.

The prospects of Bancassurance in India are really bright because of following

reasons:

Increasing PPP (purchasing power parity). Huge inflow of FDI. Expansion of middle income class Indians. Though slowed down, Indian economy is still growing faster than most Huge banking infrastructure across urban, semi urban & rural India. BASEL NORM-II (2009).

India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with

the government of India holding a stake), 29 private banks (these do not have

government stake; they may be publicly listed and traded on stock exchanges ) and 31foreign banks. Altogether they have a combined network of over 53,000 branches and

reach in urban, semi urban & rural areas of nation. There are 70324 bank offices in

India and around 16000 people are served by each bank office. Its a huge banking

infrastructure and among the best banking network in the world. Bancassurance if taken

in right spirit and implemented properly can be a win-win situation for the all the

participants, viz., banks, insurers and the customers.


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WHY SHOULD BANKS ENTER INSURANCE?

There are several reasons why banks should seriously consider Bancassurance:

The most important of which is increased return on assets (ROA). One of thebest ways to increase ROA, assuming a constant asset base, is through feeincome. 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 that effectively cross-sell financial products can leverage their

distribution and processing capabilities for profitable operating expense ratios.

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 insuranceproducts. In addition, a banks branch network allows the face to face contact

that is so important in the sale of personal insurance.

Another advantage banks have over traditional insurance distributors is thelower 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.

Other bank strengths are their marketing and processing capabilities. Banks haveextensive 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 reputationand 'distribution systems (branch, phone, and mail) to make appointments, and

utilizing 'sales techniques and products tailored to the middle market, European

banks have more than doubled the conversion rates of insurance leads into salesand have increased sales productivity to a ratio which is more than enough to

make Bancassurance a highly profitable proposition.


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ADVANTAGES TO INSURERS

The Insurance Company can increase their business through the bankingdistribution channels because the banks have so many customers.

By cutting cost Insurers can serve better to customers in terms lower premiumrate and better risk coverage through product diversification.

Insurers can exploit the banks' wide network of branches for distribution ofproducts. 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, conversionratio of leads to sales is likely to be high. Further service aspect can also be

tackled easily. The insurance companies can also get access to ATMs and other technology

being used by the banks.

The selling can be structured properly by selling insurance products throughbanks.

The product can be customized as per the needs of the customers

A Win-Win Situation


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ADVANTAGES TO CONSUMERS

Product innovation and distribution activities are directed towards thesatisfaction of needs of the customer.

Bancassurance model assists customers in terms of reduction price, diversifiedproduct quality in time and at their doorstep service by banks.

Comprehensive financial advisory services under one roof. i.e., insuranceservices along with other financial services such as banking, mutual funds,

personal loans etc.

Easy accesses for claims, as banks are a regular visiting place for customers. Innovative and better product ranges and products designed as per the needs of

customers.

Any new insurance product routed through the Bancassurance Channel would bewell received by customers.

Customers could also get a share in the cost savings in the form of reducedpremium rate because of economies of scope, besides getting better financial

counseling at single point.

MODELS OF BANCASSURANCE

I. Structural Classification

a) Referral ModelBanks intending not to take risk could adopt referral model wherein they merely part

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

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

either at the premises of the ban0k or elsewhere. Referral model is nothing but a simple

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

with only the business leads to the agents/ sales staff of insurance company for a

referral fee or commission for every business lead that was passed on. In fact a

number of banks in India have already resorted to this strategy to begin with. This

model would be suitable for almost all types of banks including the RRBs /cooperative

banks and even cooperative societies both in rural and urban. There is greater scope in

the medium term for this model. For, banks to begin with can resort to this model andthen move on to the other models.

b) Corporate AgencyThe other form of non-sick participatory distribution channel is that of Corporate

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

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

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

relatively higher than the referral arrangement. This, however, is prone to reputationalrisk of the marketing bank. There are also practical difficulties in the form of


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professional knowledge about the insurance products. This could, however, be

overcome by intensive training to chosen staff, packaged with proper incentives in the

banks coupled with selling of simple insurance products in the initial stage. This model

is best suited for majority of banks including some major urban cooperative banks

because neither there is sharing of risk nor does it require huge investment in the form

of infrastructure and yet could be a good source of income. This model of

bancassurance worked well in the US, because consumers generally prefer to purchase

policies through broker banks that offer a wide range of products from competing

insurers.

c) Insurance as Fully Integrated Financial Service/ Joint venturesApart from the above two, the fully integrated financial service involves much more

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

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

more function within. This includes banks having wholly owned insurance subsidiaries

with or without foreign participation. The great advantage of this strategy being that the

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

economies of scope. This may be suitable to relatively larger banks with sound

financials and has better infrastructure. As per the extant regulation of insurance sector

the foreign insurance company could enter the Indian insurance market only in the form

of joint venture, therefore, this type of bancassurance seems to have emerged out of

necessity in India to an extent. There is great scope for further growth both in life and

non-life insurance segments as GOI is reported have been actively considering toincrease the FDIs participation up to 49 per cent.

II. Product based classification

(a) Stand-alone Insurance ProductsIn 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 banks customer, however, the products of banks and

insurance will have their respective brands too.


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(b) Blend of Insurance with Bank ProductsThis method aims at blending of insurance products as a value addition while

promoting the banks 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 banks own products, e.g., credit card, housing loans, education loans, etc. Many

banks in India, in recent years, has been aggressively marketing credit and debit card

business, whereas the cardholders get the insurance cover for a nominal fee or

(implicitly included in the annual fee) free from explicit charges/ premium. Similarly

the home loans / vehicle loans, etc., have also been packaged with the insurance cover

as an additional incentive.

III. Bank Referrals

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

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

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

also there is a win-win situation every where as the banks get commission, the insurance

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


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Existing Tie-Ups Between Insurance Companies And Banks

Existing Relationship Between Insurance Companies And Banks


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RBI NORMS FOR BANKS

RBI Guidelines for the Banks to enter into Insurance Business

Following the issuance of Government of India Notification dated August 3, 2000,specifying Insurance as a permissible form of business that could be undertaken by

banks under Section 6(1) (o) of The Banking Regulation Act, 1949, RBI issued the

guidelines on Insurance business for banks.

1 Any scheduled commercial bank would be permitted to undertake insurance business

as agent of insurance companies on fee basis. Without any risk participation

2. Banks which satisfy the eligibility criteria given below will be permitted to set up a

joint venture company for undertaking insurance business with risk participation,

subject to safeguards. The maximum equity contribution such a bank can hold in the

Joint Venture Company will normally be 50% of the paid up capital of the insurance

company.

The eligibility criteria for joint venture participant are as under:

i. The net worth of the bank should not be less than Rs.500 crore;

ii. The CRAR of the bank should not be less than 10 per cent;

iii. The level ofnon-performing assets should be reasonable;

iv. The bank should have net profit for the last three consecutive years;

v. The track record of the performance of the subsidiaries, if any, of the concerned bank

should be satisfactory.

3. In cases where a foreign partner contributes 26% of the equity with the approval of

Insurance Regulatory and Development Authority/Foreign Investment Promotion

Board, more than one public sector bank or private sector bank may be allowed to

participate in the equity of the insurance joint venture. As such participants will also

assume insurance risk, only those banks which satisfy the criteria given in paragraph 2

above, would be eligible.

4. A subsidiary of a bank or of another bank will not normally be allowed to join the

insurance company on risk participation basis.


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5. Banks which are not eligible for joint venture participant as above, can make

investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower,

in the insurance company for providing infrastructure and services support. Such

participation shall be treated as an investment and should be without any contingent

liability for the bank.

The eligibility criteria for these banks will be as under:

i. The CRAR of the bank should not be less than 10%;

ii. The level ofNPAs should be reasonable;

iii. The bank should have net profit for the last three consecutive years.

6. All banks entering into insurance business will be required to obtain prior approval

of the Reserve Bank. The Reserve Bank will give permission to banks on case to case

basis keeping in view all relevant factors including the position in regard to the level of

non-performing assets of the applicant bank so as to ensure that non-performing assets

do not pose any future threat to the bank in its present or the proposed line of activity,

viz., insurance business. It should be ensured that risks involved in insurance business

do not get transferred to the bank. There should be arms length relations hip between

the bank and the insurance outfit.

7. Holding of equity by a promoter bank in an insurance company or participation in

any form in insurance business will be subject to compliance with any rules and

regulations laid down by the IRDA/Central Government. This will include

compliance with Section 6AA of the Insurance Act as amended by the IRDA Act,

1999, for divestment of equity in excess of 26 per cent of the paid up capital within a

prescribed period of time.

8. Latest audited balance sheet will be considered for reckoning the eligibility criteria.


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IRDA NORMS FOR INSURANCE COMPANIES

The Insurance regulatory development & Authority has given certain guidelines for the

Bancassurance they are as follows

Chief Insurance Executive: Each bank that sells insurance must have a chiefInsurance Executive to handle all the insurance matters & activities.

Mandatory Training: All the people involved in selling the insurance shouldunder-go mandatory training at an institute determined (authorized) by IRDA &

pass the examination conducted by the authority.

Corporate agents: Commercial banks, including co-operative banks and RRBsmay become corporate agents for one insurance company.

Banks cannot become insurance brokers.Issues for regulation: Certain regulatory barriers have slowed the development of

Bancassurance in India down. Which have only recently been cleared with the passage

of the insurance (amendment) Act 2002. Prior it was clearly an impractical necessityand had held up the implementation of Bancassurance in the country. As the current

legislation places the following:-

Training and examination requirements: upon the corporate insuranceexecutive within the corporate agency, this barrier has effectively been removed.

Another regulatory change is published in recent publication of IRDA regulation

relating to the Licensing of Corporate agents

Specified person to satisfy the training & examination: According to newregulation of IRDA only the specific persons have to satisfy the training &

examination requirement as insurance agent.


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REASONS FOR GROWING PHENOMENA OF BANCASSURANCE

Life insurance premium represents 55% of the world insurance premiumand 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 ofrevenues from the same customers through the same channel of distribution and

with the same people.

Insurers have been turning in ever greater numbers to alternative modes ofdistribution 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 operating through bancassurance hone and control relationships withcustomers. Insurers found that direct relationships with customers gave

them greater control of their business at a lower cost . Insurers who operate

through the agency relationships hardly have any control on their relationship

with their clients.

The ratio of expenses to premiums, as an important efficiency factor, is noticedvery well that expenses ratio in insurance activities through bancassurance

is extensively low as the bank and the insurance company is benefiting from thesame distribution channels and people.

The prospects for increased consolidation between banking and insurance ismore likely dominated and derived by the marketing innovations that are likely

to follow from financial service modernization. Such innovations would

include cross selling of banking, insurance and brokerage products and

services; the increased use of the Internet by consumers and a blending ofinsurance and banking corporate cultures.


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CRITICAL SUCCESS FACTOR


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DISTRIBUTION CHANNELS

Traditionally, insurance products were promoted and sold principally through agency

systems only. The reliance of insurance industry was totally on the agents. Moreover

with the monopoly of public sector insurance companies there was very slow growth in

the insurance sector because of lack of competition. The need for innovative distribution

channels was not felt because all the companies relied only upon the agents and

aggressive marketing of the products was also not done. But with new developments in

consumers behaviours, evolution of technology and deregulation, new distribution

channels have been developed successfully and rapidly in recent years.

Recently Bancassurers have been making use of various distribution channels, they are:

a. 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

the contract. 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 incentive packages.

b. Special Advisers

Special Advisers are highly trained employees usually belonging to the insurance

partner, who distribute insurance products to the bank's corporate clients. The Clientsmostly 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.

c. Salaried Agents

Salaried Agents are an advantage for the bancassurers because they are under the

control and supervision of bancassurers. These agents share the mission and objectives

of the bancassurers. These are similar to career agents, the only difference is in terms of

their remuneration is that they are paid on a salary basis and career agents receive

incentive compensation based on their sales.

d. Bank Employees / Platform Banking

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. A 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.


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e. Corporate Agencies and Brokerage Firms

There are a number of banks who cooperate with independent agencies or brokerage

firms while some other banks have found corporate agencies. The advantage of such

arrangements is the availability of specialists needed for complex insurance matters and

through these arrangements the customers get good quality of services.

f. 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.

g. Internet

Internet banking is already securely established as an effective and profitable basis for

conducting banking operations. Bancassurers can feel confident that Internet banking

will also prove an efficient vehicle for cross selling of insurance savings and protection

products. 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.

h. 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.

i. Outside Lead Generating Techniques

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

techniques, such as seminars, direct mail and statement inserts. 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.


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TRENDS

Though bancassurance has traditionally targeted the mass market, but bancassurershave begun to finely segment the market, which has resulted in tailor-madeproducts for each segment.

Some bancassurers are also beginning to focus exclusively on distribution. In somemarkets, face-to-face contact is preferred, which tends to favour bancassurance

development.

Nevertheless, banks are starting to embrace direct marketing and Internet bankingas tools to distribute insurance products. New and emerging channels are becoming

increasingly competitive, due to the tangible cost benefits embedded in productpricing or through the appeal of convenience and innovation.

Bancassurance proper is still evolving in Asia and this is still in infancy in Indiaand it is too early to assess the exact position. However, a quick survey revealed

that a large number of banks cutting across public and private and including foreign

banks have made use of the bancassurance channel in one form or the other in

India.

Banks by and large are resorting to either referral models or Corporate agencymodel to begin with.

Banks even offer space in their own premises to accommodate the insurance stafffor selling the insurance products or giving access to their clients database for the

use of the insurance companies.

As number of banks in India have begun to act as corporate agents to one or theother insurance company, it is a common sight that banks canvassing and

marketing the insurance products across the counters.


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CHALLENGES

Increasing sales of non-life products, to the extent those risks are retained by thebanks, require sophisticated products and risk management. The sale of non-lifeproducts should be weighted against the higher cost of servicing those policies.

Bank employees are traditionally low on motivation. Lack of sales culture itself isbigger roadblock than the lack of sales skills in the employees. Banks are generally

used to only product packaged selling and hence selling insurance products do not

seem to fit naturally in their system.

Human Resource Management has experienced some difficulty due to suchalliances in financial industry. Poaching for employees, increased work-load,additional training, maintaining the motivation level are some issues that has

cropped up quite occasionally. So, before entering into a bancassurance alliance,

just like any merger, cultural due diligence should be done and human resource

issues should be adequately prioritized.

Private sector insurance firms are finding change management in the publicsector, 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. So because of this there is distinction created

between public and private sector banks.

The banks also have fear that at some point of time the insurance partner may endup cross-selling banking products to their policyholders. If the insurer is selling the

products by agents as well as banks, there is a possibility of conflict if both the

banks and the agent target the same customers.


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SWOT ANALYSIS

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

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

yet to exchange their wedding rings, Bancassurance as a means of distribution of

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

Banks are selling Personal Accident and Baggage Insurance directly to their Credit Card

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

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

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

The sale of insurance products can earn banks very significant commissions

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

from implementing bancassurance successfully is the development of a sales culture

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

and other financial services as well. Bancassurance enables banks and insurance

companies to complement each others strengths as well.

STRENGTHS:

In a country like India of one billion people where sky is the limit there is a vastuntapped potential waiting for life insurance products. Our other strength lies in

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

who may be easily relocated for any bancassurance venture.

Banks have the credibility established with their constituents because of avariety of services and schemes provided by them. They also enjoy pride of

place in the hearts of people because of their long presence and sustained image.

Banks also enjoy a wide network of branches, even in the remotest areas that canfacilitate taking up the task on a large and massive scale, simultaneously.

Banks are very well aware with the psychology of the customers because of theirinteraction with the customers on regular basis. Because of this the bankers can

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

of insurance distribution to personal line insurance.


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People rely more upon LIC and GIC for taking insurance. If the products of LICand GIC are provided through bancassurance it would be an added advantage to

the insurance companies.

With the help of banks trained staff, its brand name and the confidence andreliability of people on the banks, the selling of insurance products can be donein a more proper way.

Other than all these things there is a huge potential for insurance sector, as thepopulation of India is high and a large part of it has remained untapped till now.

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

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

computerization of bank branches, the rural and semi-urban banks have still to

see information technology as an enabler. The IT culture is unfortunately

missing completely in all of the future collaborations. The internet connections

are also not properly provided to the staff.

To undertake the distribution of the insurance products, the bank employeeshave to undergo certain minimum period of training, followed by a test and then

get themselves licensed. Moreover the standards of the examination have beenraised in the recent past making it difficult for many examinees to clear the

same.

There is lack of personalized services because the traditional insurance agent isconsidered a member of the family and hence is able to render a personalized

service during and after the sales process. However that may not be the case in

regards to a bank employee.

There are many differences in the way of thinking and business approaches ofbankers and the managers of insurance companies. Banks are traditionally

demand-driven organizations with a reactive selling philosophy. Insurance

organizations are usually need-driven and have an aggressive selling

philosophy.

The visit of a customer to the bank is to have a simple transaction like deposit orwithdrawal. Busy customers will have no time to have a discussion on a long-

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

or metro branches are going to be fewer because of ATMs and e-banking.


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Another drawback is the inflexibility of the products i.e. it cannot be tailor madeto the requirements of the customer. For a bancassurance venture to succeed it is

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

attractive to the customers.

OPPORTUNITIES:

There is a vast untapped potential waiting to be mined particularly for lifeinsurance products. There are more than 900 million lives waiting to be given a

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

million).

There are many people in many areas that are still unaware about the insuranceand its various products and are waiting that somebody should come and givethem the information about it.

In urban and metro areas, where the customers are willing to get many serviceslike lockers and safe deposit systems and other products and services from

banks, there is a good opportunity to market many property related general

insurance policies like fire insurance, burglary insurance and medi-claim

insurance etc.

Banks' database is enormous even though the goodwill may not be the same.This database has to be dissected and various homogeneous groups are to be

churned out in order to position the Bancassurance products. With a good IT

infrastructure, this can really do wonders.

Banks in their normal course of functions lend finance in the form of loans forcars, or for buying a house to clients etc. They can take advantage of this by

cross-selling the insurance products and combine it as a package.

Another area that could be of interest to bankers to sell insurance is exploitingthe corporate customers and tying up for insurance of the employees of

corporate clients, which would be an avenue with easy access. In most cases

banks provide salary disbursement and loan facilities but here they can provide

insurance cover as well.


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Threats:

Success of a Bancassurance venture requires change in approach, thinking andwork culture on the part of everybody involved. The work force at every levelare so well entrenched in their classical way of working that there is a definitethreat of resistance to any change that Bancassurance may set in. Any relocation

to a new company or subsidiary or change from one work to a different kind of

work will not be easily acceptable by the employees.

Another possible threat may come from non-response from the targetedcustomers. If many joint ventures took place between banks and insurance

companies then it may happen that the customers may not respond to such

ventures as happened in U.S.

Insurance in India is perceived more as a saving option than providing riskcover. So this may create an adverse feeling in the minds of the bankers that

such products may lessen the sales of regular bank saving products. Also selling

of investment and good return products may affect the FD Portfolio of the

banks.

There would be a problem of Reputational Contagion i.e. loss of marketconfidence towards one in a venture leading to loss of confidence on the other

because of identical brand recognition, similar management and consolidated

financial reporting etc.

If no strict norms are there for such ventures then many unholy ventures maytake place which may give rise to tough competition between bancassurers

resulting in lower prices and the Bancassurance venture may never break

because of such situations.

The most common obstacles to success of Bancassurance are poor manpowermanagement, 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.


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RECOMMENDATIONS

The Insurance companies need to design products specifically for distributingthrough banks. Trying to sell traditional products may not work so effectively.

The employees of the banks who are selling insurance products must be givenproper training so that they can answer to any queries of the customers and can

provide them products according to their needs.

Banks should also provide after sales services and they should be moreaggressive in selling the insurance products.

Banks should also do the settlement of claims which will increase the trust andreliability of the customers on the banks.

In India, since the majority of the banking sector is in public sector which hasbeen widely responsible for the lethargic attitude and poor quality of customer

service, it needs to rebuild the blemished image. Else, the bancassurance would

be difficult to succeed in these banks.

A formal and standard agreement between these banks and the insurancecompanies should be taken up and drafted by a national regulatory body. These

agreements must have necessary clauses of revenue sharing. In case of possible

conflicts, the bank management and the management of the insurance company

should be able to resolve conflicts arising in future.

For bancassurance to succeed, products and processes will need to be tailored tobank markets, rather than adjusted to insurers specifications.

Banks and Insurance companies should apply all the skills and potential in thisarea and take advantage of the same and they should improve the products from

time to time according to the needs of the customers.


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EXAMPLE: SBI LIFE INSURANCE

SBI Life insurance, a joint venture between State Bank of India, the largest bank in the

country and bancassurance major Cardiff of France. SBIs stake in the venture is 74%

whereas Cardiff has 26% share. They have launched many products so far incorporating

certain features that are introduced for the first time in the country. SBI -Life is bankingon the bancassurance model on the strength of the SBI Groups 10000 plus bank

branches and its vast customer base. In addition it is also tapping other. banks corporate

agents and the traditional agency route to penetrate the insurance market SBI Life is

planning to introduce more novel and user friendly products to cater to the requirements

of the consumers in different segments.

SBI has the largest banking network in the county. The bank is looking for business

from every customer segment of the bank rural and urban segments, upper, middle and

lower income segments /groups and corporate segment. Besides their own channels they

are planning to distribute products through other interested banking channels also. It is

expected that 2/3 rd of the premium income in expected to come by way ofbancassurance and the rest from the traditional agency channel as well as ties up with

corporate agents (Sundaram Finance). SBI has also introduced group insurance to some

well managed corporate staffs.

Technology is an integral part of this operation. Cardiff provided the technology

required. The project was initiated in April 2004, and the initial roll-out was completed

by August 2004. SBI Life has implemented an Internet-centric IT system with browser-

based front-office and back-office systems, channel management, policy product details,

online premium calculator and facility for group insurance customers to view their

individual savings status on the Web. The organization has the facility to pay premiums

through credit cards, Net banking, standing instructions, etc. This is fully integratedwith the core systems through industry standards such as XML, EDI, etc.

SBI Life Insurance Company is the first among the 14 life insurance companies in the

private sector to consistently reporting profits. There are life insurance players much

more aggressive than SBI and they have still not been able to break the record of SBI.

Their success is largely on the channel strategy and product strategy. The another aspect

is their superior investment performance. They have consistently, over the last two

years, generated 11-12 per cent earnings from the investments.

SBI Life Insurance is uniquely placed as a pioneer to usher bancassurance into India.The company hopes to extensively utilize the SBI Group as a platform for cross-selling

insurance products along with its numerous banking product packages such as housing

loans, personal loans and credit cards. SBIs access to over 100 million accounts

provides a vibrant base to build insurance selling across every region and economic

strata in the country


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CONCLUSION

The creation of Bancassurance operations has a material impact on the financial services

industry at large. Banks, insurance companies and traditional fund management houses

are converging towards a model of global retail financial institution offering a wide

array of products. It leads to the creation of 'one-stop shop' where a customer can applyfor mortgages, pensions, savings and insurance products.

Where legislation has allowed, bancassurance has mostly been a phenomenal success and,

although slow to gain pace, is now taking off across Asia, especially now that banks are starting

to become more diverse financial institutions, and the concept of universal banking is being

accepted. In India, the signs of initial success are already there despite the fact that it is a

completely new phenomenon. The factors and principles of why it is a success elsewhere exist

in India, and there is no doubt that banks are set to become a significant distributor of insurance

related products and services in the years to come.

The success of bancassurance greatly hinges on banks ensuring excellent customers

relationship; therefore, banks need to strive towards that direction. Regulators could explore the

possibility of allowing banks having tie-up arrangements with more than one insurance

company, giving wider choice for the customers. In addition to acting as distributors, banks

have recognised the potential of bancassurance in India and will take equity stakes in insurance

companies, in the long run. Going by the present pace, bancassurance would turn out to be a

norm rather than an exception in future in India. Adequate training coupled with sufficient

incentive system could avert the banks staff resistance if any. In sum, bancassurance strategywould be a win-win situation for all the parties involved - the customer, the insurance

companies and the banks.


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BIBLIOGRPAHY

http://www.einsuranceprofessional.com/artbuzz.html

https://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdf

http://www.ibexi.com/papers/Bancassurance.pdf http://tips.thinkrupee.com/articles/bancassurance-in-india.php
http://www.einsuranceprofessional.com/artbuzz.htmlhttp://www.einsuranceprofessional.com/artbuzz.htmlhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttp://www.ibexi.com/papers/Bancassurance.pdfhttp://www.ibexi.com/papers/Bancassurance.pdfhttp://tips.thinkrupee.com/articles/bancassurance-in-india.phphttp://tips.thinkrupee.com/articles/bancassurance-in-india.phphttp://tips.thinkrupee.com/articles/bancassurance-in-india.phphttp://www.ibexi.com/papers/Bancassurance.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttps://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal2008/Journal08_%20pg49-54_banc.pdfhttp://www.einsuranceprofessional.com/artbuzz.html

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