UNIVERSITY OF MUMBAI

(FIFTH SEMESTER)
T.Y.B.F.M

A PROJECT ON:
BANCASSURANCE

ACADEMIC YEAR:
2015-2016

SUBMITED BY:
MAHESHWARI NIKITA KAMALKISHORE

PROJECT GUIDE:
PROF. H. S. OBEROI

DATE OF SUBMISSION:
19TH MARCH, 2016

MALINI KISHOR SANGHVI COLLEGE OF

COMMERCE AND ECONOMICS
J.V.P.D SCHEME
VILE PARLE (WEST)
MUMBAI – 400 049
 DECLARATION

I, MAHESHWARI NIKITA KAMALKISHORE of MALINI KISHOR SANGHVI

COLLEGE OF COMMERCE AND ECONOMICS, of T.Y.B.F.M. (Semester VI)
declare that I have completed this project on “BANCASSURANCE” in the
academic year 2015 – 2016. The information submitted is true and original
to the best of my knowledge.

DATE OF SUBMISSION
19TH MARCH, 2016 SIGNATURE OF STUDENT
(MAHESHWARI NIKITA KAMALKISHORE)
 CERTIFICATE

This is to certify that MAHESHWARI NIKITA KAMALKISHORE of MALINI

KISHOR SANGHVI COLLEGE OF COMMERCE AND ECONOMICS, of T.Y.B.F.M.
(Semester VI) has completed the project on “BANCASSURANCE”, in the
academic year 2015 – 2016. The information submitted is true and original to
the best of my knowledge.

____________________ ________________________
SIGNATURE OF PRINCIPAL SIGNATURE OF PROJECT GUIDE
(DR. MRS. KRUSHNA GANDHI) (PROF. H. S. OBEROI)

_________________________ ___________________________________
COLLEGE SEAL SIGNATURE OF BFM CO-ORDINATOR
(PROF. AFSHAN BASSHA)

_____________________________________
SIGNATURE OF EXTERNAL EXAMINER
 ACKNOWLEDGEMENT

It has always been my sincere desire as a management student to get an

opportunity to express my views, skills, attitude and talent in which I am
proficient. A project is one such avenue through which a student who aspires to
be a future manager does something creative. This project has given me the
chance to get in touch with the practical aspects of management.

I am extremely grateful to the University of Mumbai for having prescribed this

project work to me as a part of the academic requirement in the Bachelor of
Commerce (Financial Markets) course.

I wish to appreciate the management and staff of Malini Kishor Sanghvi

College, BFM for providing the entire state of the art infrastructure and
resources to enable the completion and enrichment of my project.

I wish to extend a special thanks to my project Guide Prof. H. S. OBEROI

without whose guidance, the project may not have taken shape.
 EXECUTIVE SUMMARY

This project was prepared with the objective of discussing the concept of
Bancassurance as a whole, by highlighting its origin, the various Bancassurance
products and services available, its status in India as well as across the globe,
the numerous benefits to the banks, insurance companies and the customers, the
challenges face by the Bancassurance sector and its various trends in India.

The banking and insurance industries have developed rapidly in the changing
and challenging economic environment all over the world. Due to merging of
global financial markets, development of new technologies, globalization of
banking industries and with the expansion of non banking activities, the
insurance industry has globally brought in new channels of distribution into
existence. This has given rise to a new form of business wherein two big
financial institutions have come together and have integrated all their strength
and efforts to generate new means of marketing for encouraging their products
and services. When these two join together it gives birth to
“BANCASSURANCE”.

The concept of Bancassurance is relatively new and is beneficial in many

different ways. It is a major time saver for people. It provides banking as well as
insurance products and services directly to customers through banking
distribution channels. The scope for e-banking in the future is very good, with a
possibility of getting wider as world over banks and insurance companies are
reorienting their business strategies towards this new gate of opportunities.
 INDEX

SR. NO. PARTICULARS PAGE NO.

1 INTRODUCTION – SOURCES OF 1
THE CONCEPT:
INSURANCE – MEANING AND 1
DEFINITION
PRINCIPLES OF INSURANCE 2
TYPES OF INSURANCE 3
ESSENTIALS OF A VALID
4
INSURANCE CONTRACT
BANKING – MEANING AND 6
DEFINITION
PRIMARY FUNCTIONS OF BANKS 7
TYPES OF BANKS 9
BANCASSURANCE – A
2 COMBINATION OF BANKING AND 11
INSURANCE:
MEANING AND DEFINITION 11
HISTORY AND ORIGIN 11
GLOBAL SCENARIO 12
TYPES OF BANCASSURANCE – 13
BANKING/INSURANCE MODELS
3 BANCASSURANCE – A TOUR 16
AROUND THE WORLD:
THE NEW MARKETS IN
16
BANCASSURANCE
THE LEADING MARKETS IN
24
BANCASSURANCE
 THE DEVELOPING MARKETS IN
29
BANCASSURANCE
4 ENTRY INTO BANCASSURANCE: 35
MERITS OF BANCASSURANCE – THE 35
MOTIVATION
DEMERITS OF BANCASSURANCE – 40
THE DEAL BREAKER
WAYS TO ENTER BANCASSURANCE 41
BANCASSURANCE PRODUCTS:
5 43

“ANALYSIS OF BANCASSURANCE
AND ITS STATUS AROUND THE 43
WORLD” – SCOR GLOBAL LIFE SE
TYPES OF BANCASSURANCE
45
PRODUCTS – A BIRD’S EYE VIEW
WHY IS BANCASSURANCE MOST
SUITED TO LIFE INSURANCE 51
PRODUCTS?

6 BANCASSURANCE IN INDIA: 52
HISTORY AND CURRENT STATUS 52
REGULATIONS REGARDING
53
BANCASSURANCE IN INDIA
NEED FOR BANCASSURANCE 57
SIGNIFICANCE OF
BANCASSURANCE IN THE INDIAN 58
FINANCIAL SECTOR
LONG TERM DRIVERS OF 59
 BANCASSURANCE IN INDIA
TRENDS AND SUCCESSFUL TIE-UPS
OF BANKS AND INSURANCE 61
COMPANIES IN INDIA
CHALLENGES FOR
70
BANCASSURANCE IN INDIA

8 SURVEY ANALYSIS: 72
GRAPHICAL REPRESENTATION,
72
ANALYSIS AND INTERPRETATION
LIMITATIONS OF THE SURVEY 77
CONCLUSIVE REMARKS 77
9 CONCLUSION 78
10 BIBLIOGRAPHY 79
THE WORLD OF
BANCASSURANCE
INTRODUCTION – SOURCES OF THE CONCEPT

INSURANCE – MEANING AND DEFINITION:

Risk is a pervasive condition of human existence. It is there at every walk of life, which
makes it all the more necessary to have a supportive plan to cushion the blow of any losses
incurred due to said risks. A car accident, theft, fire, natural calamities, etc. cause harm to
people and property, some worse than others. Therefore, such losses being uncertain give rise
to the need for the ‘life jacket’ concept of Insurance.

Insurance can be described as a financial cover provided to anything that is found to be

highly valued in the eyes of the insurance policy holder. Such financial covers are provided
insurance companies, or ‘insurers’. The ‘subject matter’ of the insurance policy can be
the life of a person, as in the case of a Life Insurance policy, or an object like a vehicle, stock
of goods, jewellery, etc. as in the case of a General Insurance policy.

Basically, what an insurance company does is provide a protective financial backing to the
insured party by collecting periodic ‘premiums’, and paying a compensation amount on the
occurrence of a loss pertaining to the kind of risks covered.

It has been observed that individuals with an insurance policy tend to go about their daily
routine more efficiently, compared to those without an insurance policy. Thus, insurance also
gives policyholders one less thing to worry about.

The concept of insurance also extends into ‘Reinsurance’ wherein one insurance company
seeks insurance cover from either another insurance company or a reinsurance company, by
paying a reinsurance premium periodically. Although, if not checked, this could cause what is
called a Reinsurance Spiral, where the risks transferred from one insurance company to
another and another (through reinsurance taken over and over again) ultimately reach the
original insurance company, thereby resulting in a catastrophic decline in the insurance sector
(the London Market Excess of Loss spiral or the LMX spiral).

All insurance activities are regulated by the Insurance Regulatory and Development
Authority or India (IRDA) and the IRDA Act, 1999.

1
PRINCIPLES OF INSURANCE:

An insurance contract made without due consideration to these principles is treated as void
and not enforceable by law. They are as follows:

1. Principles of Utmost Good Faith:

One of the basic and primary principles of insurance is utmost good faith. It states that
an insurance contract must be made in absolute good faith on the part of both the
parties. The insured must give the insurer complete, true & correct information about
the subject matter of the insurance policy. Material facts should not be hidden on any
grounds. This principle is applicable to all types of insurance contracts. Insurance is
for protection and not for profit and hence, correct information must be given to the
insurance company.

2. Principle of Insurable Interest:

This principle suggests that the insured must have insurable interest in the subject
matter of the insurance policy. A person is said to have such interest when the
physical existence of the object of insurance gives him some gain, and/or is likely to
suffer a financial loss by its damage or non-existence. Insurance contracts without
insurable interest are void.

3. Principle of Indemnity:

This is an important principle of insurance, which suggests that an insurance contract

is a contract to compensate for a loss and not for profit making. The purpose of
insurance is to secure compensation only in case of loss or damage. Indemnity means
security against loss, the compensation for which is limited to either the amount
assured or the actual loss, whichever is less.

4. Principle of Subrogation:

This principle is an extension and an outcome of the principle of indemnity. When the
compensation is paid for the total loss, all the rights of the insured in respect of the
subject matter of the policy are transferred to the insurance company. Subrogation

2
 comes into effect only when the payment of claim is settled. Thus, the insured party is
prevented from receiving any additional benefits than he should be compensated for.

5. Principle of Contribution:

There is no restriction as to the number of times an individual can get his property
insured, but on the occurrence of the loss, this principle states that a claim can only be
made to the extent of the loss suffered in the proportion of the multiple policies taken.
The loss can be recovered from one insurer or all the insurers together. This principle
is, however, not applicable to life insurance contract.

6. Causa Proxima:

The principle of causa proxima means that when a loss has been caused by a series of
events, the proximate or the nearest cause should be taken into consideration to
determine the liability of the insurer.

TYPES OF INSURANCE

Insurance has two broad categories, as discussed below:

1. Life Insurance:

Life insurance is the business of providing financial coverage to a policyholder’s

family or dependents upon loss of subject matter i.e. the life of the policyholder. A
long term policy is issued for a number of years or for the entire life of the
policyholder. A life policy covers risk of death due to natural causes or otherwise.

In life insurance, a level of premium is generally payable throughout the policy

period, even though the risk of death will be increasing with the advancing age of the
life assured. The type of policy will be determined by the age of the policyholder at
the time of implementing the policy and amount of premium. The premium may be
paid by single payment or annually, half yearly, quarterly or monthly.

Life Insurance Corporation was formed in September 1956.

3
 2. General Insurance:

General insurance is the business of providing insurance or coverage from risks to everything
other than the life of a person. Thus, it is also called ‘Non-Life Insurance’.
It was nationalized in 1972. The existing general insurance products can be grouped
into the following categories:

 Fire Insurance. 

 Marine Insurance. 

 Motor Insurance. 

 Health Insurance. 

 Personal Accident. 

 Engineering Insurance. 

 Rural Insurance. 

 Miscellaneous Insurance. 

ESSENTIALS OF A VALID INSURANCE CONTRACT:

Much like any other contract, an Insurance Contract has the following essentials that make it
a valid contract, as prescribed by the Indian Contract Act, 1872:

1. There must be an offer from one party to enter into contract and an acceptance from
the other party to do so.

2. The contract must be backed by a consideration agreed upon by both parties.

3. The parties entering into contract must be competent i.e., they must have the capacity
to do so.

4. Both parties entering into contract must give their free consent i.e., the agreement
must not be obtained by fraud, coercion, undue influence, misrepresentation or
mistake.

4
5. The agreement must not be expressly declared void under any law enforceable in the
country.

6. The contract, should it be signed by both parties, must result in the creation of a legal
relationship between both parties.

7. The terms of the contract must not be vague or ambiguous. They should be absolutely
certain and specific.

8. The contract must have a possibility of performance. Contracts based on impossibility

of performance are declared void.

5
BANKING – MEANING AND DEFINITION:

A bank is a financial institution that provides a specialized set of financial services, which in
turn, help us in defining the activity we call ‘Banking’. In simple terms, “A bank is what a
bank does”, further stating that there is no single answer to the question of ‘What is
banking?’ The meaning of a bank can be understood only by its functions, just as a tree is
known by its fruits.

For a common man, a bank is a storehouse of money, for a businessman it is an institution of

finance and for a worker it may be a depository for his savings, thus giving us a hint of the
kind of functions a bank primarily performs, them being:

 Accepting deposits 

 Lending money or advancing of loans 

It is interesting to trace the origin of the word ‘Bank’ in the modern sense to the
German word ‘Banck’ which means ‘heap’ or ‘mound’ or ‘joint stock fund’. From this,
the Italian word ‘Banco’ meaning ‘heap of money’ was coined.

Some people have the opinion that the word ‘bank’ is derived from the French words
‘bancus’ or ‘banque’ which means ‘bench’. Initially the bankers, the Jews in Lombardy,

transacted their business on benches in the market place and bench resembled the banking
counter.

Banking has become a part and parcel of our day-to-day life. It is a service industry. Banks
provide financial services to the people, business and industries. Merchant banking, money
transfer, credit cards, ATMs are some of the other important financial services provided by
the modern banks. The development of banking is evolutionary in nature.

The Indian banking system, over the years, has gone through various phases after the
establishment of the Central Banking Authority of India i.e. The Reserve Bank of India
(RBI), in 1935, as well as the enactment of the RBI Act, 1934. Prior to this, the functions of a

6
Central Banking Authority in the country were carried out by the Imperial Bank of India
(now known as the State Bank of India).

According to Section 5(b) of the Banking Regulations Act, 1949, banking is defined as
“accepting for the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdrawals by cheque, draft and order
or otherwise”, whereas Section 5 (c) defines a banking company as “a company which
transacts the business of banking in India”.

A bank, being an institution which deals in money and credit, is an intermediary which
handles other people's money both for their advantage and to earn its own profit. Banks are
not merely traders in money but also important manufacturers of money. In other words, a
bank is a factory of credit.

PRIMARY FUNCTIONS OF BANKING:

Following is a fairly comprehendible explanation on the primary functions of a bank

mentioned earlier:

1. Accepting Deposits:

A bank’s first main function is to accept deposits of cash from the general public,
the purpose of which varies with each type of deposit acceptable by the bank. They
are of the following types:

(A) Current Account Deposit:

Current Accounts are mainly used by businessmen for the sole purpose that it is
opened to maintain minimum balance and for multiple transactions at a frequent
rate. Normally, such deposits do not fetch any interest, although some banks do
offer an interest of 1% if the minimum balance maintained is a large amount.

7
 (B) Savings Deposit:

Savings Accounts were introduced to induce a saving habit in the general public.
In this type of deposit, a customer may deposit any amount at any time, but there
are restrictions on withdrawals. They fetch an interest of 4 – 5%.

(C) Recurring Deposit:

Recurring Deposits, as the name suggests, require the accountholder to deposit a

fixed predetermined amount periodically for a predetermined period of time. With
a complete restriction of withdrawals, these types of deposits fetch higher interest
rates ranging from 7 – 10%.

(D) Fixed Deposit:

This type of account allows the accountholder to deposit a fixed amount only once
in the lifetime of the account, withdrawable only on maturity, with a high interest
rate ranging from 6 – 10%.

2. Lending money or advancing of loans:

The second main function of a bank is to lend the money received from long term
deposits in the form of loans and advances. They are of the following types:

(A) Loan:

Loan is the amount borrowed from bank. The nature of this type of borrowing is
that the money is disbursed and recovery is made in installments, along with a
predetermined rate of interest.

(B) Overdraft:

Current accountholders are given the right to make withdrawals, as stated earlier.
But this service is extended by allowing them to withdraw more than they have
deposited. This extra amount is called an Overdraft, and banks charge an interest
on the actual amount withdrawn by the accountholder. This amount needs to be
repaid later on.

8
 (C) Cash Credit:

Cash Credit is another type of advance, similar to an Overdraft, only in this type,
credit is provided against a security, mostly that of goods.

(D) Discounting of Bills:

Banks provide immediate cash on bills of exchange by paying the amount of the
bill, on a discount, to the drawer (customer), and then later collecting the amount
due from the drawee on maturity.

(E) Others:

Other types of loans and advances offered by banks include services like
Mortgage, Pledge, Hypothecation, etc.

TYPES OF BANKS:

As economies over the globe developed, the banking sector expanded too. Majorly, banks
were found to be of the following types:

1. Commercial Banks:

Commercial banks are the oldest and fastest growing financial intermediaries in India.
Their business mainly consists of acceptance of deposits, advancement of loans and
financing the trade and industry in the country.

Example: HDFC Bank.

2. Cooperative Banks:

Cooperative banks work on the principle of cooperation. They operate on a ‘no

profit, no loss’ basis. They render banking services to their members and customers.
Basically they were set up to provide funds to farmers.

Example: Maharashtra State Cooperative Bank Ltd.

9
3. Industrial Banks:

These banks advance loans to industrial organizations, which require capital for long
term purchases such as machinery, equipments, etc. They also receive deposits for
longer periods.

Example: IDBI.

4. Exchange Banks:

Exchange banks mostly finance the foreign trade (import and export) of a country.
Their main function is to discount, accept and collect bills of exchange, and buy and
sell foreign currencies.

Example: Exim Bank.

5. Central Bank:

Central Bank is an apex institution promoted by the Central Government for

monitoring, regulating, controlling and promoting banking activities in the country.

Example: RBI.

10
BANCASSURANCE – A COMBINATION OF BANKING AND
INSURANCE

MEANING AND DEFINITION:

Banking and Insurance have more commonality in the basic nature of their business. They
both rely on pooling of resources to protect financial security (banking) or to protect against
adverse events (insurance). Having discussed the basics of Banking and Insurance, it now
becomes easier to understand what a concept consisting of the combination of these two
would be like. Such a concept, we call ‘BANCASSURANCE’.

The most ideal definition of Bancassurance would be – “Bancassurance is the provision of

insurance and banking products and services through a common distribution channel and/or
to the same client base.”

The IRDA officially defines Bancassurance as – “‘Bancassurance’ refers to banks acting

as corporate agents for insurers to distribute insurance products.”

The philosophy behind Bancassurance is to combine the manufacturing capability sand

selling culture of insurance companies with the distribution network and large receptive
client base of banks. The bank usually enters into a partnership with an insurance company
and the policies are sold thereafter. Both life insurance and non-life insurance products are
available via Bancassurance.

HISTORY AND ORIGIN:

The term "Bancassurance" was coined in the 1980’s in France by combing the French
words for ‘bank’ and ‘insurance’. Bancassurance really took off in France in the mid-1980s
as a result of a series of reforms, including deregulation of the credit market in 1986 and direct
access to the corporate funding market. The leading retail banks then refocused their sales and
marketing policies on branch customers and reactivated their ‘dormant' insurance
businesses.

11
GLOBAL SCENARIO:

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. The
system of Bancassurance was well received in Europe, as it spread rapidly through countries
where the insurance penetration rate and the growth rate of the traditional insurance networks
of brokers and agents were still low. That was certainly the case with Italy, Spain and
Portugal, where more than two-thirds of life insurance is distributed by banking networks
(74%, 66% and 87% respectively). France took the lead and it was called
“ALLFINANZ”, followed by other European countries including Germany (20%), UK
(10%), Spain (73%) etc. Presently in France, 60% of life insurance is distributed by the
banks. According to Michael White-Symetra’s Bank Fee Income Report (Bank-FIR) of
2007, banks increased their insurance brokerage from $3.93 billion to a record of $4.08
billion at a hike of 3.7% in 2006. Today, Europe leads the world in Bancassurance.

In USA, hardly 20% of the banks were selling insurance in 1998 against almost 70 – 90% in
many European countries. The practice was late to start (in the 90s), where it amounts to 5%
of the total insurance transactions. It is also developing in Canada, Mexico, and Australia. In
Asia, Singapore, Taiwan and Hong Kong have surged ahead with Bancassurance, with India
and China taking tentative steps towards it. With the liberalization and deregulation of the
insurance industry, Bancassurance evolved in India around 2002.

12
TYPES OF BANCASSURANCE – RISK PARTICIPATION MODELS

In pursuit of fee-based income avenues, banks across the globe have joined the
Bancassurance bandwagon. Various business models such as working as a pure distributor,
setting up new insurance businesses, acquiring existing insurance firms and setting up joint
ventures along with seasonal insurers have been observed by banks across the globe to
leverage the Bancassurance opportunity. In certain cases, a reverse flow has also been
witnessed whereby insurance companies have set up / acquired banking business to compete
with the serious Bancassurance players.

Globally, Bancassurance models can be classified into the following two business types:

1. With risk participation:

In this type of Bancassurance, insurance business is done through a subsidiary of the

bank, which may be entirely held by the bank or it may have a certain share in it. This
type of Bancassurance confirms higher income for the bank, but here the risk is also
higher as the claim has to be tolerated by the bank on its own. The Reserve Bank of
India has prescribed some regulatory guidelines to be followed by the concerned
banks to access a subsidiary for performing Bancassurance activities:

 Capital Adequacy Ratio to be at least 10% 


 Net worth at least Rs. 500 cr. 

 Profit generating in the past three consecutive years 

 Non – performing Assets at reasonable level. 


2. Without risk participation:

Here the bank acts as an agent of the insurance company. The insurance business is
mobilized by banks for which they ear fee income. Banks earn insignificant incomes
and the claims borne by the bank are passed onto the insurance company. They are of
three types:

13
(A) Referral arrangements:

 When insurance companies join hands with banks who do not intend to take
risk, they adopt ‘referral model’ wherein the insurance companies merely
use the bank’s client data base as business leads in exchange for a
‘referral fee’ or commission for every such lead that was passed on.
Insurance companies have a more significant role than banks do in this type of
Bancassurance, therefore, what banks earn in also very less. 

 The employees of the insurance companies take assistance from the bankers
for selling their products to the bank customers. 

 The bank offers the insurance company premises in exchange for commission
on business. The actual transaction with the prospective client in referral
model is done by the staff of the insurance company either at said premise or
elsewhere. 

 This approach requires very little technical investment. 


(B) Deposit linked/Advance linked insurance products:

 This model links the insurance company directly to the bank’s deposit or
credit products. 

 Customers gain by getting value addition in the banking products while for the
banks this proves to be helpful in organizing low cost deposits or making their
loans secure. 

 There is full integration of insurance with banking services. 

 The insurance products are sold under the bank’s brand name, acting as a
provider of financial solutions matching customer needs. Bank controls sales
and insurer handles service levels including approach to claims. 

 The bank has an additional core activity almost similar to that of an insurance
company. 

14
(C) Corporate agency of insurance products:

 Another form of non-risk participatory distribution channel is that of 


‘corporate agency’, wherein the bank staff is trained to appraise and sell
the insurance products to the customers. Here the bank as an institution acts as
corporate agent for the insurance products for a fee/commission. 

 There are also practical difficulties in the form of professional knowledge
about the insurance products. 

 Besides, resistance from staff to handle totally new service/product could not
be ruled out. This could, however, be overcome by intensive training to
chosen staff packaged with proper incentives in the banks coupled with selling
of simple insurance products in the initial stage. 

15
BANCASSURANCE – A TOUR AROUND THE WORLD

Previously, we discussed the fundamental aspects of Bancassurance in a nutshell. Now,

let’s take a look at where Bancassurance stands globally. As we shall see, it is a field where
development is at different stages in different parts of the world, and in a state of constant
flux. But in order to do so, and help us understand these developments completely, it is
possible to divide the Bancassurance markets into three groups:

 The new markets 


 The leading markets 

 The developing markets 

THE NEW MARKETS IN BANCASSURANCE

The emergence of new markets in the Bancassurance sector over the world can be looked at
by dividing the new markets into two categories, as follows:

Latin America

Foreign insurance companies have largely relied on the local banking network – which
already enjoys an extremely strong territorial presence – to create partnerships or sometimes
simply to take over the partner bank.

This transfer of ownership is undoubtedly one of the main reasons for the success of
Bancassurance in Latin America. That is why, despite its status as a “developing market” in

many spheres, despite the disparity observed from one country to the next and despite the
continuing domination of traditional networks of brokers and agents, Latin America is now
an area where Bancassurance is in the process of becoming a major distribution system.

Following the deregulation of the financial services sector in most Latin American countries,
the banks were authorized to sell insurance products directly.

16
By contrast with the European experience, the first products sold were non-life policies (fire
or motor insurance). In recent years, however, it is life insurance products that have had the
wind in their sails.

1. Brazil:

In Brazil, the law makes it compulsory for an approved broker to be involved in all
insurance sales. As a result, both insurance companies and banks sometimes have
their own brokers. However, the banks have been active in the insurance market since
the 1970s. This experience explains why they now play a dominant role in the
distribution of insurance policies with almost one quarter of premiums being
generated through this channel (including more than half of life premiums).

2. Argentina:

In Argentina, big international banks (Citigroup, HSBC, BBVA and Banco

Santander) have acquired stakes in Argentinean life insurance companies and pension
funds, and sales of life insurance products by the banks are starting to grow
substantially. However, the traditional distribution channels continue to dominate the
market.

3. Chile:

In Chile, banks have been legally allowed to sell life insurance products since 1997.
However, an authorized intermediary must be present for every insurance sale in a
bank. Between 1999 and 2003, Bancassurance enjoyed an astonishing average annual
growth rate of 29%, reaching 10.6% of total insurance premiums (life + property) in
2003.

The property market is still growing fast mainly as a result of growth in the sale of
fire insurance policies in bank branches.

4. Mexico:

In Mexico, banks played an important role in the establishment of pension funds after
the 1997 reform. Since then, many foreign insurance companies have gone into

17
 partnership with local banks. In 2001, between 10 and 15% of total life and annuity
premiums came from bank sales.

According to Luis Araya, Technical Director of the Chilean firm Altavida Seguros de Vida, a
local subsidiary of the Santander Group, the potential for growth in Bancassurance in Latin
America is still enormous, since “the penetration rate in these countries is very low. In
addition, because GDP is low, we have to offer insurance with low sums assured” which are
“attractive, if marketed on a large scale”.

Asia

A Promising Start:

The Asian financial crisis of 1997 became a driving force in the banking industry’s
pursuit of diversification. Chiefly since 2000, Bancassurance has consequently been at the
heart of many discussions in Asia. Financial deregulation facilitated the introduction of
Bancassurance, notably with the penetration of foreign insurance companies seeking to
establish agreements with local banks.

It was in Singapore that Asia's first big experiment in Bancassurance took place, following
Development Bank of Singapore’s sale of its insurance operations to Aviva. In return for
selling off its insurance arm, DBS became the exclusive distributor of insurance policies.

As a general rule, the operating methods are imposed by the banks, which are in a position of
strength to get the type of structure they want. Frequently, the banks prefer to make a
minimum commitment to this sector in order to monitor results before playing a more active
role. Depending on the country’s legislative framework, the bank may simply act as a
distributor for the insurance companies. It is therefore difficult to discern a “typical”
Bancassurance pattern.

But Slow Growth:

A successful start seemed to promise Bancassurance a brilliant future in Asia. However, it

has not grown as quickly as originally hoped, and the market share of Bancassurance still
varies widely from one country to another, that too, for the following three reasons:
18
  Firstly, because the Asian banks tried to sell their customer databases at too high a
price which discouraged more than one insurance company from moving into the
market. 

 Secondly, because the regulations governing Bancassurance in Asia still contain many
restrictive measures on cross-holdings between banks and insurance companies, on
the qualities or quantities of the products distributed by the banks and other
operational limitations. 

 And, finally, because the traditional insurers are doing what they can to prevent the
creation of a more open market. They remain the dominant channel for the
distribution of both life and non-life insurance products in Asia, and they are afraid
that the growth of Bancassurance will result in waves of redundancies. 

Nonetheless, we have observed that the common factor for all the Asian countries is, without
any doubt, an extremely strong interest in Bancassurance, and penetration rates for this
distribution channel should increase substantially in coming years.

Strong Potential to be exploited:

1. Singapore:

As explained earlier, in Singapore, Bancassurance plays a significant role and is

continually growing and changing the traditional distribution patterns. The number of
traditional agents has been falling for several years. Why?

 Stricter conditions for obtaining a licence, 


 Reduced commission rates, 

 Above all, the growing role of Bancassurance. 


2. Japan:

In Japan, the market was partially opened up to Japanese banks in April 2001. There
is a very strong pressure from local insurance companies to block liberalization,
which would inevitably threaten their market share. Despite this reluctance, however,

19
 the financial authorities (the Financial Services Agency and the Financial System
Council) have been moving towards a gradual deregulation that has successfully
removed certain barriers between banks and insurance companies:

 Since 1998, insurance companies have been able to create a banking subsidiary; 


 Since 2000, life insurance companies have been able to sell non-life products and
vice-versa; 

 Since 2001, banks have been authorized to sell non-life insurance products. 


3. South Korea:

For a long time, the insurance market in South Korea, the world’s 7th biggest,
remained traditional. Until recently, resistant to any reform, the Korean insurance
industry then developed rapidly with the country’s entry into the OECD in 1996.
Financial deregulation then began, allowing new players – and especially foreign
companies – to come in. The financial crisis of 1997 then forced the country to
restructure its financial organization and to eliminate certain barriers between banks
and insurance companies.

Thus, having been long considered a threat to the traditional insurance market,
Bancassurance was officially authorized in South Korea on August 30, 2003, and
came into effect on April 1, 2004.

However, so far, the supervisory authorities (Financial Supervisory Service – FSS)

and the Ministry of Finance and Economy, putting a brake on growth, are continuing
to impose numerous limitations and restrictions, within which, the market is being
structured and distribution agreements, joint ventures and other groupings are being
formed all over the place. For example:

 Kookmin Bank, South Korea’s leading bank in terms of receipts, has created its 

Bancassurance subsidiary KB LIFE as a joint venture with ING, along with
distribution partnerships with four other insurance companies – Samsung Life 

20
 Insurance Co., Kyobo Life Insurance Co., Tong Yang Life insurance Co. and
Korea Life Insurance Co;

 Woori Bank, the country’s second largest banking network, is currently

negotiating a joint venture with the powerful Samsung Life; 

 Shinhan Financial Group and Cardif Life Insurance have created SH&C Life
Insurance Company, a Bancassurance joint venture. 


4. Taiwan:

In Taiwan, the adoption of the “Financial Holding Company Act” in 2002

removed certain obstacles to the development of integrated Bancassurance models.
Nonetheless, other restrictions on crossholdings between banks and insurance
companies still represent a significant obstacle to the expansion of Bancassurance in
Taiwan.

5. Thailand:

There also exists strong potential in Thailand where only 16% of the population (62
million people) have life insurance. Although the market is mainly in the hands of
traditional agents and brokers, a certain number of agreements are being set up
between banks and insurance companies. For example:

 Bank of Asia and American International Insurance. 



 Siam Commercial Bank and Siam Commercial New York Life Insurance, which
joined forces in June 2003. The first results were released in January 2005 and
were impressive with first-year premiums up by 145% at a time when the Thai
market shrunk by 8%! 


6. India:

A promising market, given the size of its population, India is in its life insurance
infancy. However, Bancassurance has grown very strongly since the signature of the
“IRDA Bill” in 2000. The current scenario in India will be discussed in much detail
in another section.

21
7. China:

Indeed, China, an inevitable topic in every discussion about the potential afforded by
many services and industries in general, is also a central preoccupation for
international banks and insurance companies. As with India, the local insurance
market is still in its infancy but the growth figures are already impressive:

 From $60 million in 1979, insurance premiums on the Chinese market rose to
$47 billion in 2003; 

 Life insurance may be seen as the driving force of this growth and attained a
volume of $32 billion in 2003 (i.e. more than two-thirds of the aggregate
insurance business at the time). 

Till 2005, the market was entirely, or almost entirely, in the hands of local insurance
companies and foreign companies only account for 2% of premiums. However, a
large number of international players are already trying to move into this very
promising market. More than 100 foreign companies from 17 different countries have
already opened sales offices all over China and some of them have managed to open
subsidiaries or branches, mostly through joint ventures, for example:

 Aviva, 

 CNP (in partnership with the Chinese Post Office), 

 Generali, 

 Allianz, 

 AXA, 

 ING, etc. 

It would seem that partnerships with local networks represent the easiest route into the
Chinese market.

22
Foreign banks are also trying their hand; HSBC, for example, has become the biggest
shareholder in Ping An Life, the second largest insurance company in the Chinese
market.

These two-way agreements between banks and insurance companies have been made
possible by a recent, very gradual opening up of China’s insurance market. It was
only in 2001 that the banks were authorized to sell life insurance products.

23
THE LEADING MARKETS IN BANCASSURANCE

It should be noted that present day leading Bancassurance markets fall under ‘Latin’ Europe,

where it first started off, much with the help of its favourable legal environment as compared
to that in the rest of the world (example, the legal restrictions on inter-sector tie-ups in USA).

1. France:

France is undoubtedly one of the countries where the breakthrough of Bancassurance

has been spectacular. It should be noted that the effect of the rapid growth in
Bancassurance activities in France has been the creation of new market opportunities
rather than a weakening of traditional insurance business.

Today, French Bancassurance operators are doing better than insurance companies on
individual risk. In 2003, the French Bancassurance Group (chaired by Michel Villatte,
CEO of Predica) accounted for 60% of sales in life assurance, with premium income of
€55 billion. At the end of 2003, five Bancassurance operators were amongst the ten
top life insurance companies (premium income): Predica at the top (Crédit Agricole),
followed by Ecureuil Vie (Caisses d’Epargne), Sogecap (Société Générale), Natio Vie
(BNP Paribas), Assurances Fédérales Vie (Crédit Lyonnais).

The panorama of French Bancassurance has recently changed following mergers

between certain banks:

 The merger of the BNP and Paribas networks produced BNP Paribas
Assurance, which encompasses the activities of Cardif and Natio; 

 The merger of Crédit Agricole and Crédit Lyonnais, which resulted in a
“new version” Predica, combining the activities of Assurances Fédérales
Vie and Médicale de France; 

 Even more recently, the takeover of Crédit Maritime by Banques Populaires.
In France, bancassurance seems to be at the dawn of a fourth stage, that of
concentration. It remains to be seen whether this process will be permanent or
temporary. 

24
 In France, Bancassurance seems to be at the dawn of a fourth stage, that of
concentration. It remains to be seen whether this process will be permanent or
temporary.

2. Spain:

Spain was somewhat behind other western European countries in terms of per capita
life insurance rates. But since the 1980s, this market has seen the highest rates of
insurance growth in Europe. Both banks and insurance companies have benefited.
Today in Spain, Bancassurance accounts for 74% of new contracts, 50% of which go
to local savings banks.

One of the main reasons for this success may be the positive image enjoyed by banks
in that country. Moreover, a dense banking network gives Bancassurance a certain
advantage. A number of reforms, for example in the pension system, have also
contributed to the attractiveness of certain life insurance products sold in large
numbers via the banking network.

At the top of the Bancassurance provider ranking are:

 La Caixa, which in 1992 signed a 50/50 joint venture agreement with Fortis to
create Caifor; 

 Banco Bilbao Vizcaya Argentaria (BBVA), which bought Euroseguros in
1981, which has now become a fully integrated insurance subsidiary; 

 SCH bank, operating with Santander Seguros and Banesto Seguros; 

 Mapfre, which in 2000 reached an alliance with CAJA Madrid, creating 

Mapfre Caja Madrid Holding, Spain’s 5th largest Bancassurance operator in 

2002. 


3. Portugal:

Despite its small size, Portugal is highly attractive to Bancassurance. Since 1995, the
insurance sector, whether life or property, has been one of the fastest-growing markets

25
 in Europe. And there is still great potential for further development, given that
insurance premiums per head are amongst the lowest in Europe.

In 2003, the entire insurance sector represented €9.4 billion, 57% of this in life
premiums. If we look at the structure of the market, Bancassurance dominates with
more than 80% of new life insurance contracts coming from the top five Portuguese
banks.

 As a result of the new joint venture between Fortis and Banco Commercial 

Portugues, completed in January 2005, the company “MilleniumBCP Fortis”
has become the market leader in life insurance with a market share of 24% 

(21% of this from BCP’s banking network); 

 Closely followed by Fidelidade Mundial (CGD - 19%); 

 Tranquilidade (Groupe Espirito Santo – 16%); 

 BPI Vida (BPI Group – 11%); 

 Totta (Santander Portugal Group – 10%). 


4. Italy:

In Italy, Bancassurance has grown considerably in recent years, almost entirely driven
by life insurance, and currently 70% of new life policies are sold in bank branches.

It was the 1990 Amato Law which made it possible for banks in Italy to invest in
insurance companies and led to the takeoff of Bancassurance activities in the country.
However, this market is characterized by the absence of ‘big’ Bancassurance
groups, i.e. its banking network is still fragmented and many banks remain regionally
based. However, these small regional banks often boast efficient organizations, dense
networks and a good image with consumers. All these different factors, combined
with fairly aggressive marketing campaigns, have enabled the banks to make a rapid
breakthrough. In addition, the growth of Bancassurance in Italy seems to have been
underpinned in particular by the sale of unit-linked and index-linked products.

26
 Another feature worth noting is joint development with the creation of “insurance”
subsidiaries by the banks, or with banks and insurance companies’ signing
distribution agreements. For example, Aviva life policies can be found in branches of
Unicredito Italia, Banca Popolare di Lodi, Banche Popolari Unite, not to mention
Banca delle Marche, which is 8% owned by an English insurance company.

There are numerous Bancassurance players and they are, of course, well represented
amongst the top Italian insurers. As on 31st December, 2003, seven of the top ten
companies were Bancassurance operators, including:

 CreditRas Vita, a 50/50 joint venture between Unicredito Italiano and the
insurance company RAS; 

 Sanpaolo Vita and Fideuram Vita, fully owned subsidiaries of Sanpaolo Imi
(which are now a single company called Assicurazioni Internazionali di
Previdenza); 

 Banca Intesa, in a 50/50 joint venture with Generali Group (via Alleanza),
created Intesa Vita in December 2003; 

 Fineco Vita, 57.5% owned by CNP Assurances nd 42.5% by Fineco Group,
etc. 

Despite this strong growth in recent years, the estimated potential for further growth
in Italy remains strong because the penetration rate of insurance is still relatively low,
despite annual growth levels of some 20% in the insurance market over the past five
years. There is no doubt that Bancassurance has a bright future ahead in Italy.

5. Belgium:

Belgium perhaps deserves to be described as a pioneer of Bancassurance. In 1860, the

CGER savings bank started insuring mortgage loans linked to real estate purchases.
Since then, although insurance and banking have remained distinct activities, the big
names in insurance have maintained close ties with banking conglomerates. However,
it was above all in 1992, following a change in the law, that Bancassurance really
began its offensive. The figures more than speak for themselves:
27
  In 1994, the banking sector distributed just 20% of life insurance. 

 In 2004, more than 63% of life insurance went through the banks. 


 The market share of Bancassurance with respect to property insurance rose
from 8% to 20% between 1994 and 2002. 


6. Ireland:

Ireland is a prime example of how the insurance industry has been influenced by the
Bancassurance sector. In the Bancassurance market, Ireland has been a dramatic and
unambiguous success over the past 15 years. The phenomenal growth of the Irish
economy since 1993-94 along with the young and educated population has led to a
huge increase in demand for both banking and life and pension type products.

 The two major banks in Ireland which control over 70% of the banking
customer base between them i.e. the Allied Irish Bank and Bank of Ireland, 

each decided in the early to mid 1990s to develop a Bancassurance subsidiary 

– Ark Life and Bank of Ireland Life respectively. 


 Along with the 3rd largest bancassurer (Irish life and permanent) they now
control two-thirds of the insurance and investment market in Ireland. 

The Bancassurance in Ireland success has propelled the three Irish companies to the
top of the league displacing the broker dependant companies who traditionally have
had much larger market shares.

On average across all European countries, the traditional insurance networks now account for
less than 30% of contracts. For their part, the direct sales networks now control only 10% of
the market. One thing is clear today, whatever the country – the Bancassurance landscape is
changing fast.

28
THE DEVELOPING MARKETS IN BANCASSURANCE

The countries hanging between newly emerging and going straight up to become a leading
market are the developing Bancassurance markets, which are seen to be doing so at a slow
yet steady rate. They are as follows:

1. United Kingdom:

In the United Kingdom, while brokers (Independent Financial Advisers or IFAs)

retain a majority of the life insurance market, the number of distribution agreements
between banks and insurance companies is continuing to grow. It should be
mentioned that the regulatory framework, with the Financial Services Act (1986),
encourages the banks to create their own insurance subsidiaries.

One of the reasons given for the slow development of Bancassurance in the UK is that
the products are not suited to the banking networks. This is because they are
frequently too complex and hard to understand, which makes them difficult for bank
branches to sell. However, efforts have also been made on this issue.

The market is made up of banks which, in the late 80s, almost all created their own
life insurance subsidiaries. Some subsidiaries, unable to make their mark and grow,
finally gave up and pulled out of the market. However, in the more recent years,
things are going fairly well:

 In 2003, life and annuity products sold by the banks grew by 14.4%, in
comparison with a 6.3% growth rate for the market as a whole. In other words,
almost 20% of total life insurance premiums are currently distributed by the
banks, and two Bancassurance operators feature in the Top 10 of UK life
insurance companies (Lloyds TSB and HBOS). 

 Three of the big five UK banks (HBOS, Lloyds TSB and HSBC) have their
own insurance subsidiaries. 

 RBOS has created a joint venture with AVIVA. 

29
  Barclays Bank has signed distribution agreements with Legal & General,
among others. 

The big players have all taken up the challenge of Bancassurance.

2. Scandinavia:

Bancassurance has also made inroads in Scandinavia. In 2002, less than 20% of the
life market was handled by banks, which had a smaller presence than in other
countries. The past few years, however, have seen the formation of transnational
financial groups (Nordic Baltic Holding, Seb, Den Danske Bank), which should
somewhat alter the distribution landscape. According to reports, Swedish banks
currently take 73.3% of new life business.

3. Germany:

Attempts at cooperation between banks and insurance companies in Germany began

in the early 90s, but in most cases only resulted in distribution agreements; joint
ventures are exceptional, other than Commerzbank and AMB/Generali, as is bank
ownership of insurance companies or vice versa (one notable exception is Allianz,
which bought Dresdner Bank).

It is also worth noting that the German retail banks are highly fragmented, similar to
conditions in Italy. Their small size is a disadvantage when it comes to the insurance
sector. In addition, exclusive agents continue to hold a dominant position in Germany.
Not forgetting, of course, the existence of long-established, world renowned, historic
insurance companies, with Allianz in the lead. That is why German Bancassurance
operators only control 19% of the market (in 2002, and less than in 2000) compared
with 51% for exclusive agents and approximately 20% for brokers.

4. Netherlands:

Despite its proximity to Belgium, Bancassurance has been slower to take off in the
Netherlands. Individual life insurance is very underdeveloped and highly competitive
in this market, while the pension funds meet the organizational needs of employee
pensions. Nonetheless, Bancassurance is seen as offering competitive prices and a
30
 comprehensive service from a single point of sale. Although Bancassurance is
gradually gaining market share (18% in 2003), brokers are still the traditional port of
call for real estate purchase. Currently, they sell 60% of these products.

5. United States of America:

Why is it that, despite huge growth potential and close relationships between
customers and bank branches, Bancassurance is taking so long to take off in the
United States, an economy overflowing with opportunities and wealth? Let’s take
a close look at what the situations are in this financial rainforest.

Twenty years ago, everyone agreed that the banks would have cornered 25% of the
life insurance market. Belief in such levels of growth was underpinned by the
signature in 1999 of the Gramm-Leach-Bliley Act, which finally removed the
obstacles to the banks selling insurance products, initially put in place by the famous
Glass-Steagall Act of 1933 after the Great Depression of the 1930s.

However, despite the removal of many legal restrictions, the distribution of insurance
products is still a marginal activity, with only 2.5% of market share in the first half of
2003. Nevertheless, insurance revenues grew between 2002 and 2003:

 Sales at Citigroup, the USA’s leading Bancassurance operator, grew from

$3.48 billion to $3.9 billion (up 1%); 

 The highest rate of growth was recorded by US Bancorp, up 84.4% from $45
million to $83 million. 

With its greater affinity with banking products, life insurance accounts for two-thirds of
US banks’ insurance revenues. These financial institutions have taken advantage of
growth in the annuity market. In the third quarter of 2003, banks held 43% of fixed
annuity pension contracts and 14% of variable annuity contracts.

31
6. Canada:

In Canada, current legislation is a real obstacle to the growth of Bancassurance. The

Canadian retail banking market is highly concentrated. Fewer than 10 banks control
most of the market.

Most Canadian banks are under “federal charter” i.e. controlled by the federal
authorities. Federal charter banks can only sell loan protection insurance and travel
insurance within their branch networks. They generally have a life insurance
subsidiary, which offers a more traditional range of life insurance products – not
necessarily linked with banking products – distributed through sales networks
organized separately from the bank branches. These life insurance subsidiaries are
usually small, with the notable exception of the Royal Bank of Canada, which has a
very large life insurance subsidiary.

7. Switzerland:

In Switzerland, the growth of Bancassurance is seriously hampered by the laws on

banking secrecy, which prohibit the exchange of customer information between banks
and insurance companies. The joint venture and merger models have failed
completely in this country and Switzerland has now launched an investigation into the
causes of the failure. Cardif, which has obtained the necessary licences to sell life and
non-life products, began trading in 2005 with loan protection insurance.

8. Arab Nation:

In the Arab world, insurance distribution traditionally remains in the hands of agents
or independent brokers, and insurance companies are reluctant to come under the
control of financial institutions.

In addition, cultural factors play a significant role. The poor penetration rate of
insurance in Islamic countries can be explained in both cultural and religious terms:
family solidarity is strong, and Islamic law (sharia) is sometimes interpreted as
prohibiting insurance just as it forbids usury. As a result, the insurance sector is very
small by comparison with overall economic activity. Insurance premiums, whether
life or property, represented no more than 1% of the region’s GDP in 2003, as
32
 compared with 12% in industrialized countries. In addition, it should not be forgotten
that the law has often been a significant obstacle and remains so in certain countries.

 Recently in Morocco, the market structure has been changing and some
openings are appearing, such as where the Insurance Law restricted bank
holdings in insurance companies to 30%, an upcoming bill to remove the
ceiling on investment would make this law redundant. Moroccan banks are
actively preparing for this possibility and most of them have already invested
significantly in training and motivation for their sales network. 


 Lebanon, Morocco and Tunisia were the first to go into the Bancassurance
market with the support of French Bancassurance operators. Several major
regional players have been operating for a number of years. By way of
example: 


 In 2003, in the United Arab Emirates, Standard Chartered Bank signed a
co-operation agreement with Zurich International Life and ALICO
(American Life Insurance Company); 

 Likewise, in Dubai, National General Insurance moved into the life
insurance market in 2003 in partnership with Emirates Bank International
and Commercial Bank of Dubai; 

 In January 2004, an Allianz Group company, Arab International Life
Assurance Company, established a distribution partnership with Crédit
Agricole Indosuez in Egypt; 

 BankMuscat’s Bancassurance business was launched in July 2004, in
partnership with National Life Insurance, making it the first bank to offer
insurance services in Oman. 


9. Israel:

In Israel, despite the legal prohibition on supplying life insurance through the banking
network, Discount Bank moved into Bancassurance by offering life insurance to

33
 customers who wanted it. Since the bank sells no policies and receives no
commission, it is not infringing any laws.

10. Eastern Europe:

The general environment of the East European countries is changing fast. It is

important to emphasize the small size of the current market. For example, 33% of
Poles have bank accounts, compared with 98% of Belgians, an example of the very
high growth potential for banking and insurance products.

In consequence, many insurance companies are seeking to establish links with local
banks. Allianz, for example, has established relations in Poland, Bulgaria, Hungary
and Croatia, on the assumption that Bancassurance in Eastern Europe could account
for up to 15% of its premiums in the next 10 to 15 years.

However, the development of Bancassurance is only in its infancy. Local

governments are showing signs of nervousness about allowing foreign operators to
control local banks. It is, therefore, too soon to know whether Bancassurance will
achieve the dominant status it has in France or Spain.

34
ENTRY INTO BANCASSURANCE

Synergy Effect of Bancassurance → Insurance company + Bank = Benefit to the Customer

Synergy as commonly defined is a mutually advantageous conjunction where the whole is

greater than the sum of the parts. Someone has very thoughtfully conveyed – “Synergy lets
you easily share a single mouse and keyboard between multiple computers each with its own
display.”

The synergy that the world is witnessing in Bancassurance is no different. The synergy here
allows sharing of the same distribution channel and networks between banking companies
and insurance companies each with different nature and variety of products.

In their natural and traditional roles and with their current skills, neither banks nor insurance
companies could effectively mount a Bancassurance start-up alone. Collaboration is the key
to making this new channel work.

Let us understand the role of Bancassurance with specific advantages to Bank, Insurer and
Customer.

MERITS OF BANCASSURANCE – THE MOTIVATION

Bancassurance, as a concept, has been found to possess much utility across the globe, and it
is not so without certain reasons. There are various features and aspects of this business that
are the reasons for insurance companies, banks, customers, etc. to invest their financial assets
in it, they are discussed as follows:

1. Benefits to Insurance Companies:

(A) Wider client base:

The bank’s client base may well be “virgin territory” for the insurance
company and so a new source of business, the reasons for which may are many.

Possibly geographic, with the bank’s clients residing in a territory where the

insurer has only a limited presence, if any; or even demographic, if the bank’s
35
 clients form a part of a very different group (by age, sex, purchasing habits) to the
one which the insurer has previously courted.

For example, an insurer who previously concentrated on high net worth individuals
(“HNWIs”) can now gain access to a wider range of customers who
will not all be HNWIs.

(B) Innovation in Products:

Bancassurance allows insurers to provide co-branded products to the customers,

like Fire Policies for Home Loans, thus bringing up the concept of a wide product
diversification, which can be further extended into customization using the
bank’s customer database for information regarding the customers’ financial
position, spending habits, investment and purchasing power, etc.

(C) Rural Penetration:

The insurance industry has not been much successful in rural penetration of
insurance so far. People there are still unaware about insurance as a tool to
financially cover their life. With the introduction and adoption of Bancassurance,
insurance companies are now able to tap income from existing bank customers as
well as potential customers in rural areas with the help of the bank’s wide
network of branches.

(D) Workforce Productivity:

Workforce productivity can be referred to as the output that a worker produces in

a given amount of time. With the introduction of a Bancassurance model, the
conversion ratio of leads to sales is likely to be high due to the pre-existing
relationship with customers, whereas the aspect of additional services can also be
tackled easily. Thus, the sales force is subsequently motivated through the
additional income generated, and the ability to offer more products to their clients
and prospects, thereby resulting in an increase in their productivity.

36
 (E) Trust and assurance:

Due to the monopolistic nature of the public insurance companies, people were
forced to buy insurance policies from them, even though there were many flaws in
the system. With the introduction of private companies in the insurance market,
this problem was tackled, but many people found it difficult to trust these
companies and their products. When Bancassurance came into practice, the
insurance companies were able to gain credibility in the customer mindset by
associating with the banks that were trusted by customers and had good relations
with them.

2. Benefits to Banks:

(A) Increased customer satisfaction:

Banks found it possible to increase customer satisfaction and retain a higher amount
of customers by providing both banking and insurance services under one roof,
similar to the concept of Universal Banks, which have the reputation of being
financial supermarkets.

(B) Increase in fee-based income:

A bank’s conventional income comes from the fixed charges levied on loans and
advances, credit cards, merchant fee on point of sale transactions for debit and credit
cards, letters of credit and other operations. Selling insurance products allows banks
for a rise in return on assets by building fee income through minimum investment and
zero risks.

(C) Access to Insurance clients:

When an insurance company ties up with a bank, they get access to the bank’s
client base. Similarly, Bancassurance enables a bank to access the insurance
company’s life insurance customers, thereby increasing the sale of their banking
products and services.

37
 (D) Building close relations with customers:

Even with the advancement in technology, banking in India is mainly done in the
'brick and mortar' model, which means that most of the customers still walk into the
bank branches, despite the set-up of ATM machines in every neighborhood. This
enables the bank staff to have a personal contact with their customers, which is further
extended when the customers are approached with queries regarding Bancassurance,
instead of just the conventional banking queries. Bank employees can now leverage
on face-to-face contacts and spread awareness about the insurance products offered at
the bank.

(E) Customer investment preferences:

Customer preferences regarding investments are changing. For medium-term and long-
term investments there is a trend away from deposits and toward insurance products and
mutual funds where the return is usually higher than the return on traditional deposit
accounts. This shift in investment preferences has led to a reduction in the share of
personal savings held as deposits, traditionally the core element of profitability for a
bank which manages clients’ money. Banks have sought
to offset some of the losses by entering life insurance business through the adoption of
Bancassurance models.

3. Benefits to Customers:

(A) Product Diversification:

Customers are offered a basket of products under one roof through Bancassurance.
Although, it is not as diversified as a Universal Bank, there are still innovative and
better banking and insurance product ranges available.

(B) Better relations:

The sale of insurance and bank products under one roof encourages customers of
the banks to purchase insurance policies from a place where they are easily
available. This further helps in building a better relationship with the bank as well
as the insurance company, thereby making the customer a loyal customer.

38
(C) Accessibility in remote areas:

Consumers who are unaware of and/or are not in reach of insurance policies can
highly benefit through the bank’s diverse area coverage, widely distributed
network of branches and better marketing channels of banks.

(D) Additional financial benefits:

Increase in number of providers means increase in competition and hence people

can expect better premium rates and better services from Bancassurance as
compared to traditional insurance companies.

(E) Financial planning and advisory:

Usually, Bancassurance service providers tend to offer advices on financial

planning, comprehensive financial consultancy services, additional financial
services such as mutual funds, personal loans, etc. under one roof. Customers also
have the opportunity to make a better and informed choice in financial matters
like selection of insurance cover.

39
DEMERITS OF BANCASSURANCE – THE DEAL BREAKER

While Bancassurance may be a profitable investment, it has its share of disadvantages, as

discussed below:

1. Data Security Violation:

Data management of an individual customer’s identity and contact details may

result in the insurance company utilizing the details to market their products, thus
compromising on data security.

2. Conflict of interests:

There is a possibility of conflict of interest between the bank’s products and the
insurance policies (For example, money back policy). This could confuse the
customer regarding where he should to invest.

3. Level of Customer service:

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

4. Human factors:

(A) Unlike insurance agents, banks may lack sales culture as selling a bank product is
different from an insurance product.

(B) It is difficult to forecast sales to be received from the bank employees.

(C) A high cost is involved in giving an extensive training to bank employees.

(D) Incentives need to be given to bank employees to promote the insurance products.

40
WAYS TO ENTER INTO BANCASSURANCE:

While we discussed that Bancassurance is profitable and beneficial enough for banks and
insurance companies to adopt Bancassurance models, further will be discussed the methods
that can be adopted by them to enter this business:

1. Distribution Channels:

One party’s distribution channels (for example, the insurance company) gain access
to the client base of the other party (for example, bank). This is the simplest form of
Bancassurance, but can be a “missed opportunity”. If the two do not work
together to make the most of the deal, then there will be at best only minimum results
and low profitability for both parties.

If, however, the bank and the insurance company enter into a distribution agreement,
according to which the bank automatically passes on to a friendly insurance company
all “warm leads” emanating from the bank’s client base, this can generate very
profitable income for both partners.

2. Appointed Representation:

When a bank signs a distribution agreement with an insurance company the bank acts
as their appointed representative. With proper implementation this arrangement can
lead to satisfactory results for insurers, while the financial investment required by the
bank is relatively low.

3. Cross Shareholdings:

In this type of arrangement, a bank and an insurance company agree to have cross
shareholdings between them. A member from each company might join the board of
directors of the other company.

4. Joint Venture:

This is the creation of a new Bancassurance company by an existing bank and an

existing insurance company.

41
 5. Acquisition:

This is when an insurance company is wholly or partially acquired by a banking

company. This is a major undertaking. The bank must carefully define in detail the
ideal profile of the targeted insurance company and make sure that the added benefit
it seeks will materialize.

It is also possible for an insurance company to wholly or partially acquire a bank for
the same.

6. Starting up a new Company:

A bank can also start from scratch by establishing a new insurance company wholly
owned by the bank. For a bank to create an insurance subsidiary from scratch, it
requires a whole range of knowledge and skills which will need to be acquired. This
approach can however be very profitable for the bank, if it makes underwriting
profits.

7. Joint Venture by a Group:

Here, a group owns a bank and an insurance company which agree to cooperate in a
Bancassurance venture. A key ingredient of the success of the Bancassurance
operation here is that the group management demonstrates strong commitment to
achieving the benefit.

The best way of entering Bancassurance depends on the strengths and weaknesses of the
organization and on the availability of a suitable partner if the organization decides to involve
a partner. Irrespective of the form of ownership, a very important factor for the success of a
Bancassurance venture is the influence that one party’s management has on that of the other.

There must be a strong commitment from the top management to achieving the aims in the
business plan.

42
BANCASSURANCE PRODUCTS

“ANALYSIS OF BANCASSURANCE AND ITS STATUS AROUND

THE WORLD” – SCOR GLOBAL LIFE SE

A Bancassurance providing firm will always find this one question on their mind before any
other questions – What products to sell?

When asked, several experienced Bancassurance operators constantly raised the subject of
“products” in discussion. And that, of course, is no accident. This is because, it may be
customary to consider what would attract/retain customers, or how to be successful through
the banking sales network, but none would be possible to plan or execute without the central
theme of the business – the product.

What are the features of a “good” Bancassurance product? Are some products specific to the

network? What can and can't be sold in Bancassurance?

In October, 2005, an article presented by SCOR Global Life SE, France, (formerly, SCOR
Vie) on the “Analysis of Bancassurance and its Status around the World” stated some
indispensible requisites for a Bancassurance product to be successful in the market, which are
as follows:

1. Simplicity:

It was majorly agreed upon that the key to success is above all to keep it simple. And even
though certain Bancassurance operators now market more “complex” products, such as
a long term care insurance, the secret is the same – “To be able to explain the product’s
purpose and concept in simple terms, even if its nature is complex”, as they put it at
Predica (the life insurance subsidiary of Crédit Agricole Assurances, France).

2. Complementarity:

The products distributed must be completely suited to the banking network protocols, i.e.
synchronized with the bank’s sales procedures, which means that they shouldn’t
interfere with the bank’s primary business proceedings. The Bancassurance products

43
 must be characterized to complement the bank’s own products rather than compete
with them or hinder the distribution of the same.

3. Mass selling:

Initially, Bancassurance was a mass distribution product, specifically aimed at

individual bank customers. Luis Araya, Technical Director of the Altavida Seguros de
Vida Company in Chile, the local subsidiary of the Santander Group, makes it perfectly
clear: “The success of Bancassurance lies in mass selling. If you have a large numbers
of policyholders and you apply prices that offset the virtual non-existence of medical
selection, you shouldn’t have wastage. The products must be easy for the public to
understand in general and should focus on covering their most ordinary
needs. In addition, the pricing structure should be simple, to facilitate the selling
process.”

4. Diversification:

The products which are ‘made-to-measure’ require greater expertise. They may
often be the ones that the banking network finds hardest to sell, but are also the ones
where the margins are largest, offer banks the highest returns and employees the most
commission.

Further, several Bancassurance operators (Cardif, SH&C, Predica, Altavida, etc.) were asked
– “Do you think that medical risk assessment is a hindrance to the growth of
Bancassurance?” they all gave the same answer:

“Yes, without a doubt, since assessment significantly increases the time it takes to sell a
product.”

One of the secrets to success in Bancassurance is undoubtedly the fast sale. It is nevertheless
true that, while this selection process is seen as a significant difficulty, it is also of utmost
importance for all protection products and can only be rarely, if completely, bypassed.

44
TYPES OF BANCASSURANCE PRODUCTS – A BIRD’S EYE VIEW

After a quick tour of the big Bancassurance operators around the world, SCOR Global Life
SE, through their study, reached the conclusion that Bancassurance “can sell anything”,
that it is not limited to a certain type of product. Moreover, there is no lack of innovation,
which is, significantly, a mammoth factor to the concept, as Bancassurance operators have
now understood that to continue being successful they have to demonstrate a high capacity
for innovation to attract new customers and maintain a certain competitive advantage.

That being said, with the emergence of Bancassurance as a business, special products with
features to fit the nature of their sector in the economy, were developed and introduced in
order to fulfil certain needs which emanate from banking transactions, and certain products
have even been improved in order to make them more attractive and useful to the customer.
These products can be broken down into the following categories:

1. Finance and Repayment Products:

When a financial institution grants a loan or credit to an individual, it is concerned

that in case of early death or permanent disability of the borrower, the outstanding
loan or credit amount may be difficult or impossible to recover. This is possible when:

 The financial standing of the surviving family is not strong or stable enough to
make the outstanding amount easily recoverable; 

 The asset/s purchased from the loan amount are no longer saleable; 


 A resale amount set on such asset/s is insufficient to pay off the outstanding
amount. 

Apart from the financial loss, the financial institution also faces chances of reputation
loss for putting an additional burden on the surviving family for recovering the loan
amount, upon the unfortunate death of their family member, and possibly the sole
income source of the family.

On the other hand, the borrower also faces the stress of possibly burdening his family
to pay off the loan amount upon his death or permanent disability. Thus, was
45
introduced, the ‘finance and repayment’ category of Bancassurance products, to help

ease such situations, of the following types:

(A) Credit Insurance:

When you break up the term ‘Credit Insurance’, it is easier to understand. It can
be explained as insurance provided to a customer’s credit. Today, more and more
day-to-day individual as well as business-to-business transactions are enabled on
credit terms, so aversion of default payments and prevention of overdue debt
burdens for customers has never been more essential. Credit insurance offers a
solution on a customer’s default payment to not only the his creditors, but also to
his dependants. It is a type of life insurance policy purchased by a borrower that pays
off one or more existing debts in the event of a death, disability, or in rare cases,
unemployment. As mentioned earlier, the defaulter would not want to burden his
dependants with the task to repay the outstanding amount. Hence, it is seen as a rather
lucrative opportunity for banks to not only help their debt-ridden customers, but also
to conduct profitable business in the field of Bancassurance.

Credit insurance is suitable for arrangements such as:

 Mortgage loans, 

 Business loans, 

 Personal loans, 

 Hire purchase arrangements, etc. 


(B) Overdraft Insurance:

Usually banks offer overdraft facilities to their customers. This is automatic credit
up to a pre-agreed amount. This facility has no repayment term provided the
customer’s salary is deposited in the bank and the credit always stays within the
pre-agreed amount. In the case where the customer who was using the credit
facility dies, this amount has to be repaid by the dependants of the deceased. This
practice usually creates problems for both the dependants as well as the bank.

46
 Overdraft insurance can help. Overdraft insurance can be offered in two different
ways:

 The cover is equal to the credit facility used and a monthly premium is
paid according to this amount. In the case where the customer dies and this
credit facility has been used, the outstanding amount due will be repaid to
the bank by the insurance company. In deciding whether to offer this
option, the insurer must consider the risk that people who know their
health is very poor can sharply increase the amount of credit taken shortly
before their death. 

 The cover equals the maximum pre-agreed credit facility. In case of death
the outstanding amount due will be repaid by the insurance company. If
there is an excess between cover and the outstanding amount due, it is paid
to the dependants. Premiums in this case can be paid on a monthly or
annual basis. 

In overdraft insurance the premium is usually adjusted every year according to the
age of the customer. A maximum age for this benefit usually exists. The premium
can be paid by the customer or by the bank as an offer to its customers. This type
of product is suitable for arrangements such as

 Overdraft facilities, 

 Credit Cards, 

 Unstructured debts, etc. 


(C) Capital Repayment:

For loans offered for mortgage, educational, personal or business reasons a

repayment scheme through an insurance policy is possible. The customer is
granted the loan and he pays to the bank only the loan interest. He also takes out
an endowment (the type of life insurance policy where a lump sum is paid on
death of the policyholder) that has a cover equal to the loan amount and with a
duration equal to the repayment period of the loan.

47
 The premium is selected so that the maturity payout is very likely to be able to
cover the full loan amount. The policy is always assigned to the bank and serves
as a repayment tool whether the death of the customer occurs during the policy
period or not.

2. Depositors’ Products:

(A) Depositors’ Insurance:

This benefit is designed to attract the public to deposit money with a particular
bank. It can be offered in all deposit accounts but usually a minimum deposit
amount is required. The level of cover is usually determined by factors such as
price and underwriting.

A possible product is level term insurance with the premium rate changing every
year. Another possibility is to offer accidental death cover. Reasonable limits must
be set regarding maximum age and maximum amounts. The premium in this case
is usually paid by the bank but it can also be paid by the depositor with a proper
marketing approach. The amount of cover is usually a multiple of the cash balance
in the deposit account. In the case of death of the depositor, this cash balance is
increased accordingly.

(B) Objective achievement insurance (bank savings plans):

This policy can be offered in special deposit accounts where systematic deposits
are required to reach a predetermined objective amount at maturity. However, if
the depositor dies or suffers total permanent disability, the difference between his
objective amount and the cash balance of the account is paid to the depositor or
the depositor’s estate in addition to the cash balance. This can be offered by a
decreasing term insurance only or in combination with permanent total disability
benefit.

In cases where the deposit amounts are not predetermined it is advisable to offer
coverage that is a multiple of the average cash balance amount during the
preceding 6 or 12 months, so that problems of anti-selection can be reduced.

48
 However, it would still be possible for a customer to increase the account balance
rapidly and gain significant life cover without underwriting.

As with depositors’ insurance, accidental death cover is another option. Where

reasonable limits are set regarding maximum age and maximum amounts of
coverage, this product can offer attractive profit margins.

(C) Pure Investment Products:

These products have no “insurance” elements, i.e. no risk. They have

traditionally been the domain of banks, but in some countries they enjoy
favourable tax treatment if they are offered by an insurance company.

3. Simple standardized package products:

These products are usually group policies which combine covers and which cost the
customer less than if they are bought individually. These products are usually sold
over the counter by bank employees, so they need to be uncomplicated. An example
would be household insurance together with waiver of premium on death cover.

4. Pure investment products:

These products have no “insurance” elements, i.e. no risk. They have

traditionally been the domain of banks, but in some countries they enjoy favourable
tax treatment if they are offered by an insurance company.

5. Other Products:

The objective of product development in most cases is to offer the widest possible
range of products so as to enable sales staff to select the most suitable plan for each
customer’s specific needs. A further range of products which the bancassurer
wants to offer to clients could include:

 Whole life 

 Endowment 

49
  Unit-linked products 

 Term insurance products 

 Family income benefit 

 Waiver-of-premium benefit 

 Permanent total disability benefit 

 Income replacement benefit 

 Accident and sickness products 

 Hospitalization products 

 Pension products 

Riders (additional benefits attached to the main basic policy) such as:

 Family income benefit 


 Waiver-of-premium benefit 

 Permanent total disability benefit 

 Income replacement benefit 

In deciding whether to offer these further products the Bancassurance firm would
need to consider whether these can be effectively sold by the employees and agents
involved in the Bancassurance firm’s sales operation.

50
WHY IS BANCASSURANCE MOST SUITED TO LIFE INSURANCE
PRODUCTS?

If we look closely, we will notice that many of the types of Bancassurance products described
above are a mix of banking products specifically with life insurance policies, but why? The
reasons for this are very simple, and are explained below:

1. The main reason may be the complementary nature of life insurance and banking
products. Bank employees are already familiar with financial products and quickly
adapt to selling insurance-based savings or pension products;

2. On the other hand, the non-life insurance market requires special management and
selling skills, which are not necessarily prevalent in Bancassurance. In addition, such
competencies require significant investment in training and motivation, and therefore
additional costs;

3. Life insurance products are generally long-term products, which require customers to
have complete confidence in the institution that invests their money. And we now
know that, in many countries, banks have a better image and are more trusted than
insurance companies;

4. Bank advisers can use their knowledge of their customers’ finances to target their
advice towards specific needs. This is a major advantage in life insurance and less
important in personal injury insurance;

5. Some professionals also refer to the claims management aspect of personal injury
insurance, which could have a negative impact on brand image. This would seem to
explain why for a long time Bancassurance operators hesitated to offer these types of
product.

51
BANCASSURANCE IN INDIA

HISTORY AND CURRENT STATUS

In India, the concept of Bancassurance emerged in 2000. IRDA came up with regulations on
registration for the same as well. The Government of India also issued a Notification 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. However it was clarified that any bank
intending to take up the business would have to take specific approval from RBI.

All scheduled commercial banks were permitted to undertake insurance business as agents of
insurance companies on fee basis, without any risk participation. Specific rules were framed
for setting up of joint venture companies for undertaking insurance business with risk
participation. There has been no looking back ever since.

With the opening up of this sector to private players, competition has become more intense
and the public sector major, LIC, has been challenged with a flood of new products and new
means of marketing. The insurance industry in India has been progressing at a rapid pace
since this development.

It started gaining even more recognition after the Insurance

Regulatory and Development Authority (IRDA) passed a
notification in October, 2002 of ‘Corporate Agency’ regulations.
As ‐per the concept of Corporate Agency, banks can act as an agent of one life and one non life insurer.

52
REGULATIONS REGARDING BANCASSURANCE IN INDIA

INSURANCE AUTHORITY REGULATIONS

The IRDA has laid down the following guidelines for the Bancassurance:

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

2. Each bank that sells insurance must have a Chief Insurance Executive to handle all
the insurance matters and activities.

3. There is a restriction for international companies to the minority equity holdings up to

26%.

4. All the people involved in selling the insurance should undergo mandatory training at
an institute determined or authorized by IRDA and should have passed the
examination conducted by the authority.
5. Commercial‐ banks, including co‐operative banks and Regional Rural Banks may become co operate 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.

53
BANKING AUTHORITY REGULATIONS

The RBI issued the following 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 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:

 The net worth of the bank should not be less than Rs. 500 crores, 


 The Capital to Risk Weighted Assets Ratio (CRAR) of the bank should not be
less than 10 per cent, 
 The level of NPAs (non‐performing assets) should be reasonable, 
 The bank should have net profit for the last three consecutive years, 


 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.

54
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 crores, 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:

 The Capital to Risk Weighted Assets Ratio (CRAR) of the bank should not be
less than 10 per cent. 
  The level of non‐performing assets should be reasonable. 
 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, i.e. insurance business. It should be ensured that risks involved in insurance
business do not get transferred to the bank. There should be arms length relationship
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 regulation
laid down by the Insurance Regulatory and Development Authority (IRDA)/Central
Government. This will include compliance with Section 6AA of 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.

55
9. Banks which make investments under paragraph 5 of the above guidelines, and later
qualify for risk participation in insurance business (as per paragraph 2 of the
guidelines) will be eligible to apply to the Reserve Bank for permission to undertake
insurance business on risk participation basis.

56
NEED FOR BANCASSURANCE

It has been mentioned a considerable amount of times that Bancassurance is growing in importance,
especially in India, but why so? Let’s take a look at the following reasons behind
the growing need for Bancassurance:

1. Insurance companies and banks have realised that customer’s loyalty increases profit;

2. Banks and insurance companies are projected as a ‘shoppers stop’ to provide all
kind of financial services;

3. Insurance sector is in the extensive need to use the bank’s distribution network,
large client base and huge customer database, which are helpful in selling their products.

4. It reduces the cost of distribution of insurance products in comparison to the

traditional agency channel.

5. Banks have also realized that offering value-added services such as insurance helps to
meet client expectations.

6. Banks are balancing the increasing margin of uncertainty on interest rates.

7. Bouquet of life insurance products helps in increasing and deepening customer

relationships.

8. Periodic nature of the insurance products and policies invites positive deposit
behaviour from customers.

9. An average of increased income for the bank by way of fee-based income, without
any investment.

10. Additional channel for insurers to increase their sales substantially.

11. Built-in products with housing loans, auto loans, agricultural loans, personal loans,
educational loans, etc.

57
SIGNIFICANCE OF BANCASSURANCE IN THE INDIAN FINANCIAL
SECTOR

1. Banks over the world have now become conscious that offering value added services
such as insurance helps to meet client’s expectations. Competition in the area of
Personal Financial Service is getting influential in India and banks can also maintain
customer’s loyalty by offering them a complete and exclusive range of products.
Therefore, insurance distribution may help the banks to increase the fee based earning
to a great extend.

2. Fee based marketing may help the banks to cover up most of their operating expenses
and also to improve the levels of staff efficiency in the banks. This may also help to
bring higher motivational levels in the banking sector in India.

3. In India the concept of Bancassurance is rising speedily both through commission

based agents and joint ventures between banks and insurance companies. Due to the
vast network of Indian banks, it can easily reach out to the general public.

4. Banks can put in their efforts in trying to capture the small commission customers that
insurance agents tend to avoid. Bank’s entry in insurance distribution can help
to widen Bancassurance more rapidly. This may help to popularize insurance as an
important financial protection product.

5. Bancassurance helps to lower the distribution cost of the insurers. Purchasing cost of
insurance through banks is low. Selling insurance to existing banking customers in the
market is cheaper than selling it to a group of unknown customers.

6. Banks have a huge retail customer base. The share of individuals as a category in
bank accounts is gradually increasing. Rural and semi urban bank accounts constitute
close to 60% in terms of number of accounts, indicating the number of probable lives
that could be covered by insurance with the association of banks.

7. Overstaffing problems can be solved without opting for drastic measures of reducing
the staff.

58
LONG TERM DRIVERS OF BANCASSURANCE IN INDIA

The staffing problem has caused some banks to resort to Bancassurance and so has the
reduction of bad loan problem. But these are not the long term drivers of Bancassurance in
India. The long term drivers in India are as follows:

1. Banking does not have the same stigma that life insurance carries.

This has been a long tradition in India. Insurance salesmen (and they are mostly men)
are seen to be bearers of bad omen. The superstition revolves around the belief that if
you buy life insurance, the probability of your death increases.

This is not just in India. It is true in many other parts of the world as well, including
Mexico. Even in English, we use the term “life” insurance that really means
“death” insurance.

This factor will diminish in importance over time as people become more educated.

2. Banks can offer fee-based income for insurance sales. As might be expected, this
action has been challenged in the courts by the workers who want to leave. This can
be attractive under current rigid structure of wage benefits.

At present, banks are prohibited from offering commission to the bank employees for
selling insurance products. Banks have found ways to circumvent the problem. For
example, they offer "car allowance" for the employees selling insurance.

3. Narrowing bank margins are another key driver.

4. Banks have complementary products with insurance products such as the auto
insurance, home insurance or annuities.

5. When the pension reform is undertaken (and it is in the works), banks can become
natural institutional vehicles for private pension products. In some countries, banks

59
 are explicitly prohibited from selling pension products (e.g., Australia). In some other
countries, banks are the leading private pension providers (e.g., Mexico).

6. Healthcare insurance sector can also benefit from Bancassurance. In India, only 2.5
million people have access to healthcare facilities. On the other hand, 5% of personal
income is spent on healthcare. Banks can distribute and facilitate administration of
healthcare insurance.

7. In many countries, the absence of banks from selling insurance seems to stem from
regulatory reasons. In India, privatization of the insurance sector signalled an
accommodating approach from both the insurance regulator and the banking regulator
for banks entertaining the thoughts of selling insurance.

60
TRENDS AND SUCCESSFUL TIE-UPS OF BANKS AND INSURANCE
COMPANIES IN INDIA

India, a promising market given the size of its population, is in its life insurance infancy.
However, Bancassurance has grown very strongly since the signature of the IRDA Bill in
2000. Since 2002, two thirds of the twelve foreign insurance companies authorized to work in
India have already developed strong partnerships with banks. The Association of Insurers of
India has signed a Bancassurance agreement with Corporation Bank. Other agreements have
also been signed with South Indian Bank, Lord Krishna Bank, ICICI Bank, etc.

Trends of Bancassurance in India

Bancassurance is still evolving in Asia and is still in its infancy in India. It is too early to
assess the exact position. However, a quick survey revealed that a large number of public and
private banks, as well as foreign banks are now making use of Bancassurance channels 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 space in their own premises to accommodate 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 common sight of banks canvassing and marketing the
insurance products across the counters. The present IRDA’s regulations, however, restrict
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 was able to reach more than 25 major cities in India and as much as
20% of the life insurance sales are conducted through Bancassurance channels. 

 In the case of ICICI Bank, SBI and HDFC Bank, insurance companies are subscribers
of their respective holding companies. ICICI bank sells its insurance products
practically at all its major branches. Besides this, it has Bancassurance partnership
arrangements with 19 other banks and as many as 200 corporate tie-up arrangements.
Thus, among the private insurance companies, ICICI Prudential seems to exploit the
Bancassurance potential to the maximum. 
61
  Bank of India has steadily grown the life insurance segment of its business since its
inception. ICICI Prudential was also reported to have entered into similar tie-ups with
a number of RRBs, to reap the potential of rural and semi-urban residents. In fact, it is
a step in the right direction to tap the vast potential of the rural and semi-urban
market. It will not be much of a surprise if other insurance companies too, 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 Insurance reported to have tie-up arrangements with 10
leading banks in the country. Bancassurance alone has contributed richly to as much
as 45% of the premium income in the segment of individual life insurance of Birla
Sun Life Insurance. 

A distinct feature of the recent trend in tie-up arrangements was that a number of cooperative
banks are roped in with a Bancassurance arrangement. This has added several advantages for
insurers as well as the cooperative banks, such as the newfound ability of banks to increase
their respective fee-based incomes without risk participation, and for insurers, the vast rural
and semi-urban market can be tapped without its own presence.

 Incidentally even the public sector major LIC was reported to have tie-ups with 34 

banks in the country, it is likely that this could be the largest number of banks selling
a single insurance company’s products. Ironically, LIC also has the distinction of
being the oldest and the largest presence of its own kind in the country. 


Interestingly, in respect of new life insurance business, the Bancassurance business
channel is even greater than the size of the insurers’ direct business, at 2.17%.
Even in respect of LIC around 1.25% of the new business is through Bancassurance.
Considering the large base, even this constitutes quite sizeable to begin with, in the
case of LIC. This speaks for itself about the rate at which Bancassurance is becoming
an important channel of distribution of insurance products in India. It is significant to 

62
 note that the public sector giant LIC which has branches all over India, too is moving
towards making use of the Bancassurance channels.

 SBI Life Insurance for instance, is uniquely placed as a pioneer to usher

Bancassurance into India. The company has been extensively utilising 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 was reported to have
become the first company amongst private insurance players to cover 0.3 crore lives. 

It is significant to note that in the case of India, all the insurers and banks who have taken the
lead in identifying the Bancassurance channel, at the early stage, are now reaping the
maximum benefits of deeper existing customer relationship as well as wider coverage of
newer customers, besides enhancing fee based income.

Successful Tie-ups of Bancassurance in India

Factors Critical to the Success of Bancassurance:

Success is not as easily achieved as we want it to be. For any venture, individual or of a team,
national or global, they require certain inputs. Similarly, in the case of Bancassurance, in
order to be successful, following are the factors that are of utmost significance:

1. Commitment of senior management:

Senior management of the bank must be committed to the business of Bancassurance

as a core strategy that should be integrated with other equally vital core strategies.

2. Due Importance:

Bancassurance should not be viewed merely as an add-on product but as an important

aspect of the business.

63
3. Change in culture:

The bank’s culture must be transformed expressly to sell insurance and it must be

ensured that “shelf space” is adequately provided in the bank’s retail delivery system.

4. Handling of customers:

Customers are demanding more convenience in financial services because of

increased awareness among them. These demands must not be taken lightly. Banks
should take this as an opportunity to expand their business.

5. Emergence of remote distribution channels:

The emergence of remote distribution channels, such as PC-banking and Internet-

banking, would hamper the distribution of insurance products through banks.
Similarly, new channels emerge mainly seeking a market share in the network. Such
issues must be dealt with smoothly.

6. Others:

 Strategies consistent with the bank's vision 


 Knowledge of target customers' needs 

 Defined sales process for introducing insurance services 

 Simple yet complete product offerings 

 Strong service delivery mechanism 

 Quality administration 

 Synchronized planning across all business lines and subsidiaries 

 Complete integration of insurance with other bank products and services 

 Extensive and high-quality training 

 Sales management tracking system for reporting on agents' time 

 Results of bank referrals and relevant and flexible database systems. 

64
Life Insurance Company Tie-ups with Banks:

SR. LIFE INSURANCE

BANKING PARTNER
NO. COMPANY
ICICI Bank,
Citibank,
Federal Bank,
Bank of India,
Punjab & Maharashtra Cooperative Bank,
Allahabad Bank,

1 ICICI Prudential South Indian Bank,

Lord Krishna Bank,
Goa State Co operative Bank,
Indore Paraspar Sahakari Bank,

‐
Manipal State Co operative Bank and Jalgaon
operative Bank,
People’s Co
Shamrao Vithal Co operative Ban k.
‐

‐ ‐

HDFC Bank,
Standard Union Banks of India,
2 HDFC Life Indian Bank,
Bank of Baroda,
Saraswat Bank
Citibank,
Deutsche Bank,
IDBI Bank,
Development Credit Bank (DCB),

3 Birla Sunlife Bank of Rajasthan,

Bank Muscat,
Catholic Syrian Bank Ltd,
Andhra Bank,
Karur Vysya Bank Ltd

65
 HSBC,
Citibank,
4 Tata AIG
IDBI Bank,
Union Bank of India

SBI,
5 SBI Life
BNP Paribas

Vysya Bank,
6 ING Vysya Life Insurance
Bharat Overseas Bank

Standard Chartered Bank,

8 Bajaj Allianz
Syndicate Bank

Dhanalakshmi Bank,
J&K Bank,
9 Met Life India Co. Ltd.
Karnataka Bank,
UTI Bank (currently Axis Bank)

ABN Amro,
American Express,
10 Aviva India
Canara Bank,
Lakshmi Vilas Bank

Corporation Bank,
Indian Overseas Bank,
Centurion Bank of Punjab,
Satara District Central Cooperative Bank,
Janata Urban Cooperative Bank,

11 LIC Yeotmal Mahila Sahkari Bank,

Vijaya Bank,
Oriental Bank of Commerce,
Central Bank of India,
Bank of Punjab,
The City Union Bank Ltd

66
General Insurance Company Tie-ups with Banks:

SR. GENERAL INSURANCE

BANKING PARTNER
NO. COMPANY
Bank of Punjab,
Bank of Rajasthan,
Jammu & Kashmir Bank,
Karur Vysya Bank,
Lord Krishna Bank,
Punjab & Sind Bank,
1 Bajaj Allianz
Shamrao Vithal Co operative Bank,

‐
Karnataka Bank,
Deutsche Bank,
United Bank of India,
HDFC Bank,
Yes Bank.

Citibank,
ABNAmro,
Standard Chartered Bank,
2 Royal Sun Alliance American Express,
Repco Bank,
SBI GE,
Karur based Lakshmi Vilas Ban k.

‐
HSBC,

3 Tata AIG IDBI,

Union Bank of India.

ICICI Bank,
4 ICICI Lombard
Centurion Bank.

67
 Development Credit Bank,
5 Reliance General Insurance
UCO Bank.

Punjab National Bank,

Andhra Bank,
Dhanalakshmi Bank,
6 United India Insurance Ltd. Indian Bank,
South India Bank,
Federal Bank,
Syndicate Bank.

Union Bank of India,

SBI,
The New India Assurance
7 Corporation Bank,
Co.
Catholic Syrian Bank,
United Western Bank.

Department of Posts,
The Oriental Insurance
8 Oriental Bank of Commerce,
Company Ltd.
State Bank of Saurashtra

Allahabad Bank,
9 National Insurance Co. Bank of India,
Vijaya Bank.

Factors To Be Kept In Mind While Tie‐Up:

The followings are certain issues that we have to keep in mind before a tie‐up with any bank
for the purpose of conducting Bancassurance business:
1. The tie‐up needs to develop innovative products and services rather than depending
upon the traditional tracks. The kind of products that the banks would be allowed to
sell is another major issue. For example, a complex ULIP is better sold through
brokers & agents, while a standard term product or simple products like auto
insurance, home loan, or accident insurance can be handled by bank branches.
68
 2. There is need to be clear about the operational activities of Bancassurance, by
answering the following questions:

 Who will do the branding? 




 Will the insurance company prefer to place a person from their own company at
the branch of the bank? 


 Will the branch train and keep its own people? 



 Who will pay remuneration of above mentioned people, bank or insurance
company or both in a predetermined ratio? 


3. Even though the banks are in personal contact with their clients, a high degree of active
marketing skill is required to sell the insurance products. These can only be possible through
proper training.

69
CHALLENGES FOR BANCASSURANCE IN INDIA

Bancassurance is a new concept in India. It is seen from above discussion that tie-ups
between banks and insurance companies are growing successfully in India. But to implement
Bancassurance properly they are still facing problems. It is extremely a difficult task to
expand Bancassurance in the emerging markets. Globally, the insurers are successfully
persuading Bancassurance to gain hold in markets with low insurance penetration and a
limited variety of distribution channels. The following are the challenges that are faced by
Bancassurance industry in India:

1. Incentive payment systems:

The change from manufacturing to pure distribution of insurance requires banks to

pull together the incentives of different suppliers with their own products in a more
improved way.

2. Cross-selling strategy:
The banks‐ also fear that at some point of time the insurance partner may end up cross selling banking products to their policy holders. If the insurer
is selling the

products by agents as well as banks then there is a possibility of not just a conflict of
interests, but also a clash between both partners of the tie-up if the bank and the agent,
both target the same customers.

3. Manpower and structure issues:

Human Resource Management has experienced some difficulty due to such alliances
in financial industry. Poaching for employees, increased work-load, additional
training, maintaining the motivation level are some issues that have cropped up quite
often. 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.

4. Confusion amongst bank employees:

Bank employees are traditionally low on motivation and enthusiasm. Lack of sales
culture itself is bigger roadblock than the lack of sales and marketing skills in the

70
 employees. Banks are generally used to only product packaged selling and hence
selling insurance products do not seem to fit naturally in their system.

5. Change in the Management composition:

Private sector insurance firms are finding ‘change management’ in the public
sector, a major challenge. A public sector bank frequently gets a new chairman
almost every two years from different bank, resulting in the distribution strategy
undergoing a complete change, and further creates dissimilarity between public and
private sector banks.

6. Customer relation Issues:

Banks will have to be geared up for probable interference from client relations arising
from numerous general insurance claims.

7. Other Challenges:

 Difference in pace targets 



 Co-branding issues 


 Competing returns 


 Change of mindset 


 Managing involvement 

71
SURVEY ANALYSIS

A survey was conducted on a group of 50 people regarding the awareness of Bancassurance.

The collected data has been given graphical representation.

This has been produced by using the tabulated data, which has been incorporated at
appropriate places in the analytical interpretative text which has been drawn below:

GRAPHICAL REPRESENTATION, ANALYSIS AND INTERPRETATION

1.
Gender
Female Male

37%

63%

Source: Primary Data

2. Age Group
Below 20Between 21 to 45Between 46 to 60Above 60

13%

28%

27%

32%

Source: Primary Data

72
Respondents’ profile:

Particulars Number Percentage

Gender:
 Male 63 63%
 Female 37 37%
TOTAL 100 100%
Age:
 Below 20 28 28%
 Between 21 to 45 32 32%
 Between 46 to 60 27 27%
 Above 60 13 13%
TOTAL 100 100%

3.
Are you aware of Bancassurance?
Yes No

48%
52%

Source: Primary Data

 INTERPRETATION: Out of all the 100 people included in the survey, 48% were
aware of the concept of Bancassurance, whereas the remaining 52% lacked such
awareness. 

73
 Do you have an Insurance policy?
4. Yes No

43%

57%

Source: Primary Data

 INTERPRETATION: 57% of the respondents did not have an insurance policy,

whereas the remaining 43% respondents were insurance policyholders. 

5.
If you have an Insurance policy, what kind of policy
is it?

Life Insurance
Non-Life Insurance (General Insurance)
I do not have an Insurance policy

38%

57%

17%

Source: Primary Data

74
 6.

Which Bank are you a customer of?

35%

30%
32%
25%

20% 23%
15%
10%

21%

5% 8%
6% 1% 6%
3%
0%
State Bank of ICICI Bank HDFC Bank YES Bank Standard HSBC Bank Axis Bank Others
India Chartered
Bank

Source: Primary Data

 INTERPRETATION: The survey respondents were clients of mainly ICICI

Bank, HDFC Bank, SBI, Standard Chartered Bank, etc. 

7.
What kind of services are you using with your
Bank?
Deposit/Account based services Loan based services
Insurance based services Others
2%

22%

27%
98%

Source: Primary Data

 INTERPRETATION: In the services of the banks that the respective clients made
use of, 98% were deposit or account based services, overlapping with insurance
and loan based services of 22% and 27% respectively, and other services such as
credit cards, up to 2%. 

75
8.

If you have an Insurance policy, have you taken

it from a Bank or an Insurance Company?
I have taken an Insurance policy from an Insurance Company
I have taken an Insurance policy from a Bank
I do not have an Insurance policy

36%

57%

7%

Source: Primary Data

 INTERPRETATION: 36% respondents had taken an insurance policy

conventionally from an insurance company/agent, 7% policyholders had availed
of Bancassurance services by taking an insurance policy from a bank, while the
previously stated 57% did not have an insurance policy. Further, 38% of the
policies were life insurance policies, overlapping with 17% general insurance
policies. 

9.
Do you plan to take a Bancassurance
policy?
Yes No

35%

65%

Source: Primary Data

76
LIMITATIONS OF THE SURVEY
While conducting the survey, the analysis was faced by the following limitations:

 Potential respondents refused to take the survey and fill the questionnaire, thereby
resulting in a small group of respondents. 


 Respondents felt that the questionnaires are from the bank or they did not have time,
so certain questionnaires were not completely filled (not included in survey analysis). 


 Banks were packed most of the time and getting the questionnaires filled from the
employees was an unsuccessful venture. 

CONCLUSIVE REMARKS

From the survey conducted using primary data, it can be concluded that Bancassurance is
walking on the tightrope with its awareness, but its use i.e. customers buying insurance
policies from banks, is not that popular. Quite a few people have a reasonable idea about
Bancassurance and that their banks vend various insurance products. But still people do not
know about Bancassurance as a concept. This could mean that Bancassurance has a lot of
scope in India.

77
 CONCLUSION

Bancassurance plays a vital role in the economy. Hence before selecting a bank to do
Bancassurance business with, an insurance company must carefully analyze which bank has
the necessary skills to sell the products, and before choosing an insurance company to work
with, a bank must carefully study which insurance company’s products satisfy a
majority of the clients’ requirements.

It is safe to say that with the help of this project, majority of the important aspects of
Bancassurance can be understood and its future in the Indian economy. Hence,
Bancassurance can be considered as an essential financial body in Indian financial system.

Thus, I conclude by saying that the business of Bancassurance can help banks to improve
their profitability and achieve sustained growth, but for that the ‘know how’ and ‘awareness’
of their features, functions and benefits to the prospective users should be known.

78
 BIBLIOGRAPHY

WEBSITES:

 IRDA 

 Wikipedia 

 UK Essays 

 Infosys 

 RBI 

BOOKS:

 EMFS – P. K. Bandgar (Vipul Prakashan) 


 Principles and Practices of Banking and Insurance – O.P. Agarwal 

ARTICLES, PDF FILES, ESSAYS, ETC.:

 http://www.irdindia.in/Journal_IJRDMR/PDF/Vol2_Iss1/3.pdf 

 http://www.marclife.com/research/pdf/banc.pdf 

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insurance-concepts-finance-essay.php 

 http://www.coi.org.in/documents/10156/24a3a797-84a2-49a5-b586-ead077aff410 

 http://www.slideshare.net/Dharmikpatel7992/bancassurance-24274578 

 http://www.scribd.com/doc/31363681/Bancassurance 

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
 http://download.nos.org/srsec319/319-35.pdf 

 http://www.infosys.com/finacle/solutions/thought-papers/Documents/leveraging-
IT-to-winin-Banassurance.pdf 

 http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/80595.pdf 

 https://spib.wooribank.com/pib/Dream?withyou=ENENG0141 

 http://www.kniaif.com/bancc_js/slide_28.html 

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