Bancassurance: An Indian Perspective

The business of banking around the globe is changing due to integration of global
financial markets, development of new technologies, universalization of banking
operations and diversification in non-banking activities. Due to all these movements,
the boundaries that have kept various financial services separate from each other
have vanished. The coming together of different financial services has provided
synergies in operations and development of new concepts. One of these is
bancassurance.

Bancassurance simply means selling of insurance products by banks. In this

arrangement, insurance companies and banks undergo a tie-up, thereby allowing
banks to sell the insurance products to its customers. This is a system in which a
bank has a corporate agency with one insurance company to sell its products. By
selling insurance policies bank earns a revenue stream apart from interest. It is
called as fee-based income. This income is purely risk free for the bank since the
bank simply plays the role of an intermediary for sourcing business to the insurance
company.

Bancassurance has grown at different places and taken shapes and forms in different
countries depending upon demography, economic and legislative prescriptions in that
country. It is most successful in Europe, especially in France, from where it started,
Italy, Belgium and Luxembourg. The concept of bancassurance is relatively new in
the USA. As mentioned above bancassurance growth differs due to various reasons
in different countries. The Glass-Steagall Act of 1933 prevented the banks of the USA
from entering into alliance with different financial services providers, thereby putting
a barrier on bancassurance. As a result of this life insurance was primarily sold
through individual agents, who focussed on wealthier individuals, leading to a
majority of the American middle class households being under-insured. With the US
Government repealing the Act in 1999, the concept of bancassurance started gaining
grounds in the USA also. Coming to Asia, it has been estimated that bancassurance
would contribute almost 16% of the life premium in the Asian markets in the year
2006 primarily due to the growth expected in India and China.

Coming to India, bancassurance is a new buzzword in India. It originated in India in

the year 2000 when the Government issued notification under Banking Regulation
Act which allowed Indian Banks to do insurance distribution. It started picking up
after Insurance Regulatory and Development Authority (IRDA) passed a notification
in October 2002 on 'Corporate Agency' regulations. As per the concept of Corporate
Agency, banks can act as an agent of one life and one non-life insurer. Currently
bancassurance accounts for a share of almost 25-30% of the premium income
amongst the private players in India.

Bancassurance provides various advantages to banks, insurers and the customers.

For the banks, income from bancassurance is the only non interest based income.
Interest is market driven and fluctuating and quite narrowing these days. Banks do
not get great margins because of the competition This is why more and more banks
are getting into bancassurance so as to improve their incomes. Increased
competition also makes it difficult for banks to retain their customers. Banassurance
comes as a help in this direction also. Providing multiple services at one place to the
customers means enhanced customer satisfaction. For example, through
bancassurance a customer gets home loans along with insurance at one single place
as a combined product. Another important advantage that bancassurance brings
about in banks is development of sales culture in their employees.

As for the insurance company the advantage that bancassurance provides is evident.
The insurance company gets improved geographical reach without additional costs.
In India around 67,000 branches are there for PSU banks alone. If all 67,000
branches sell the insurance products one can see the reach. This is one method of
penetrating the market.

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.

India's rural market has huge potential that is still untapped by the insurance
companies. Setting up their own networks entails such a huge cost, that no company
would be interested in doing so. Bancassurance again comes as an answer. It helps
the insurance companies to tap the market at a much lower cost. As for the
customer the competitive nature of the Indian market ensures that the reduction in
costs would result in benefits in terms of lower premium rates being passed on to
him.

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.
"Bancassurance" in French and "All Finanz" (Universal Banking) in German refers to a tie up arrangement of
banks with insurance companies for selling the insurance products in life and non life segments as corporate
agents for fee based income.This income is risk-free,as the bank plays a role of a intermediary for souring
business to insurance company. Bancassurance is a package of banking and insurance service at one
roof.The introduction of Bancassurance has broadened the scope of retail banking.

Origin and Global Scenario:

Bancassurance has grown in different places in different forms based on the demographic,economic and
legislative condition of the country.This concept has been successful in Europe,France (from where it
originated),Italy,Belgium and Luxembourg.Bancassurance was not much popular in USA as Steagall
Act,1933 prevented banks of USA from entering into alliance with financial service providers,therefore
putting a ban on bancassurance.As a result of this,Life insurance was primarily sold by insurance
agents,who focused mainly on wealthier class of people, which lead to majority of American middle class
households uninsured.With US government repealing the act,and after the passage of Gramm-Leach Bliley
Act,1999,the concept of Bancassurance started gaining momentum in USA also.

Reasons of Banks to enter into Insurance Business:

Banking industry has seen a long change since the era of Globalization, Liberalization and Finance sector
Reforms.The following are some of the reasons of banks to enter into insurance business:

1.Deregulation of banking industry has given each banking an opportunity to differentiate its products and
service and promote its strength and remove its weakness.

2.Technology has enabled the banks to design the innovative products that need to be promoted and
marketed.

3.Growing Competition has induced the banks to create niche for itself by giving importance and highlighting
the areas of their expertise and excellence.

4.Growth of market segments which provide opportunities for the banks that need to be marketed.For
example,banks are offering various financial services in addition to the normal banking services to attract the
customers.

5.Banks are expecting to increase its fee based income, overall productivity, customer satisfaction and
loyalty by leveraging the branch network,the brand image and clientele base.They are aiming to obtain
extensive experience in marketing by using value-added services like e-banking,tele-banking and direct mail
in order to woo their customers. Bancassurance provides an opportunity to the banks to have face to face
contact with the customer and provide multiple services at one place which enhances customer
satisfaction.For example,if a person gets home loan,he can insure it also at same place as a combine
product.

6.Life insurance is basically a savings market.It is one of the method to increase the deposits of the banks.

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

distribution as against costly agency services.As for the Insurance Companies,they can increase their
business through banking distribution channel as banks have large and extensive customer base.By cutting
the cost of Insurance products,Insurance can serve the customers at over premium rates and have better
risk coverage through diversification of their products.

8.Customers need innovative products in terms of price,diversified product quality and doorstep
services.Bancassurance addresses the needs of portfolio diversification and integrates the marketing
activities.

Bancassurance Business Models:

The banks associate themselves with insurance companies by becoming a distributor or strategic investor or
developing joint venture or becoming a promoter.
1.Distribution of agreements:
Banks act as a tied agent and sells the insurance products of one insurer extensively in standalone basis or
bundled with other bank products.

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

3.Joint Venture:
Here a large bank with well-developed customer database partners with a large insurance companies with
strong product and channel experience.This is done in order to develop a powerful distribution
model.Alternatively, a bank and insurance company may agree to have cross holdings between them to
share the profits.

4.Financial Service Group:

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

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

Bancassurance in Indian Context:

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

(1)All Banks come under the control of Reserve Bank of India (RBI)
(2)Insurance sector follow the guidelines of Insurance Regulatory Development Authority (IRDA)

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

RBI Guidelines:

1. Any Commercial Bank can undertake insurance business as an agent of insurance company on fee
basis.There is no risk participation for such banks.

2. Joint Ventures will be allowed for financially strong banks who are wishing to undertake insurance
business with risk participation if they satisfy the following criteria:
- Net worth of the bank should be not less than Rs.500 crore.
- Capital Adequacy Ratio should be not less than 10% in the bank.
- There should be reasonable level of Non Performing Assets(NPA)
- The bank should have earned net profit continuously for last three years.
- If there is any subsidiary, in such cases,the performance of subsidiaries
should be satisfactory.

3.Banks which are not eligible for joint venture participation can opt up to
- 10% of the net worth of bank (or)
- Rs.50 Crores whichever is lower.
Besides this,the requirements relating to the Non Performing Assets,Capital Adequacy Ratio and Net Profit
maintained has to be followed as per the rules mentioned in the participation of banks in Joint ventures.

IRDA Norms:

According to IRDA,a private sector participant has to fulfill the following requirements to enter into the
insurance business:

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

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

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

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

5.Commercial Banks,Co-operative Banks and Regional Rural Banks may become the corporate agents for
one insurance company.

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

IRDA has also notified regulations relating to registration of insurers,their assets and liabilities,conduct of
business,licensing of insurance agents etc.

Relevance of Bancassurance in Indian Financial Sector:

In India,the concept of Bancassurance appears to be growing more rapidly both through commission based
agents and Joint Ventures between banks and insurance companies. Indian Banks have immense reach to
the households.

-There are around 65,700 branches of Commercial banks .Each bank has average of 15,000 people
-India's rural market has huge potential that is still untapped by insurance companies.In rural region,there
are 32,600 branches and 14,400 semi-urban branches where insurance has become most buoyant.
-There are 196 exclusive Regional Rural Banks in remote areas.

These help bank to enjoy considerable goodwill and access to the target customers. This also helps the
banks to pay a major role in developing insurance products including health care and pension sector too.

Few Tie-ups in India:

1.Life Insurance Corporation (LIC)has a tie up with Corporation Bank,Indian Overseas Bank,Sahara
Development Central Co-operative bank,and Vijaya bank.

2 State Bank of India has tie up with State Bank of India Insurance Company.State Bank Insurance Co is
starting and running insurance business with the help of State Bank of India.

3.Bajaj Allianz General Insurance Company has tie up with Karur Vysya Bank and ord Krishna Bank.

4.Bira Sunlife Insurance Co td has tie up with the following banks for the purpose of Insurance such as -
Bank of Rajasthan, Andhra Bank,Citi Bank,Bank Of Muscat,Development Credit bank and Dutch bank

5.HDFC bank with Chubb,USA and Standard ife,UsA

6.ING Vysya Bank has tie up with Royal sundaram and ING life Insurance,Canada

7.ICICI bank has tie up with Lombard insurance,England and Prudential life, England

Implementation of Bancassurance-Key challenge to India:

At present ,the Bancassurance is facing problems such as poor management,lack of call centres, no
personal contact,inadequate infrastructure, inadequate incentive to agents and in complete fulfillment of
other essential requirements. Hence following points can taken into consideration for proper implementation
of Bancassurance:

1.There should be involvement of top management in banks.

2.The banks should motivate and develop the skills of staffs at the operating level

3.If there is any possible conflicts of interest between banker and insurer.That has to be resolved.

4.Banks have to set up a consistent Distribution procedure with manual manual systems in banks.

5.Service level agreements between banker and insurer should be established.

6.High Capital investment in Information and Technology and Telecommunication.

7.Study about low income groups,middle and upper class of the society and their eagerness to adopt
insurance policies and provide favourabe policies to people.

8.Establishment of Research And Development Cell for adaptive task.

Conclusion:

With the opening up of insurance sectors and other players entering into insurance business,the insurance
companies have to come up with well established infrastructure facilities,with good call center
services,services which attracts and provides information to customers regarding different good policies and
their premium pay plans.Hence,the success of the bancassurance depends on the understanding of insurer
and the bank by capturing the opportunity and providing better services to the consumers.

Recent Trend of Bancassurance in India

Bancassurance is still evolving in Asia and this is still in infancy in India and it is
too early to assess the exact position. However, a immediate 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 agency’ to begin with. Banks even offer gap in their own
premises to provide accommodation the insurance staff for 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 the other insurance company, it is a general sight
that banks canvassing and marketing the insurance products across the
counters. The present IRDA’s regulation, however, restricts bankers to act as a
corporate agent on behalf of only one life and non-life insurance company.

In the case of ICICI-Prudential Life Insurance company, within two years of its
operations, it could reach more than 25 major cities in India and as much as 20
per cent of the life insurance sale are through the bancassurance channel
(Malpani 2004). In the case of ICICI bank, SBI and HDFC bank insurance
companies are subscribers of their respective investment companies. ICICI bank
sells its insurance products practically at all its major branches, besides it has
bancassurance partnership arrangements with 19 other banks as also as several
as 200 corporate tie-up arrangements. Thus, among the private insurance
companies, ICICI Prudential appears to exploit the bancassurance potential to
the maximum. ICICI stated that Bank of India has gradually grown the life
insurance segment of its business since its inception. ICICI prudential had also
reported to have entered into associated tie-ups with a number of RRBs, to reap
the potential of rural and semi-urban. In fact, it is a step in the right direction to
tap the enormous potential and semi-urban market. It will not be astounding if
other insurance companies to follow this direction. Aviva Insurance had reported
that it has tie-ups with as many as 22 banking companies, which includes private,
public sector and foreign banks to market its products. Similarly, Birla Sun Life
Insurer reported to have tie-up arrangements with 10 leading banks in the
country. A distinct feature of the recent trend in tie-up arrangements was that a
number of cooperative banks have roped in with bancassurance agreement. This
has added advantage for insurer as well as the cooperative banks, such as the
banks can increase the non-fund based income without the risk participation and
for the insurers the vast rural and semi-urban market could be tapped without its
own presence. Bancassurance alone has contributed abundantly to as much as
45 per cent of the premium income in individual life segment of Birla Sun Life
Insurer (Javeri, 2006).Incidentally even the public sector major LIC reported to
have tie-up with 34 banks in the country, it is likely that this could be the largest
number of banks selling single insurance company’s products. Ironically, LIC also
has the difference of being the oldest and the largest presence of its own in the
country. SBI Life Insurance for instance, is uniquely placed as a pioneer to usher
bancassurance into India. The company has been broadly utilizing 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. SBI has distinct advantage of having access to over 100 million accounts
and which provides it a vibrant and largest customer base to build insurance
selling across every region and economic strata in the country. In 2004, the
company reported to have became the first company amongst private insurance
players to cover 30 lakh lives.Interestingly, in respect of new (life) business
bancassurance business channel is even greater than the size of direct business
by the insurers at 2.17 per cent. Even in respect of LIC around 1.25 percent of
the new business is through bancassurance. Considering the large base, even
this constitutes quite sizeable to begin within the case of LIC. This speaks for
itself the rate at which the bancassurance becoming an important channel of
distribution of insurance products in India. It is significant to note that the public
sector giant LIC which has branches all over India is also moving towards making
use of bancassurance channel. It is significant to note that in the Indian case, all
those insurers and banks who have taken the lead in identifying the
bancassurance channel, at the early stage, are now reaping the maximum profit
of deeper existing customer relationship as also wider coverage of newer
customers besides enhancing fee based income. During 2005-06, as much as
16.87 per cent of new business were underwritten through banks as corporate
agent channel alone as compared with 6.61% through direct business (Table 6).
However, banks as referrals taken together has sizeable chunk of business. This
growth was primarily due to the aggressiveness witnessed in the private life
insurance sector and one of the drivers for this.

Insurers begin to look beyond bancassurance channels

Bancassurance - selling insurance policies through banks - is turning out to be an
unreliable model for insurance companies. Analysts say some insurance companies
may soon lose a large chunk of their business from bancassurance.

This is because banks are setting up their own insurance ventures on one hand and
changing insurance partners, lured by the hefty premium offered by a
competing insurer, on the other.

Under insurance regulation, each bank can tie up with only one insurer but the
insurer can have tie-ups with more than one bank.

According to industry observers, with more insurance companies starting

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

Upfront premium offered to banks for changing the insurance partner is said to be Rs
25-45 crore. For, private insurers, bancassurance accounts for a significant portion of
their business.

The public-sector banks that are setting up their own insurance ventures include
Bank of Baroda, Union Bank of India, Bank of India, Canara Bank, Oriental Bank of
Commerce, Andhra Bank, IDBI and Allahabad Bank.

Life Insurance Corporation of India is set to lose its tie-up with Andhra Bank (its
highest contributing bancassurance partner) and Oriental Bank of Commerce, once
their joint ventures come through.

Bank of Rajasthan has seen three different insurance partners. It first tied up with
Birla Sun Life, and then moved to LIC before switching to Aviva Life.

Alternative channels:-Insurance companies are now looking at alternative

channels such as brokerages and retail chains to bridge the gap.

Although bancassurance accounts for just 2 per cent of LIC’s new business premium,
it is bracing up for the challenge. It has hired 800 people for referral tie-ups with
several brokerages and regional rural banks.

“We are also in talks with several retail chains for selling insurance,” said a senior
LIC official.

For Aviva India, bancassurance was the capital-friendly way of making inroads into
the Indian market in a short span of time. In 2002, as much as 70 per cent of the
company’s business came from bancassurance. This has now dropped to 50 per cent.
Aviva, which has a tie-up with Canara Bank, recently infused Rs 250 crore capital
primarily to strengthen the agency channel.

“We plan to double our agency force to 66,000 in 2008 and increase our branch
network to 222 branches,” said Bert Paterson, MD and CEO, Aviva India.

For HDFC Standard Life Insurance, bancassurance and other alternative channels
contribute around 42 per cent of the business. The company’s bancassurance tie-ups
with Bank of Baroda and Union Bank of India will end once these banks begin
their own insurance operations.

“We are trying to ‘derisk’ the situation by expanding our field force. Our agency
force, which is around 1.5 lakh, will be expanded to 3.5 lakh by the end of fiscal ’09,”
said Deepak M. Satwalekar, MD and CEO, HDFC Standard Life Insurance.

For banks this may not have any major impact, apart from reorienting staff to
the products offered by the new companies. While the new companies will have their
staff, the bank staff would continue to sell the insurance products as well, as they
have the requisite experience, said D. Krishnamurthy, General Manager, Retail, Bank
of India.

Bank of India’s insurance company jointly with Da-ichi and Union Bank of India is
expected to start operations in another six months, he added. Currently Bank of
India has a tie-up with ICICI Prudential Life and the premium generated by the
bank is approximately Rs 1.5 crore, Krishnamurthy said.

Bancassurance: emerging trends, opportunities and challenges

According to a recent sigma study, bancassurance is on the rise, particularly in emerging

markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a
foothold in markets with low insurance penetration and a limited variety of distribution channels.

Bancassurance, the provision of insurance services by banks, is an established and growing

channel for insurance distribution, though its penetration varies across different markets. Europe
has the highest bancassurance penetration rate. In contrast, penetration is lower in North
America, partly reflecting regulatory restrictions. In Asia, however, bancassurance is gaining in
popularity, particularly in China, where restrictions have been eased. The research shows that
social and cultural factors, as well as regulatory considerations and product complexity, play a
significant role in determining how successful bancassurance is in a particular market.

The outlook for bancassurance remains positive. While development in individual markets will
continue to depend heavily on each country’s regulatory and business environment,
bancassurers could profit from the tendency of governments to privatise health care and pension
liabilities. In emerging markets, new entrants have successfully employed bancassurance to
compete with incumbent companies. Given the current relatively low bancassurance penetration
in emerging markets, bancassurance will likely see further significant development in the coming
years.

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.

Strategic Challenges

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

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

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

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

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

Futures
Overview

Globally, there has been a trend of increased convergence of financial services. In India
too, we had separate financial institutions for project finance like IDBI, IFCI, and ICICI,
and banks for working capital financing etc. There have been many instances of
consolidation thereby reducing the number of institutions. For example, ICICI and ICICI
banks have merged into one entity ICICI Bank as also IDBI, and, as a consequence,
resulted in an increase in the average size of such merged entities. Banks, as a
consequence, are being increasingly being viewed as universal entities, offering a wide
range of financial services rather than getting confined to the narrow channel of banking
products alone. The benefits cited in this approach have been cost savings, increased
profitability and the convenience for customers in terms of the availability of a wider
range of financial products under one roof. On the other hand, if the convergence concept
is taken too far, there are the dangers of the entity losing focus, operations becoming
unmanageable, attempts to dominate the market and due to huge size it may find itself
unable to adapt itself to the local conditions. The line dividing the banking and non-
banking financial products is increasingly getting thinner and this trend has been
observed to a greater extent in the European countries. A typical illustration of this trend
would be the well organized distribution of insurance
products through the branch network of banks—a concept popularly called
Bancassurance.

The origin of the term bancassurance (combination of the terms bank and insurance) can
be traced to France where it started becoming popular in the eighties. In simple terms it
translates as distribution of insurance products through banks. It has also been referred to
as “Alfinanz”, “Assurebanking” or as a part of “Integrated Financial Services”.

The reasons for banks looking at this channel, with interest, for generating additional
income, have not been far to seek. Severe competition in the industry coupled with
decreasing spreads has made banks scout for new fee based income. Also since insurance
is usually a long-term contract, commissions continue to flow in, till the policy is in
force, till its maturity. Hence by managing these contracts successfully, banks aim to
generate a perennial revenue stream. Additionally, customers in a few countries have also
begun thinking of banks as a trustworthy financial supermarket and started availing
products and services other than the regular banking products. Hence banks which did not
offer these products faced the threat of customers migrating to the universal banks
offering the entire spectrum of financial products.

Bancassurance as a concept has been extremely successful in the southern European

countries like France, Italy, Spain to name a few, while it has been a moderate success in
the Northern European countries like United Kingdom and Germany. Similarly, the
concept has met with limited success in the United States of America. Japan has made its
initial forays in to bancassurance and is preparing for a full form of bancassurance from
2007. In the Middle East countries, bancassurance is still in its infancy stage and holds
tremendous promise and potential in view of the low insurance penetration levels.

What are the reasons behind the success of southern European countries and the not so
successful experiences of the United States of America and the Northern European
countries? What are the business models that have proved successful and which ones
have failed? Is there any scope for new models to evolve? Which are the types of players
who would succeed in this concept? This book tries to address these relevant questions.

The degree of success in implementing this concept would be measured by the extent to
which a company is successful in adopting a business model in synchronization with the
local culture and operating conditions, formulating and implementing an appropriate
corporate strategy, smooth management of the organizational dynamics and leveraging
the use of technology in a big manner. The level of integration between the two players
has also been a measure of the success or otherwise of this concept. Globally, it has been
a mix of naturally integrated models across a few countries and a forced integration in
others. Therefore, it is clear that both the banks and the insurance companies thinking of
prospective partnerships need to do a lot of common ground work before embarking on
this relationship. Previous experience has shown that a conducive regulatory
environment, a favourable legal climate and a customer friendly tax framework have also
aided in the development of this concept. Past experience in this field reveals that what
may work for a particular player in a particular country, may not work at another location
and replicating a single model successfully across the globe has not been possible.
Success depends on many factors being favorably inclined. In addition, there is also the
ticklish question of aligning the mindset of two different professional streams of
workforce namely the bankers and the insurers and make them work in tandem. This
requires a change from the traditional attitudes shaped over quite a few years on both
sides. The sustainability of the model adapted over a long term by two players would also
determine its success.

In India, liberalization started in the year 1990 and in the insurance sector in particular it
started in 1999 with the setting up of the regulator in this field, namely Insurance
Regulatory and Development authority (IRDA). Banks were permitted to undertake
insurance business from the year 2002. As it offered a very attractive proposition to
banks for generating additional fee based income against the backdrop of thinning
spreads and severe competition, a series of tie-ups were announced immediately after the
permission and are even continuing till date. Even many cooperative banks have
announced tie-ups with insurance companies to distribute insurance products. For the
insurance companies also, it was a winning proposition as it could now leverage the wide
network of the banks immediately and the process of which on its own would have taken
them several years. An added attraction was that banks in India have enjoyed the trust
and confidence of the customers, even though they have not been very pleased with the
service quality levels. Bancassurance as a business generating channel has been
increasingly becoming important for the insurance companies, especially for the new
private insurance companies started after the reforms in the industry. The industry players
analyzed the various models in operation across the world, which provided them with a
wide variety of options and went for a model that seemed appropriate to them. While it is
as yet early to comment on the models the banks and insurance companies have decided
to settle for, these players are increasingly going in for the Corporate Agency model. This
model is attractive for the banks as it offers handsome returns (up to 35% in the first year
of new business procured) involves very low start-up costs (investment in the time and
licensing of employees) and the business risk is underwritten entirely by the insurance
companies. Insurance products wrapped around the Bank’s loan and deposit products
have also been gaining in popularity due to their mass appeal and simple product design
while the referral model tie-ups have not been that successful. A few banks like
Allahabad Bank and Bank of India have even migrated from the referral model to the
Corporate Agency model.

Bancassurance, in its early stages in India, has brought about a host of cultural, HR and
Operational challenges along with it. The success of the players concerned would lie in
how they are able to overcome the same. For the banks it is the challenge of making their
employees cover new ground by first undergoing mandatory hours of training, clearing a
written test, getting themselves licensed and selling a new stream of products
aggressively, in addition to their regular banking products. For the insurance companies,
it is the challenge of facilitating this fledgling distribution channel to the fullest possible
extent by designing appropriate products, a very conducive operational environment
especially for the medical and financial underwriting process and designing effective
training programs. Banks also have the vital task of managing long-term insurance
contracts by servicing it continuously till its logical conclusion thus resulting in a
perennial revenue stream. Also it needs to better the customized services offered by an
individual agent, to make an impact as a superior alternative channel of distribution.
Banks are well-positioned to leverage the improvements in technology to improve their
service quality. Internet and ATM channels can be very effective facilitators in managing
the insurance contracts.

Against this background, this book aims to analyze comprehensively the Global trends in
bancassurance in the first section. It brings out the success stories of the European
countries like France, the business models adopted and the reasons therein. Similarly, it
also takes a look at the reasons behind the not so successful country experiences of the
United States, the United Kingdom and Germany. The book also reviews the country
experiences of Japan and those of the Middle East which are on the throes of full fledged
bancassurance.

The second section of the book is devoted to a comprehensive study of the bancassurance
scenario in India. This section looks at the opportunities, challenges and threats for
bancassurance in India, learning experiences for India from the performance of other
countries globally, the types of models that are becoming popular in India and the human
resource and operational challenges involved in implementing this concept successfully.

The first article “New Trends in World Bancassurance”, by Corinne Legrand brings
out the bancassurance business models operating across the world, namely integrated,
non-integrated and open architecture types. The author analyses the strengths and the
weaknesses of each of the various bancassurance business models in operation and also
does an analysis of cost structures in European bancassurance. It is further stated that
business models tend to impact all aspects of the bancassurance activity including the
company structure, sales & marketing, product design, and sales remuneration. The
author argues that the choice of a business model is influenced by regulatory constraints
and that the cost advantages are particularly significant in the more integrated models.

The second article “Europe and Bancassurance: A Work in Progress”, by Richard

Reed explains the differences between one European Country (EU) and another on the
success of bancassurance as a distribution channel for life insurance products. The author
identifies the broad factors that act as business drivers from country to country and
discusses the critical success factors for bancassurance models. It is further stated that
bancassurance is forecast to gain market share across Europe, even in countries such as
Spain, where it already dominates the market.

The third article “European Bancassurance Review” by Ed Morgan discusses the

dynamics affecting bancassurance and the need to consider the costs of manufacturing
and distribution and also the effect of different business models used in different
countries. The author analyses the business models followed by European countries
namely the Southern European Model and the Northern European Model. The author
addresses these relevant questions like—will bancassurance continue to gain market
share? What is the impact of changes in other distribution channels? Will more
sophisticated bancassurance business models evolve? What types of players are likely to
be winners and losers in bancassurance?

The fourth article “The Prospects for Bancassurance in Japan”, by Akira Yasuoka
discusses the start of OTC (Over-the-counter) sales of annuities by banks in Japan, thus
selling bancassurance in a limited manner. He further analyses the growth of the number
of personnel selling insurance at Financial Institutions including banks, in Japan
indicating the concept’s growing popularity. The author takes a look at the trends in
insurance sales by banks in the United States and studies the prospects for bancassurance
in Japan. He argues that appropriate channel strategy, apt selection of products and
development of asset management services are the key issues that would confront banks
in this field. It is further stated that managing orphan contracts, building suitable
commission structures, managing competition and developing appropriate products for
this channel are the challenges, an insurance company would have to overcome.

The fifth article “Bancassurance in Japan – Opportunity or Threat”, by Nobushi

Mitsuishi and Tadahiko Mori presents the current status of bancassurance in Japan. It
traces the history of insurance selling through the traditional channel of a large female
force after world war II in Japan and the attempts by the life insurers to protect this
powerful sales force against new competitive channels of distribution like banks.
However, in spite of these efforts, annuity sales through banks have been a success.
According to the author nearly 70 to 80 percent of the total sales through banks result
from individual advisor visits to existing bank clients, rather than being branch based. He
further states that the future of liberalized bancassurance in Japan remains a somewhat
open question, but the strength of opposition from traditional channels demonstrates their
concern about its long-term potential. This article also has a value addition “Plan of
Action” by Michael D White which talks of a Pennsylvania based Bank “People’s Bank”
chalking out an action plan to achieve ambitious revenue goals though bancassurance.

The sixth article “Development, Growth and Current Scenario of Bancassurance in

the Middle East Region”, by Manoj Kumar states that the phenomenon of
bancassurance in Middle East is very recent. According to the author, the legal climate in
the Middle East is very conducive to bancassurance and is free from hurdles. It is
however quite important to study the market and evolve a suitable product profile for the
region. He further states that in view of the very low penetration levels of insurance in the
Middle East, the prospects for bancassurance there are quite bright.

The seventh article “Making Bancassurance Really Work: From Product-Oriented

Cross-Selling to Customer-Focused Cross-Buying”, by Angus Hislop, Ole Peterson
and Ralf Ziegler, highlights the significance of bancassurance by taking a holistic
approach with a comprehensive programme to satisfy the needs of their customers
thereby increasing their revenues. The authors further state that successful bancassurers
have been competent at formulating and implementing an appropriate corporate strategy
based on the concepts of differentiation, niche selection and cost leadership. The authors
emphasize the need for a total revamping of the bancassurance strategies to be adopted in
managing the organizational dynamics, which will provide enhanced revenues at reduced
costs. According to the authors there is also a critical need for leveraging technology for
harnessing the customer database. The authors argue for a sincere effort to concentrate on
the importance of customer-focused cross-buying instead of the time-honored concept of
product-oriented cross-selling.

The next section on “An Indian Perspective”, is focused on the existing and emerging
scenario of bancassurance in India and attempts to take a comprehensive look at the
developments in this field while analyzing in brief the lessons to be learnt from the global
experiences. This section explores the challenges and opportunities that confront the
players in India.

The eighth article “Bancassurance Concept, Framework and Implementation” by

Vineet Aggarwal, discusses the insurance and banking industry in India. He analyzes the
concept of bancassurance, benefits to the concerned players and the rationale behind the
concept. He takes a brief look at the global experiences and the lessons for India. He
analyses the various entry routes for the prospective players and also describes the
identification process for a bancassurance partner based on CAMEL model. The author
proposes an ideal business model for bancassurance. He further discusses the possible
bottlenecks and key success factors for bancassurance in India.

The next write-up “Bancassurance in India”, by Tapen Sinha and summarized by

Sukanya Praveen presents a research study on the growth of the banking sector in India.
The author also addresses the issue of how successful bancassurance model has been in
India. It is further stated that RBI and IRDA are in favor of bancassurance development
in India, as insurance companies are viewing banks as the main distribution channels.
There is a value addition to this article titled “An Evaluation of Distribution Channels in
Life Insurance: Agents vs. Bancassurance” by Mekala Mary Selwyn. It examines
critically the shortcomings of a typical life insurance agent in India and compares it with
the operation of bancassurance.

The tenth article “Bancassurance – A Business Sourcing Model to Indian Banks”, by

V G Chari discusses the implication of the growing concept of providing integrated
financial services to the customer and also the advantages of bancassurance. The author
presents the forms bancassurance could assume namely banks floating insurance
subsidiaries or joining some other existing insurance company or banks selling insurance
products through its branches. The author further discusses the benefits of risk transfer
and also the economic and social implications of not managing the risks.

The eleventh article titled “The Emerging Structure of Bancassurance in India”, by V

V Ravi Kumar describes how bancassurance is becoming an important component of the
insurance company’s sales portfolio, especially for the new insurance companies. The
author then focuses on the various distribution models and takes up the three main
models for analysis namely:
i) The Corporate Agency—Its mode of operation and requirements,
ii) Insurance products wrapped around the Bank’s deposit and loan products, its design
and structure.
iii) Referral Model and its mode of operation.

The author states that while the Corporate Agency model is increasingly emerging as the
most popular model of bancassurance in India, insurance products wrapped around the
bank’s deposit and loan products are also gradually gaining in popularity due to their
simple product design while the referral model tie-up has not been able to really take off.

The twelfth article “Bancassurance in India – An Emerging Concept”, by V V Ravi

Kumar highlights the increasing importance of cross-selling in financial services sector.
Banks are also inclined to leverage their vast distribution networks to augment their non-
interest income. Bancassurance with its origins in France is also an important component
of such an effort in view of the added thrust on retail. With only about a quarter of the
insurable population covered under insurance, insurers see a great potential in
bancassurance as it offers them a readymade distribution platform with a tremendous
distribution network. The concept though in its early stages offers immense potential for
the future in India.

In the thirteenth article “Bancassurance: Challenges and Opportunities in India”,

Rachana Parihar, the author, brings out as to how bancassurance will be beneficial to
banks, insurers and customers. The author takes a bird’s eye view of the global scenario
of bancassurance. He studies the distribution channels and the cultural issues involved in
distribution and presents the challenges and opportunities of bancassurance in India. This
article has a value addition “Bancassurance – Indian Scenario” by Sharath Jutur. The
author argues that bancassurance in India is still in its nascent stage and has to go a long
way overcoming many challenges along the way.
In the fourteenth article “Training – A Critical Component for Bancassurance in
India”, the author Kailash Mishra, discusses the distribution strategies in bancassurance.
The author focuses on the implementation issue of bancassurance, training—the critical
component of bancassurance, improving sales management, providing sales management,
providing training resources, sales culture and mentoring. The author makes out a case
for training interventions as a necessary tool for succeeding in bancassurance by means
of 3 illustrative caselets.

The fifteenth article “HR and Operational Challenges in Bancassurance – An Indian

Perspective” by V V Ravi Kumar focuses on the HR and operational issues which need
to be addressed on a priority basis to enable the concept of bancassurance to succeed.
Foreign Banks, in India, due to their aggressive sales orientation, have been able to do a
much better job in this field. Training, compensation, shaping behaviour to cross-sell
aggressively and becoming multiskilled are some of the HR issues discussed. Banks are
required to put their employees through a mandatory process of training and licensing.
Banks need to evolve a suitable compensation-reward structure recognizing the
individual’s contribution rather than a “one size fits all” approach. Insurance products are
seldom bought and therefore need to be sold aggressively for which Bank employees,
highly oriented towards the counter based selling need to change their mindset. The Bank
personnel need to show a willingness to become multi-skilled. The individual agent
though not strong in offering need based solutions is able to interact with the prospects on
a continuous basis and is therefore able to offer a better quality of service. Banks need to
utilize the technology based services like ATM’s and internet to sustain long-term
contracts like insurance. Pre-sales and post sales service, proper harnessing of the Bank’s
customer database and leveraging technology to provide better service levels are the
operational issues analyzed.

In the European countries, bancassurance has evolved over a period of more than three
decades to develop successful business models most suited to the local conditions,
thereby fitting in the cultural milieu. In the United States of America, it has been a
limited success with products distributed under the concept mainly being restricted to
annuities. In Japan, preparations are on to commence a full-fledged bancassurance model
from the year 2007. The Middle East countries are witnessing birth pangs in this concept
though they have immense potential. In India, bancassurance is in its early stages of
evolution after a period of three years during which it has had to overcome many a
challenge in several fields. The Corporate Agency model and the wrapper model seem to
have scored over the referral model in India, though it is rather early to come to a
decisive conclusion. The coming days promise to be a period of exciting developments in
this field, in India.