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BANCASSURANCE - A CHALLENGING CONVERGENCE IN INDIAN PROSPECTIVE

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Dr. Rachna Agrawal* Dr.Anubhuti Hajela**

ABSTRACT
Why do banks and insurance companies get into Bancassurance? Simple answer- It is beneficial for both. Bancassurance is the channel for selling out the insurance products. It can be said as the medium of marketing the insurance products through entire bank network. The present paper describes the need of Bancassurance with the justification of networking of banks. This paper is a sincere attempt to analyze the extent success or failure of bancassurance in India. The present paper analyzes the insurance sector from the traditional way of marketing till the modern one i.e. Bancassurance. Bancassurance has received much attention from both researchers and policymakers, as it is a major step towards the creation of universal financial markets in the 21st century which are no longer segregated based on industry operations. Keywords: (1) Bancassurance; (2) Financial services; (3) Networking of banks; (4) Marketing of Insurance Products.

* Chairperson, Associate Professor in Finance, Department of Management Studies, YMCA University of Science & Technology, Faridabad. ** Associate Professor in Marketing, Department of Management Studies, New Delhi Institute of Management, New Delhi. International Journal of Research in IT, Management and Engineering www.gjmr.org 21

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INTRODUCTION

BANCASSURANCE as term itself clears the meaning. Its a combination of the term Bank

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and Insurance. It means that insurance companies have started selling there products through banks. Its a new concept to Indian financial market but it is very widely used in western and developed countries.

Bancassurance is the most popular in Europe as the simplest way of distribution of insurance products through the banks. It is basically selling insurance products and services by leveraging the vast customer base of a bank and fulfilling the banking and insurance needs of the customers at the same time. It takes the various forms depending upon the demography, economic and legislative climate of the country, while demographic climate will determine the kinds of insurance products, economic climate will determine the trends in terms of turnover, market shares etc. However Bancassurance is relatively a new term for Indian financial markets.

Existing Literature: Studies exist concerning diversification of banks into financial services, especially insurance, but none of these focus specifically on the interactions of the agency/broker industry and bancassurance. Rose and Smith (1995) studied BHCs expansion into the limited number of insurance lines allowed during the period 1974 to 1990 and found banks experienced positive abnormal returns, especially after 13 1982. Carow (2001) conducted an event study to determine the market value effect on banks and insurers of rulings that allowed banks to enter the annuity and insurance business. Fields, Fraser and Kolari (2005) studied M&As between banks and insurance companies in Europe and the United States. They found both bank and insurer acquirers experienced wealth gains, but the study does not differentiate transactions involving insurance agents/brokers from those involving insurance companies. Since the former represents the major form of bancassurance in the U.S., it is important to study agent/broker M&As separately against the broader background of the insurance agent/broker industry. Zhian Chen, Donghui Li, Li Liao, Fariborz Moshirian and Csaba Szablocs (2008) have rightly described Bancassurance as step towards the creation of universal financial markets in the 21st century which are no longer segregated based on Industry operations. Economies of scale and International Journal of Research in IT, Management and Engineering www.gjmr.org 22

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scope make such an alliance attractive for both parties. It is to be examined the factors behind bancassurance by examining the developments and performing quantitative tests.

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OBJECTIVES OF THE STUDY Bancassurance is a channel having a great scope if it moves in the right direction. The study deals to factors that effect the purchasing of insurance products through Bancassurance. The objectives of the study are: 1. To find out the extent to which Bancassurance in India is successful; 2. To find out the customers behavior for purchasing of insurance products on the basis of Income; 3. To judge the dependence of the factors on Income of the customers. 4. Judge the awareness level of customers for Bancassurance.

Hypothesis H0: Bancassurance in India is effective. H1: Bancassurance in India is not effective.

Research Methodology This is basically descriptive research design. This research has been done with the help of primary and secondary method of data collection. The structure questionnaire has been prepared to analyze the success rate of the bancasuurance to the customers. The sample size of customers is 100 and stratified random sampling has been used in this regard.

The area of sample collection is Delhi and NCR region. The strat for this study has been defined as follows:

Table -1: Basis Description of the study Basis Gender: Male Female 62 38 23 Frequencies

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Age: 21-30 years 31-40 years 41-50 Years 51 and above Qualification: Graduate Post-Graduate Others* Income (Annually) Less than 2,00,000 2-5 lakhs 5-10 10 and above

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36 20 21 23

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50 40 10

34 50 10 06

The others* indicate business people who are less educated but invested in insurance products.

Traditional Channels of Insurance Products Insurance products are, no doubt popular in Indian economy. As seen in the records of insurance companies, middle level income persons used to take at least one policy for self or family. Traditionally there are two ways of selling Insurance products; one is from direct company and another is from the agents. Traditional channels are established ones and have been operating since many decades. Between these two methods direct selling by the companies have been popular among corporate while retail selling to the individual customers is mostly done through agents. Direct selling omits commission and provides way for more speedy operation. On the other hand buying from agents gives customers scope to compare the insurance products being offered by different companies. Overall both these methods have been used in India extensively due to lack of connectivity of banking, insurance and other financial services. But financial reforms led the way to development of nontraditional channel of bancassurance where one distribution channel (banks) could be used to offer two product lines simultaneously i.e. retail banking and insurance products. International Journal of Research in IT, Management and Engineering www.gjmr.org 24

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Need of Banc assurance channels

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Until the entry of private insurers, state-owned insurance entities relied solely on the tied agency force and their own employees. The Life Insurance Corporation of India continues to command the largest troupe of agents today, with plans to enhance it further to 11 lakh-strong. But agents and employees have their limitations. If LIC is to be focused, it seems to be full of its agents who cover the wide locality. But agents and employees of LIC are having some limitations so Bancassurance can be fruitful channel for them. It is profitable both to Banks and Insurance companies and has a very bright future to be the most developed and efficient means of distribution of Insurance products. Insurance companies 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 introduced to the Indian market. In India Bancassurance is guided by Insurance Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank of India, all banks and insurance company have to meet particular requirements to get into Bancassurance business. It is predicted by experts that in future 70% of share of premium will come from Bancassurance business only (Source: www.economic times.com/bank/data). Currently more and more banking and Insurance Companies are venturing into Bancassurance business for better business prospects in future. It is two way street to make profits. The banking business is also generating more profit by more premiums collected and they also receive commission like normal insurance agents which increase the profits and bring better reputation for the banks. It is even profitable for Insurance Companies as they receive more and more sales and higher customer base for the company. And they have to directly deal with an organization which reduce their pressure to deal with each customer face to face. In all Bancassurance has proved to be boon in whole Banking and Insurance arena.

SCOPE FOR BANCASSURANCE IN INDIA

By now, it has become clear that the growth of economy not only depends on stronger and vibrant financial sector but also necessitates providing with more sophisticated and variety of financial and banking products and services. Krueger (2004) pointed out that the history of the International Journal of Research in IT, Management and Engineering www.gjmr.org 25

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North America is a case in reference of one of financial and deepening in tandem with economic

growth. As India is being considered one of the fast developing economy among the emerging market economies, financial sector has also grown much vibrant with the financial reforms. In fact, in recent years, a large number of papers have been published by RESERVE BANK OF INDIA, that explains economic growth especially in reference to India and China. Significantly, Indian economy has recorded an average growth of over 8.5 per cent for the last four years, with macroeconomic and financial stability (RBI, 2006) and indications are that it may grow at even better rate in the near future provided there is good monsoon. Data and experiences explain that in coming years, other than banking products, non banking products like derivatives, insurance schemes become more attractive to people. Moreover, as India has already more than 200 million middle class population coupled with vast banking network with largest depositors base, there is greater scope for use of bancassurance. For instance as at end March 2005, there were more 466 lakh bank accounts with scheduled commercial banks. It is worth being noted that, Swiss Re (2002) in its study on Asia pointed out that bancassurance penetration is expected to tangibly increase in Asia over next 5 years and this has been greatly proved. In simple words, it is aptly put that bancassurance has promised to combine insurance companies competitive edge in the production of insurance products with banks edge in their distribution, through their vast retail networks (Knight, 2006) Data Analysis To find out the level of factors that affect the behavior of customers in Bancassurance, the responses were obtained on a five-point scale ranging from 5 strongly agree to 1 strongly disagree. Total eight factors are taken to judge their relationship with income of the customers for the success of Bancassurance in India. The collected has been analysed with the help of appropriate statistical test and tools. ANOVA one way has been applied with ad-hoc testing to know the significant level at 5%. Table-1 Computation of value F with significance level by using ANOVA

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Sum of Squares Age Between Groups Within Groups Total 43.930 101.726 145.657 Df 3 95 98

Mean Square 14.643 1.071 F 13.675 Sig. .000

Pdt. know

Between Groups Within Groups Total

4.732 87.308 92.040

3 96 99

1.577 .909

1.734

.165

Proper attention

Between Groups Within Groups Total

6.272 101.118 107.390

3 96 99

2.091 1.053

1.985

.121

Brand Image

Between Groups Within Groups Total

36.595 106.795 143.390

3 96 99

12.198 1.112

10.965

.000

Trustworthy

Between Groups Within Groups Total

6.488 58.872 65.360

3 96 99

2.163 .613

3.527

.018

ChannelConvenience Between Groups Within Groups Total

22.025 131.935 153.960

3 96 99

7.342 1.374

5.342

.002

Others

International Journal of Research in IT, Management and Engineering Between Groups www.gjmr.org 12.062 3 4.021 4.146 Within Groups Total 34.913 46.975 36 39 .970

27 .013

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advertisement

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Between Groups Within Groups Total 6.669 64.721 71.390 3 96 99

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2.223 .674 3.297 .024

Access

Between Groups Within Groups Total

10.236 157.004 167.240

3 96 99

3.412 1.635

2.086

.107

The above table describes F values of the parameters; these values are not significant at 5% significance level. As per the objectives of the study, the expectations of the customers are not met on all the parameters by the banks that provide the Bancassurance services. Null hypothesis was that the companies are effective in Bancassurance services .But on the basis of careful analysis of results obtained, this hypothesis is not accepted. Most of the customers are not satisfied with trustworthiness, convenience, product knowledge, attention by the bank employees and access.75% of the respondents preferred to buy insurance products through Bancassurance if the above parameters are taken care of in selling insurance products.72% of the respondents indicated that more advertising can help selling more insurance products through Bancassurance. Only 62% people were aware about Bancassurance and the rest needed explanation about the concept or methodology of Bancassurance.

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R Squa Model R re

Table 2: Model Summary

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Std. Error of

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Adjusted R Square

the Estimate Change Statistics Sig. F R Square Change F Change 1.938 df1 8 df2 Cha nge

.577 (a)

.333

.161

.93866

.333

31 .089

Note: Predictors: (Constant), access, proper attention, advertisement, band image, others, trustworthy, Channel Convenience, PDT. Know.

Table 3:ANOVA (b)

Sum of Model 1 Regression Residual Total Squares 13.662 27.313 40.975 df 8 31 39

Mean Square 1.708 .881 F 1.938 Sig. .089(a)

Note: Predictors: (Constant), access, proper attention, advertisement, band image, others, trustworthy, Channel con, pdt. knowledge.

The above predictors have been studied to find their correlation with income. The value of R square indicates that above parameters are slightly related to Income though the correlation among them is not of very high degree. 33% of the variance is explained by income, the rest of the variations in above parameters may be due to other factors like age, profession, qualifications, etc International Journal of Research in IT, Management and Engineering www.gjmr.org 29

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Performance of Bancassurance still? Existing Bottlenecks

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Rahul Bajaj, chairman of Allianz Bajaj Life, says there are three kinds of bank customers: those who come for banking products, those to come to buy an insurance product and the third, someone who does both. "The latter produces a win-win situation for both the bank and its insurance partner," he adds. Despite of these obvious advantages there are some problems hampering smooth functioning of bancassurance. Bank employees are usually over-burdened by their load itself so they are not much interested to participate in selling and promoting insurance products. The financial benefits do not come directly to the employees pocket therefore interest is automatically lost. There is also lack of awareness which can be dealt with proper advertising.

Road Ahead Scope of improvements

Most of the respondents suggested the advertisement as the medium to make people understand Bancassurance and its benefits. Therefore, advertisements are strongly suggested. Awareness level among the people belonging to all income groups differs from each other, but overall situation is not satisfactory among all the groups. For the same, it is highly desirable that bank employees must be seriously involved and make necessary efforts for providing the information about Bancassurance.

Insurance companies must target the customers on the basis of income, age, qualifications, it will be definitely helpful. Services improvements and other special facilities like dropping at the door can really make the channel more accessible and trustworthy.

Scope for further research In this research, income is research variable but in further researches, age and qualifications can be basis of research. International Journal of Research in IT, Management and Engineering www.gjmr.org 30

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Bancassurance is clubbing of two parties- banks and Insurance companies. In this way, party specific study may also be done for further research.

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REFERENCES 1. Chen Zhian, Li Donghui, Liao Li, Moshirian Fariborz, Azablocs Csaba (2009) Expansion and consolidation of bancassurance in the 21st century, Journal of

International Financial Markets, Institutions and Money, Volume 19, Issue 4, October 2009, Pages 633-644. 2. Kalyani, K Nitya (2003), Fast track for Insurance IRDA Journal, August, Vol 1, NO.9, pp17-18. 3. Krishnamurthy, R (2003), Blueprint for success- Bringing Bancassurance to India, IRDA Journal, August, Vol.1, No.9, pp. 20-22. 4. Kumar, Manoj (2000), Bancassurance: A SWOT Analysis, Financial Express, Edition April 11, www.einsuranceprofessional.com 5. Machiraju, Apparao (2003), A distribution Odyssey IRDA Journal, August, Vol 1, NO.9, pp. 25-27. 6. Rejda, Principles of Risk Management & Insurance, 9th ed., Pearson Education, New Delhi, 1999. 7. Kunt, Financial Structure & Economic Growth: A cross-country Comparison of Banks and Development, MIT Press, 2003,pp23-27 8. Pathak, Indian Financial System, 2nd ed., Pearson Education, New Delhi, 2001 9. Blejer, Financial Policies in Emerging Markets, pp43-45, MIT Press. 10. Cnossen, Public Finance and Public Policy in the New Century, 1st ed., Pearson Education, New Delhi, 2003 11. Kotler Philip, Marketing Management, Prentice Hall of India, 5th edition, New Delhi, 1999. 12. Ramaswamy, S., Marketing of Financial Services, Himalayas publishing house, New Delhi. 13. Bowley & Nath, Financial services with case studies, kalyani Publishers, NewDelhi. 14. Ramaswami S. and Namakumari, Marketing Management, Himalaya Publishing House, New Delhi, 2001. International Journal of Research in IT, Management and Engineering www.gjmr.org 31

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15. Schneider, B, and D BOWEN, 1995,Employee Perception of Service Quality in Banks: Replication and Extension, Journal of Applied Psychology, Vol70, 423-425

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16. Cronin, J Joseph Jr, and Steven A Taylor, 1999,Measuring Service Quality: A Reexamination and Extension, Journal of Marketing, 56,July 1998,pp 55-58. 17. Parasuraman, A, Zeithaml and Berry, Leonard, A Conceptual Model of Service Quality and its Implications for future Research, Journal of Marketing, 49,Fall, 41-43 18. Report on Indian Banking Industry by ICRA Information, Grading and Research Service, March 2003. 19. http://www.indiainfoline.com 20. http://www.economictimes.com Notes 1. In this research, financial Institutions are not taken into an account only banks are brought into consideration. 2. Most of the people are choosen for data collection, were connected with the banks that used to sell the insurance products. 3. Certain views are also derived from the people who have filled the questionnaire for this particular research. These persons are really helpful for making this research paper completed. Researchers thank them with deep of the heart.

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