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Bancassurance-A Boost To Banking Sector.
Introduction
BANCASSURANCE as term itself tells us what does it means. Its a combination of the term Bank and Insurance. It means that insurance have started selling their product through banks. Its a new concept to Indian market but it is very widely used in western and developed countries. It is profitable both to Banks and Insurance companies and has a very bright future to be the most develop and efficient means of distribution of Insurance product in very near future. Insurance company can sell both life and non-life policies through banks. The share of premium collected by banks is increasing in a decent manner from the time it was introduce to the Indian market. In India Bancassurance in guide by Insurance Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and insurance company have to meet particular requirement to get into Bancassurance business. It is predicted by experts that in future 90% of share of premium will come from Bancassurance business only. Currently there are more and more banking and Insurance Company and venturing into Bancassurance business for better business prospect in future. The banking business is also generating more profit by more premium collected by them and they also receive commission like normal insurance agent which increase their profits and better reputation for the banks as there service base also increase and are able to provide more service to customers and even more customer are attracted toward bank.
Guru Nanak College Of Arts, Science & Commerce.
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Meaning
Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, bancassurance, tries to exploit synergies between both the insurance companies and banks. Bancassurance can be important source of revenue. With the increased competition and squeezing of interest rates spread, profits are likely to be under pressure. Fee based income can be increased through hawking of risk products like insurance. Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the customer. In simpler way it can be said as "Bancassurance" in French and "All Finanz" (Universal Banking) in German refers to a tie up arrangement of banks with insurance companies for selling the insurance products in life and non life segments as corporate agents for fee based income. This income is risk-free, as the bank plays a role of an intermediary for souring business to insurance company. Bancassurance is a package of banking and insurance service at one roof. The introduction of Bancassurance has broadened the scope of retail banking.
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Origin
The banks taking over insurance is particularly well-documented with reference to the experience in Europe. Across Europe in countries like Spain and UK, banks started the process of selling life insurance decades ago and customers found the concept appealing for various reasons. Germany took the lead and it was called ALLFINANZ. The system of bancassurance was well received in Europe. France taking the lead, followed by Germany, UK, Spain etc. Bancassurance was not much popular in USA as Steagall Act, 1933 prevented banks of USA from entering into alliance with financial service providers, therefore putting a ban on bancassurance. As a result of this, Life insurance was primarily sold by insurance agents, who focused mainly on wealthier class of people, which lead to majority of American middle class households uninsured. With US government repealing the act, and after the passage of Gramm-Leach Bliley Act, 1999, the concept of Bancassurance started gaining momentum in USA also. In India, the concept of Bancassurance is very new. With the liberalization and deregulation of the insurance industry, bancassurance evolved in India around 2002.
Bancassurance in Indian Context:

In India, Bancassurance is a novel concept. Insurance and Banking are two different sectors and are regulated by different entities: 1. 2. All Banks come under the control of Reserve Bank of India (RBI) Insurance sector follow the guidelines of Insurance Regulatory Development Authority (IRDA) Hence, the banks entering into Insurance business has to follow the norms of both RBI and IRDA.
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RBI Guidelines: 1. Any Commercial Bank can undertake insurance business as an agent of insurance company on fee basis. There is no risk participation for such banks. 2. Joint Ventures will be allowed for financially strong banks who are wishing to undertake insurance business with risk participation if they satisfy the following criteria: Net worth of the bank should be not less than Rs.500 crore. Capital Adequacy Ratio should be not less than 10% in the bank. There should be reasonable level of Non Performing Assets (NPA) The bank should have earned net profit continuously for last three year If there is any subsidiary, in such cases, the performance of subsidiaries should be satisfactory. 3. Banks which are not eligible for joint venture participation can opt up to - 10% of the net worth of bank (or) -Rs.50Corerswhicheverislower. Besides this, the requirements relating to the Non Performing Assets, Capital Adequacy Ratio and Net Profit maintained has to be followed as per the rules mentioned in the participation of banks in Joint ventures.
IRDA Norms:
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According to IRDA, a private sector participant has to fulfill the following requirements to enter into the insurance business: 1. 2. 3. Banks should have a minimum paid up capital of Rs.100 Crores Investments has to be made in the policyholder funds only in India. There is a restriction of international companies to the minority equity holdings up to 26%. 4. Each bank selling insurance should have a Chief Insurance Executive to
handle all the activities and matters relating to the insurance. 5 .CommercialBanks, Co-operativeBanks and Regional Rural Banks may
become the corporate agents for one insurance company. 6. Banks can act as a corporate agent for any one of life or non life insurers
but, cannot become insurance brokers for many life or non life insurers. IRDA has also notified regulations relating to registration of insurers, their assets and liabilities, conduct of business, licensing of insurance agents etc.
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Features of Bancassurance
The features of bancassurance states as follows:
Banks Act as Corporate Agents
Instead of running after individual agents for business, insurance companies invented the concept of bancassurance. Bancassurance helped them in motivating their customers to buy insurance products with the help of banks. Here, bankers act as a corporate agent for the insurance companies. The agent banker gets high commission on the first premium paid by the customer and later a marginal commission on renewal premium till the maturity of the policy for regular premium plans. A one time commission is also paid in case of single premium policies.
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Win-Win Model
Under bancassurance, banks can develop strong relationships with their customers and sell insurance products. Insurance companies affirm that marketing risk products through banks is a cost effective proposition. Bancassurance is a successful model for both insurance companies and banks. Currently, insurance companies are tying up with various commercial banks to sell their products and lure more customers. At the same time, banks without any additional investments on infrastructure are able to earn service-based income (commission) to augment their core lending activities.
Additional Revenue
There are various advantages of bancassurance. For the banks, income from bancassurance is only non-interest-based income. Interest is market driven and its movement depends on market conditions. At present, banks are unable to get margins as a result of acute competition and this is making it difficult for them to retain their customers. Hence, to meet the overhead costs and to improve their incomes, more banks are getting into bancassurance with existing infrastructure. Bancassurance helps in generating additional revenue for the banks. By providing multiple services at one place, the satisfaction level of customers can be increased. For example, through bancassurance, a customer gets home loans, along with insurance as a combined product. In the current global financial crisis many banks are looking at bancassurance as it generates additional income in the form of fees. Financial experts say that since interest rates have been falling and profits are declining, making survival difficult in the current financial markets, banks must opt for bancassurance to leverage their income levels and keep abreast with the changes and latest developments in the financial markets.
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Valuable Inputs from Bankers
Another advantage of bancassurance is that the employees of banks can learn marketing techniques. It provides the insurance companies with valuable inputs. They can analyze the insurance markets and recommended suitable plans to meet the requirements of customers.
Reduced Costs:
Banks play a significant role in building up a feasible healthcare program in India. Only 2.5 million people have access to healthcare facilities. The demand for healthcare products, which banks can distribute, is growing. Bancassurance helps in lowering distribution costs of the insurers. It is imperative to discuss with financial advisers before an insurance product is introduced in the market. Hence, acquisition cost of insurance through banks is low. Selling insurance to existing mass market of banking is less expensive than selling it to a group of unknown customers. Experience in Europe has shown that bancassurance firms have a lower expense ratio. This benefit could go to the insured public, by way of lower premiums.
Models of Bancassurance
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I. Structural Classification
a) Referral Model Banks intending not to take risk could adopt referral model wherein they merely part with their client data base for business lead of commission. The actual transaction with the prospective client in referral model is done by the staff of the insurance company either at the premises of the ban0k or elsewhere. Referral model is nothing but a simple arrangement, wherein the bank, while controlling access to the clients data base, parts with only the business leads to the agents/ sales staff of insurance company for a referral fee or commission for every business lead that was passed on.
In fact a number of banks in India have already resorted to this strategy to begin with. This model would be suitable for almost all types of banks including the RRBs /cooperative banks and even cooperative societies both in rural and urban. There is greater scope in the medium term for this model. For, banks to begin with can resort to this model and then move on to the other models.
b) Corporate Agency The other form of non-sick participatory distribution channel is that of Corporate Agency, wherein the bank staff as an institution acts as corporate agent for the insurance product for a fee/commission. This seems to be more viable and appropriate for most of the mid-sized banks in India as also the rate of commission would be relatively higher than the referral arrangement. This,
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however, is prone to reputational risk of the marketing bank. There are also practical difficulties in the form of professional knowledge about the insurance products. This could, however, be overcome by intensive training to chosen staff,
And packaged with proper incentives in the banks coupled with selling of simple insurance products in the initial stage. This model is best suited for majority of banks including some major urban cooperative banks because neither there is sharing of risk nor does it require huge investment in the form of infrastructure and yet could be a good source of income.
This model of bancassurance worked well in the US, because consumers generally prefer to purchase policies through broker banks that offer a wide range of products from competing insurers.
c)
Insurance as Fully Integrated Financial Service/ Joint ventures
Apart from the above two, the fully integrated financial service involves much more comprehensive and intricate relationship between insurer and bank, where the bank functions as fully universal in its operation and selling of insurance products is just one more function within. This includes banks having wholly owned insurance subsidiaries with or without foreign participation. The great advantage of this strategy being that the bank could make use of its full potential to reap the benefit of synergy and therefore the economies of scope. This may
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be suitable to relatively larger banks with sound financials and has better infrastructure.
As per the extant regulation of insurance sector the foreign insurance company could enter the Indian insurance market only in the form of joint venture, therefore, this type of bancassurance seems to have emerged out of necessity in India to an extent. There is great scope for further growth both in life and nonlife insurance segments as GOI is reported have been actively considering to increase the FDIs participation up to 49 per cent.
II. Product based classification
(a) Stand-alone Insurance Products In this case bancassurance involves marketing of the insurance products through either referral arrangement or corporate agency without mixing the insurance products with any of the banks own products/ services. Insurance is sold as one more item in the menu of products offered to the banks customer, however, the products of banks and insurance will have their respective brands too.
(b) Blend of Insurance with Bank Products
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This method aims at blending of insurance products as a value addition while promoting the banks own products. Thus, banks could sell the insurance products without any additional efforts. In most times, giving insurance cover at a nominal premium/ fee or sometimes without explicit premium does act as an added attraction to sell the banks own products, e.g., credit card, housing loans, education loans, etc. Many banks in India, in recent years, has been aggressively marketing credit and debit card business, whereas the cardholders get the insurance cover for a nominal fee or (implicitly included in the annual fee) free from explicit charges/ premium. Similarly the home loans / vehicle loans, etc., have also been packaged with the insurance cover as an additional incentive.
III. Bank Referrals
There is also another method called 'Bank Referral'. Here the banks do not issue the policies; they only give the database to the insurance companies. The companies issue the policies and pay the commission to them. That is called referral basis. In this method also there is a win-win situation every where as the banks get commission, the insurance companies get databases of the customers and the customers get the benefits.
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Current Scenario
As far as the present scenario is concerned the banking industry is in a transition phase. The Public Sector Banks, which are the mainstay of the Indian Banking system account, are unfortunately burdened with excessive Non Performing assets massive manpower and lack of modern technology. While on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. On the other hand the Private Sector Banks in India are witnessing immense progress They have pioneered Internet banking, mobile banking, phone banking, ATMs. etc., they are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service.
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The banks today are more market driven and market responsive. The top concern in the mind of every bank's CEO is increasing or at least maintaining the market share in every line of business against the backdrop of heightened competition. With the entry of new players and multiple channels, customers have become more discerning and less "loyal" to banks. This makes it imperative that banks provide best possible products and services to ensure customer satisfaction. To address the challenge of retention of customers, there have been active efforts in the banking circles to switch over to customercentric business model. The success of such a model depends upon the approach adopted by banks with respect to customer data management and customer relationship management. There has been an increase in the bank focus on retail segment with the economic slow down. Banks are now realizing that one of their best assets for building profitable customer relationships especially in a developing country like India is the branch. Branches are in fact a key channel for customer retention and profit growth in rural and semi-urban set up... Branches could also be used to inform and educate customers about other, more efficient channels, to advise on and sell new financial instruments like consumer loans, insurance products, mutual fund products, etc. The Reserve Bank of India being the regulatory authority of the banking system, with the reorganization of the need for banks to diversify their activities at the right time, permitted them to enter into insurance sector as well. It has issued a set of detailed guidelines setting out various ways for a bank in India to enter into insurance sector.
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Scope for Bancassurance
By now, it has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates providing with more sophisticated and variety of financial and banking products and services. The outlook for bancassurance remains positive. While development in individual
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markets will continue to depend heavily on each countrys regulatory and business environment, bancassurers could profit from the tendency of governments to privatize health care and pension liabilities. India has already more than 200 million middle class population coupled with vast banking network with largest depositors base, there is greater scope for use of bancassurance. In emerging markets, new entrants have successfully employed bancassurance to compete with incumbent companies. Given the current relatively low bancassurance penetration in emerging markets, bancassurance will likely see further significant development in the coming years. In India the bancassurance model is still in its nascent stages, but the tremendous growth and acceptability in the last three years reflects green pasture in future. The deregulation of the insurance sector in India has resulted in a phase where innovative distribution channels are being explored. In this phase, bancassurance has simply outshined other alternate channels of distribution with a share of almost 25-30% of the premium income amongst the private players.
To be fruitful, it is vital for bancassurance to ensure that banks remain fully committed to promoting and distributing insurance products. This commitment has to come from both senior management in terms of strategic inputs and the operations staff who would provide the front-end for these products. In India, the signs of initial success are already there despite the fact that it is a completely new phenomenon. There is no doubt that banks are set to become a significant distributor of insurance related products and services in the years to come.
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Benefits of Bancassurance
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Benefits of bancassurance to the banks
Fee- based income
For banks, bancassurance would mean a major gain. Since interest rates have been falling and profit on off take of credit has been low, all banks have been able to do is sustain themselves but not profit much. Hence the banks today have shifted their focus from fund-based revenue (loans & advances) to feebased income. Enter bancassurance and fee based income through hawking of risk products would be guaranteed, thus giving an additional boost to the banks bottom line.
Example:
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There are about 18 crore bank accounts. Lets assume a bank sells one insurance policy to each of these account holders over a period of five years. Take a highly conservative average first year premium per policy of Rs.5000 and an average commission of 15% that banks would gain Banks can earn a total commission of Rs.13500 crore (going by a simple back-of-the-envelope calculation: Rs.5000 x 15% x 18 crore accounts = Rs.13500 crore in commission) Increased Return on assets (ROA) One of the ways to increase ROA, assuming a constant asset base, is through fee income. Banks that build fee income can cover more of their operating expenses. The sale of insurance products builds fee income. Banks those effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expenses ratios.
Increase staff productivity Bancassurance gives an opportunity to the bank staff to harness their sales skills and adapt to the changing business environment. Selling of insurance products provides bank employees with new challenges and enhanced skills thus improving their productivity and efficiency.
Profitability
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Bancassurance provides financial benefits in the form of commission, profits from new business, banks fixed cost reduction, and increases the staff productivity. There by resulting into profits.
Enhances customer relationship Bancassurance results in high customer relationship with the bank by providing more services. It seeks Customer Loyalty by offering satisfactory and expanded base for services. Selling whose range of financial services to clients increases Customer Retention.
Creating a universal banking platform Bancassurance offers a good opportunity to increase the banks share of the customer requirements through the cross-selling of insurance products. All financial products are available under one roof, thereby facilitating convergence. Bancassurance helps banks to become one step closer to be Onestop financial supermarket.
Increasing the customer base
Banks can garner fresh business by using insurance as a selling hook.
Benefits of bancassurance to the Insurers Cheaper than agents

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Bancassurance may work out to be cheaper compared to companies appointing agents for selling insurance products. This is particularly considering the banks wide network and the reach they have compared to the agents. Rural penetration The existing wide network of banks in rural areas can be utilized for selling insurance products. Penetration into the rural areas too becomes easier for banks. This channel allows an insurer to effectively tap the rural sector. Selling insurance through traditional methods in rural area is an expensive proposition. A tie up with a bank allows an insurance company to access large customer base at a low cost. Cost reduction Studies reveal that 50% of an insurance companys cost is directly or indirectly related to distribution. Expenses ratio in insurance activities through bancassurance is very low. They can solve the difficulties arising out of price competition which has driven down the margins and increased the compensation demand of successful agents. Example: SBI Life finds that this channel saves as much as 40% of their operating cost when compared to business procured through their own regular agents.
Greater control of their business
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Insurers who operate through bancassurance own and control relationships with customers. Insurers found that direct relationships with customers gave them greater control of their business at a lower cost. Insurers who operate through the agency relationship hardly have any control on their relationship with their clients. Market penetration Wide network of branches form the ideal distribution channel. Urban as well as rural both markets are tapped simultaneously. Banks have an established distribution network of more than 68,000 branches spread throughout the country. Targeting middle-income customers Through agents the insurer can only sell fewer and large policies to a more up scale client. The middleclass income holders who comprise the bulk of bank customers get very little attention. By using bancassurance channel the insurer can capture much of its underserved market. Facilities Growth Reduced costs and high premium turnover results in profitability, thereby facilitating growth. Example: Bajaj Allianz has witnessed a 350% growth due to bancassurance.
Provides Competitive advantage
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Provides competitive advantage over the non-bancassurers. Having been accustomed to the customers choices, banks are in a better position to understand the needs of the customers and sell trailor made policies. Customers too, considering their long-standing relationship with banks, find them more trustworthy. Bancassurance acts as a source of new business to reach wider customer base with the help of a bank. Benefits of bancassurance to the Customers Availability of a complete package Combined bank and insurance products will find complete solution to the customers. Banks and insurance companies are converging towards a model of global retail financial institution offering a wide array of products. It leads to the creation of One-Stop Shop where a customer can apply for mortgages, pensions, savings and insurance products. Example: Through bancassurance a customer gets home loans along with insurance at one single place as a combined product. Another important advantage that bancassurance brings about in banks is development of sales culture in their employees.
Reduced costs
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Bancassurance gives the insurance company the benefit of cost-effective distribution channel, the benefit ultimately passing on to the customers in way of reduced premiums. The customer gains as the costs are reduced. Good quality product Product innovation and distribution activities are directed towards the satisfaction of the needs of the customer. Since banks can understand the needs of the customers in a better way, the customer gets a good quality product. Also, customer gets the advantage of a customized product as per his need and requirements. Time savings & convenience The customers can get risk coverage at bank itself which saves time and adds to the customers convenience. The ease of renewals adds to the customers comfort. The customer can obtain a basket of products under one roof.
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Distribution Channels
Traditionally, insurance products were promoted and sold principally through agency systems only. The reliance of insurance industry was totally on the agents. Moreover with the monopoly of public sector insurance companies there was very slow growth in the insurance sector because of lack of competition. The need for innovative distribution channels was not felt because all the companies relied only upon the agents and aggressive marketing of the products was also not done. But with new developments in consumers behaviours, evolution of technology and deregulation, new distribution channels have been developed successfully and rapidly in recent years. Recently Bancassurers have been making use of various distribution channels, they are: 1. Career agents 2. Special advisers 3. Salaried agents 4. Bank employees 5. Corporate agency & Brokerage firm 6. Direct response 7. Internet 8. E- Brokerage 9. Outside lead generating techniques
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1. Career Agents Career Agents are full-time commissioned sales personnel holding an agency contract. They are generally considered to be independent contractors. Consequently an insurance company can exercise control only over the activities of the agent which are specified in his contract. Despite this limitation on control, career agents with suitable training, supervision and motivation can be highly productive and cost effective. Moreover their level of customer service is usually very high due to the renewal commissions, policy persistency bonuses, or other customer service-related awards paid to them.
Many bancassurers, however avoid this channel, believing that agents might oversell out of their interest in quantity and not quality. Such problems with career agents usually arise, not due to the nature of this channel, but rather due to the use of improperly designed remuneration and/or incentive packages.
2.
Special Advisors
Special Advisors are highly trained employees usually belonging to the insurance partner, who distribute insurance products to the bank's corporate clients. Banks refer complex insurance requirements to these advisors. The Clients mostly include affluent population who require personalised and high quality service. Usually Special advisors are paid on a salary basis and they receive incentive compensation based on their sales.
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Salaried Agents Having Salaried Agents has the advantages of them being fully under the control and supervision of bancassurers. These agents share the mission and objectives of the bancassurers. Salaried Agents in bancassurance are similar to their counterparts in traditional insurance companies and have the same characteristics as career agents. The only difference in terms of their remuneration is that they are paid on a salary basis and career agents receive incentive compensation based on their sales. Some bancassurers, concerned at the bad publicity which they have received as a result of their career agents concentrating heavily on sales at the expense of customer service, have changed their sales forces to salaried agent status
3. Bank
Employees / Platform Bankers
Platform Bankers are bank employees who spot the leads in the banks and gently suggest the customer to walk over and speak with appropriate representative within the bank. The platform banker may be a teller or a personal loan assistant and the representative being referred to may be a tarined bank employee or a representative from the partner insurance company. Platform Bankers can usually sell simple products. However, the time which they can devote to insurance sales is limited, e.g. due to limited opening hours and to the need to perform other banking duties. A further restriction on the effectiveness of bank employees in generating insurance business is that they have a limited target market, i.e. those customers who actually visit the branch during the opening hours.
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In many set-ups, the bank employees are assisted by the bank's financial advisers. In both cases, the bank employee establishes the contact to the client and usually sells the simple product whilst the more affluent clients are attended by the financial advisers of the bank which are in a position to sell the more complex products. The financial advisers either sell in the branch but some banks have also established mobile sales forces.
If bank employees only act as "passive" insurance sales staff (or do not actively generate leads), then the bancassurer's potential can be severely impeded. However, if bank employees are used as "active" centres of influence to refer warm leads to salaried agents, career agents or special advisors, production Volumes can be very high and profitable to bancassurers.
4. Corporate Agencies and Brokerage Firms There are a number of banks who cooperate with independent agencies or brokerage firms while some other banks have found corporate agencies. The advantage of such arrangements is the availability of specialists needed for complex insurance matters and through these arrangements the customers get good quality of services. 5. Direct Response In this channel no salesperson visits the customer to induce a sale and no faceto-face contact between consumer and seller occurs. The consumer purchases products directly from the bancassurer by responding to the company's
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advertisement, mailing or telephone offers. This channel can be used for simple packaged products which can be easily understood by the consumer without explanation
6. Internet Internet banking is already securely established as an effective and profitable basis for conducting banking operations. The reasonable expectation is that personal banking services will increasingly be delivered by Internet banking. Bancassurers can also feel confident that Internet banking will also prove an efficient vehicle for cross selling of insurance savings and protection products. It seems likely that a growing proportion of the affluent population, everyone's target market, will find banks with household name brands and proven skills in e-business a very acceptable source of non-banking products.
There is now the Internet, which looms large as an effective source of information for financial product sales. Banks are well advised to make their new websites as interactive as possible, providing more than mere standard bank data and current rates. Functions requiring user input (check ordering, what-if calculations, and credit and account applications) should be immediately added with links to the insurer. Such an arrangement can also provide a vehicle for insurance sales, service and leads. 7. E-Brokerage Banks can open or acquire an e-Brokerage arm and sell insurance products from multiple insurers. The changed legislative climate across the world should help migration of bancassurance in this direction. The advantage of this
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medium is scale of operation, strong brands, easy distribution and excellent synergy with the internet capabilities.
8. Outside Lead Generating Techniques One last method for developing bancassurance eyes involves "outside" lead generating techniques, such as seminars, direct mail and statement inserts. Seminars in particular can be very effective because in a non-threatening atmosphere the insurance counselor can make a presentation to a small group of business people (such as the local chamber of commerce), field questions on the topic, then collect business cards. Adding this technique to his/her lead generation repertoire, an insurance counselor often cannot help but be successful.
To make the overall sales effort pay anticipated benefits, insurers need to also help their bank partners determine what the hot buttons will be for attracting the attention of the reader of both direct and e-mail. Great opportunities await bancassurance partners today and, in most cases, success or failure depends on precisely how the process is developed and managed inside each financial institution. This includes the large regional bank and the small one-unit community bank.
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Reasons for Banks to Enter Into Bancassurance

The main reasons why banks have decided to enter the insurance industry area are the following: Intense competition between banks, against a background of shrinking
interest margins, has led to an increase in the administrative and marketing costs and limited the profit margins of the traditional banking products. New products could substantially enhance the profitability andincrease productivity.
Financial benefits to a bank performance can flow in a number of ways, as
briefly outlined below:
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Increased income generated, in the form of commissions and/or profits from the business (depending upon the relationship)
Reduction of the effect of the bank fixed costs, as they are now also spread over the life insurance relationship.
Opportunity to increase the productivity of staff, as they now have the
chance to offer a wide range of services to clients.
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.Life insurance is also frequently supported by favourable tax treatment to encourage private provision for protection or retirement planning. This preferential treatment makes insurance products more attractive to customers and banks see an opportunity for profitable sales of such products.
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Analysis of available information on the customer financial and social
situation can be of great help in discovering customer needs and promoting or manufacturing new products or services.Banks believe that the quality of their client information gives them an advantage in distributing products profitably, compared with other distributors (e.g. insurance companies).
The realization that joint bank and insurance products can be better for the customer as they provide more complete solutions than traditional standalone banking or insurance products.
Banks are experiencing the increased mobility of their customers, who to a
great extent tend to have accounts with more than one bank. Therefore there is a strong need for customer loyalty to an organization to be enhanced.
Client
relationship management has become a key strategy. To build and
maintain client relationships, banks and insurers are forming partnerships to provide their clients with a wide range of bank and insurance products from one source.
It is believed that as the number of products that a customer purchases from an organization increases the chance of losing that specific customer to a competitor decreases.
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Benefits of Selling Insurance Products through Banks As the banks understand customers needs, deliver trusted advice and create lasting value, they are strategically positioned to cross-sell various products to their customers because of their extensive branch network, use of their longstanding relationship with both corporate and retail customers, huge customer database of raw information on the customers spending patterns and investment purchase, degree of ownership of customer bases, lower cost bases personalized service, rural penetration, cheaper mode vis--vis agents, product control and brand image. Information is the capital that earns high returns. Banks that use information as a competitive asset can transform even the toughest challenge into growth opportunities. The offer of a repertoire of financial products helps to sustain and even enhance the product-loyalty factor.
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The attempt to develop relevant services and proactive development of customer relationship requires maximizing Customer Relationships and minimizing business risk. Bancassurance, apart from generating higher non-interest income, has other spin-off benefits. Capturing of huge captive business readily available in branches by assets financed brought under the Corporative Agency and the likelihood of branches bringing in incremental business by insuring other insurable assets of the borrower. Hence, it provides an option for banks to seek more stable, less volat6ile feebased income and to add value to their existing operations by surmounting debilitating constraints on growth and enhanced Return on Assets (RoA). No wonder, then bancassurance as a potent instrument of catalyzing business transformation to meet the onslaughts of progressive liberalization is widely considered both appropriate and warranted.
Case Study
Indias largest bank, state bank of India, which has a presence in 28 countries, is eyeing acquisitions aboard especially on US, ASIA AND Africa. The banks global strategy includes expanding its overseas offices to 71 in 38 countries by the end of the current fiscal, as against 52 offices in 28 countries now. The bank registered a net profit of Rs.3105 crore in the 2002-2003 fiscal. SBIs international business accounts for 5% of its total business income.
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SBI Life Insurance Company limited is a joint venture between State Bank of India and Cardiff of France. SBI is the largest bank in India and Cardiff is a leading insurance company in France operating in 28 countries. Cardiff is a wholly owned subsidiary of BNP Paribas, one of the largest European banks. SBI aim to strengthen the bancassurance model through the branches of State Bank of India and other associate banks we have tie-ups with. Currently, SBI Life products are being sold in over 6,500 branches of the State Bank Group around 1,500 branches are selling individual policies and another 5,000 group products. Bancassurance is the company's key distribution channel, contributing over 43 per cent to the total premium o, at Rs 470 crore for the financial year ended March 31, 2006. This year we hope to increase that to 50 per cent. SBI Life now launches bancassurance online.
SBI Life Insurance Ltd., Indias leading private life insurance company announced the launch of Bancassurance Online the first initiative of its kind with its Bancassurance promoter, State Bank of India. Mr. O.P Bhatt, Chairman, State Bank of India formally inaugurated the entrance. While inaugurating the entry Chairman State Bank of India said, Bancassurance Online is a significant step towards integrating insurance with banking and it will provide my staff members information as well as education on life insurance. Bancassurance Online, an exclusive intranet facility, brings Life Insurance solutions at par with SBIs Banking products, thereby reducing turnaround time to meet customer requirements delightfully.
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Future of Bancassurance in India
Bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India. Bancassurance provides various advantages to banks, insurers and the customers. For the banks, income from bancassurance is the only non interest based income. Interest is market driven and fluctuating and quite narrowing these days. Banks do not get great margins because of the competition this is why more and more banks are getting into bancassurance so as to improve their incomes. Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. Providing multiple services at one place to the customers means enhanced customer satisfaction. For example, through bancassurance a customer gets home loans along with insurance at one single place as a combined product. Another important advantage that bancassurance brings about in banks is development of sales culture in their employees. As for the insurance company the advantage that bancassurance provides is evident. The insurance company gets improved geographical reach without additional costs. In India around 67,000 branches are there for PSU banks alone. If all 67,000 branches sell the insurance products one can see the reach. India's rural market has huge potential that is still untapped by the insurance companies. Setting up their own networks entails such a huge cost, that no company would be interested in doing so. Bancassurance again comes as an answer. It helps the insurance companies to tap the market at a much lower
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cost. As for the customer the competitive nature of the Indian market ensures that the reduction in costs would result in benefits in terms of lower premium rates being passed on to him. The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. With almost half of the population likely to be in the 'wage earner' bracket by the end of 2010, there is every reason to be optimistic that bancassurance in India will play a long inning.
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Trends in Bancassurance
Though bancassurance has traditionally targeted the mass market but bancassurers have begun to finely segment the market, which has resulted in tailor-made products for each segment.
Some bancassurers are also beginning to focus exclusively on distribution. In some markets, face-to-face contact is preferred, which tends to favour bancassurance development.
Nevertheless, banks started to embrace direct marketing and Internet
banking as tools to distribute insurance products.
New and emerging channels are becoming increasingly competitive, due to the tangible cost benefits embedded in product pricing or through the appeal of convenience and innovation.
A quick survey revealed that a large number of banks cutting across
public and private and including foreign banks have made use of the bancassurance channel in one form or the other in India.
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Banks by and large are resorting to either referral models or Corporate agency model 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.
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Challenges in Bancassurance
Lack of trained marketing people
Selling an insurance plan is not an easy task. It requires professionals with marketing skills for convincing people to buy plan. But most insurance selling banks do not have trained sales force and there is also an acute competition from other insurance intermediaries who have well trained financial advisers (sales force). At present, even the consumers are demanding more as a result of unprecedented changes in the financial markets
Legal issues Statutory restrictions have forced banks to provide their customers with limited choices. The Insurance Regulatory Development Authority (IRDA) adopted a cautious approach before flagging off bancassurance. While on the one hand, it is an economical proposition to sell risk products through the numerous bank branches spread across the country, the fact that claim settlement disputes take
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an unusually long time in our country is a theory issue. In such a situation, banks must be protected to safeguard their reputation. Otherwise, they may lose their prime banking business.
Competition As mentioned earlier, most bancassurance ventures will be forced to achieve optimum organization structures due to competition from independent agents. This competition will devolve with the influx of insurance broking agencies that are free to bargain for the most suitable products to satisfy the needs of customers. These developments are expected to challenge traditional bancassurers in the following ways: The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own.
Increasing sales of non-life products, to the extent those risks are retained by
the banks, require sophisticated products and risk management.

The sale of non-life products should be weighted against the higher cost Servicing those policies.
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Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims.
Bancassurance Opportunities
Globalization of markets advances in technology, changing demographic and socio-economic pattern are some trends that will result in new or changing needs for insurance protection and financial planning. Banks and insurance companies should sharpen in their skills and potential in these areas and take advantages of emerging opportunities. In addition to traditional products, banks need to develop special insurance products in order to fulfill creating needs come from banking transaction or improving certain products to make lucrative and helpful to the customers. The motives behind banks selling bancassurance are the product diversification and a source of additional fee-based income. In turn, return on asset can be increased with more fee-based income. In addition, they can leverage their name, recognition and reputation at both local and regional levels. Insurance companies see bancassurance as a tool for increasing their market penetration and premium turnover. The customer sees bancassurance as bonanza in terms of reduced price, high quality product and delivery at doorsteps.
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Bancassurance in India is in very early stages of development, its new and untried but the potential is undoubtedly large. While many forms of bancassurance van contribute to improving cross selling, only much closer forms of integration are likely to yield benefits in operation efficiency.
INDIAS PERSPECTIVE Coming to India, bancassurance is a new buzzword in India. It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian Banks to do insurance distribution. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. As per the concept of Corporate Agency, banks can act as an agent of one life and one non-life insurer. Currently bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India. After the Narsimham committee report, the Indian banking system had undergone reforms in merchant banking, lease and term finance, capital markets, hire purchase, real estate finance, etc. A few years ago, banks in India entered into the insurance market to augment their income from insurance business. Indian rural market, which had a massive potential, was still untapped by the insurance companies. No insurance company dared to establish its own network in rural areas due to the requirement of huge capital outlay. Hence,
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insurance companies planned to capture potential markets. Eventually, they came out with bancassurance as this network helped the insurers to tap those markets that were left untapped at a much lower cost with the help of the banks. The competitive nature of the Indian market ensures that the reduction in costs would result in benefits, in the form of lower premium rates to the clients.
The Indian insurance market comprises 20 private players and the public sector giant, LIC. Out of these, companies that entered first into the market benefited by associating themselves with various other banks exclusively for bancassurance agreements. Under this agreement, banks are appointed as corporate agents, empanelled with one insurance company, to sell the products. Banks, with their reputation and market share, can convert their customers into policyholders. Bancassurance is a creative marketing approach that helps in converting bank customers into insurance policyholders. Many private players started venturing into this new field to expand their market operations. SBI Life Insurance Company plays a predominant role in bancassurance. This certainly indicates a positive trend for bancassurance in the Indian banking sector. The company plans to explore insurance business with the potential of State Bank of Indias 9000 plus branches spread across the country and also the 4000 branches of its associate banks. Bancassurance is expected to prosper in India because of the following reasons: Indian economy is growing at 9% (in normal economic conditions and not during the recession period).
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Increasing purchasing power parity. Huge inflow of FDI. Expansion of middle income class Indians. Huge banking infrastructure across urban, semi-urban and rural India.
By now, it has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates provision of more sophisticated and variety of financial and banking products and services. As India is being considered one of the fast developing economies among the emerging market economies, financial sector has also become more vibrant with the financial reforms. In fact, in recent years, it is surmised that even the global economic growth hinges on growth prospects of the emerging economies like China and India to a greater extent. Significantly, Indian economy has recorded an average growth of over 8.5 per cent for the last four years, with macroeconomic and financial stability (RBI, 2006) and indications are that it may grow at even better rate in the near future provided there is good monsoon. Experience also showed that economic growth had strongly supported the expansion of middle income class in most of the Asian countries, and now it is the turn of India. Experience reveals that at the initial growing stage of the economy the primary financial needs are met by the banking system and thereafter as the economy moves on to higher levels, the need for the other nonbanking financial products including insurance, derivatives, etc., are strongly
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felt. Moreover, as India has already more than 200 million middle class population coupled with vast banking network with largest depositors base, there is greater scope for use of bancassurance. For instance, as at end March 2005, there were more than 466 lakh bank accounts with scheduled commercial banks. In simple words, it is aptly put that bancassurance has promised to combine insurance companies competitive edge in the production of insurance products with banks edge in their distribution, through their vast retail networks.
In 2007, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges ) and 31 foreign banks. Altogether they have a combined network of over 53,000 branches and reach in urban, semi urban & rural areas of nation. There are 70324 bank offices in India and around 16000 people are served by each bank office. Its a huge banking infrastructure and among the best banking network in the world. Bancassurance if taken in right spirit and implemented properly can be a win-win situation for the all the participants, viz., banks, insurers and the customers. WORLDS PERSPECTIVE Banc assurance has given grown at a different shapes and forms in different pace and taken different shapes and forms in different countries depending on the demography, economic and legislation prescription in that country. During the past two decades, bancassurance has taken deep roots in various countries, especially in Europe. In UK about a third of policies are sold through banks.
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In Spain 72% of premium income comes through bancassurance, whereas in France it is 55%. France, Italy and Spain recorded a penetration of more than 60% due to large middle class population and favorable tax treatment. It had little success in Germany, even after the purchase of Dresdner Bank in 2001 by Allianz, the countrys largest insurer. Bancassurance recorded a huge growth in Europe but not in USA and Canada. In the US, there were regulatory hurdles as till recently banks were not allowed to do insurance business and vice versa. The spread of diversified financial firms offering various services such as insurance and securities underwriting, apart from traditional banking, received an impetus by the Gramm-Leach-Bliley Act (GLBA), 1999 in the USA. The Insurance Regulatory and Development authority (IRDA) established in 1999 Progressively attempted to lay down the ground rules in India. Historically, there are integrated organic and merger approaches to the growth of Bancassurance. Even after Gramm-Leach Bliley Act of 1999, target customers have not responded well. In china, banks are limited to playing the role of tied agents to insurance companies, which can still provide a good platform for bancassurance to develop. It is a relatively new concept in Australia and Asia. In the Asian markets, bancassurance has become a favorite choice of bankers and insurers and as a result governments have been offering legislative support.
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News Article
Asian-Pacific Bank Insurance Sales Grow: Celen By NU ONLINE NEWS SERVICE Published 11/12/2010
Sales of insurance are growing in many Asian and western Pacific markets, despite the dominance of the agent channel, a new report says. Locally, the bank insurance business has evolved in different ways in different countries sustained by deregulation of banking and insurance companies, according to the report, Bancassurance in the Asia-Pacific Region, from consulting firm Celent L.L.C., Boston.
The Asia-Pacific region is still agent-dominated in both life and non-life distribution, but banc assurance is growing quickly, the report finds.
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Penetration in the life insurance market by banks ranges from 10% of sales in India, Japan, and Thailand to as high as 50% to 70% of total insurance distribution in countries like Taiwan and Malaysia.Celent expects the agent channel to decline in those markets and give way to nontraditional channels, including direct sales and aggregators as well as banks.
In mainland China, banks accounted for 27% of insurance sales in 2009, compared to 37% in the agent channel, Celent found. In countries where the Muslim population is high, banks are offering a range of insurance-related products, known as Takaful, that meet Islamic religious restrictions. Malaysia, Indonesia and Thailand are among the countries considering this opportunity, Celent reports. -Trevor Thomas
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CONCLUSION
Bancassurance is an important tool in the hands of Bankers, Insurers and Customers to maximize their benefits at the same time, as everybody is a winner in this system. The bancassurance concept is so well designed that, if you go for a toss, the results you will get are HEADS: BANK WINS TAILS: INSURER WINS And If The Coin Had A Third Side Truly We Can Say That The Customer Also Wins.
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References
Business world Business today Economic times Irda journal-vol.2,no.1
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www.docstoc.com www.bancassurance.com www.scribid.com www.sbilife.co.in www.google.com
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Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Bancassurance in Indian Context:

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Banks Act as Corporate Agents

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Valuable Inputs from Bankers

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Bancassurance-A Boost To Banking Sector.

Insurance as Fully Integrated Financial Service/ Joint ventures

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

II. Product based classification

(b) Blend of Insurance with Bank Products

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

III. Bank Referrals

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Scope for Bancassurance

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Benefits of bancassurance to the banks

Fee- based income

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Bancassurance-A Boost To Banking Sector.

Increasing the customer base

Banks can garner fresh business by using insurance as a selling hook.

Benefits of bancassurance to the Insurers Cheaper than agents

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Greater control of their business

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Provides Competitive advantage

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.

Guru Nanak College Of Arts, Science & Commerce.

Bancassurance-A Boost To Banking Sector.