Bancassurance

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Bancassurance is the selling of insurance (assurance) products by a bank. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry.

In some countries, bancassurance is still largely prohibited, but it was recently legalized in countries such as the United States, when the Glass-Steagall Act was repealed after the passage of the Gramm-Leach-Bliley Act.

Privatbancassurance is a wealth management process pioneered by Lombard International Assurance and now used globally. The concept combines private banking and investment management services with the sophisticated use of life assurance as a financial planning structure to achieve fiscal advantages and security for wealthy investors and their families.

Examples:

• ING Group

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BANCASSURANCE FOR INDIAN INSURANCE SECTOR....BY RITESH BHUSARI MBA FINANCE (UNIVERSITY OF PUNE)

MEANING:

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

ORIGIN & GLOBAL SCENARIO:

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

INDIAN SCENARIO:

Banking is fully governed by RBI &

• Insurance sector is by IRDA

And bank assurance being the combination of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector.

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.

SWOT Analysis of Bancassurance in India:

On order to implement the bancassurance in our country a lot of steps we have to taken.

(A) Top professionals will have to be hired. (B) We have to study the Indians nature regarding insurance. (C) Study about lower middle as well as upper class of society & how much they are eager to adopt insurance. (D) Favorable & easy policies for the people. (E) High capital investment in infrastructure development particularly in Information Technology & Telecommunication is required (F) Creation of research & development cell is very important & adaptive task. (G) We have to study about the SWOP analysis of world in the field of bancassurance & we can take this study as base.

Advantages of Banassurance: Bancassurance is a tool, which is beneficial to bank, customer & Insurer at a time. There are certain benefits of bancassurance are given.

(1) From the banks point of view: -

(A) By selling the insurance product by their own channel the banker can increase their income. (B) Banks have face-to-face contract with their customers. They can directly ask them to take a policy. And the banks need not to go any where for customers. (C) The Bankers have extensive experience in marketing. They can easily attract customers & non-customers because the customer & non-customers also bank on banks. (D) Banks are using different value added services life-E. Banking tele banking, direct mail & so on they can also use all the above-mentioned facility for Bankassurance purpose with customers & non-customers.

(II) From the Insurer Point of view:

(A) The Insurance Company can increase their business through the banking distribution channels because the banks have so many customers. (B) By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification.

(III) From the customers' point of view: Product innovation and distribution activities are directed towards the satisfaction of needs of the customer. Bancassurance assists customers in terms of reduction price, diversified product quality in time and at their doorstep service by banks

ADVANTAGE TO BANKS:

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

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

BANK REFFERAL:

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.

EMERGING MARKET:

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

CONCLUSION:

With the opening up of insurance sector and with so many players entering the Indian Insurance Industry it is required by Insurance Companies to come up with well established infrastructure facilities with good call centre service to attract and provide information to customer regarding different good policies & their premium pay scheme.

The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. With almost half of the population likely to be in the 'wage earner' bracket by 2010, there is every reason to be optimistic that bancassurance in India will play a long inning.

Where legislation ahs allowed bancassurance had mostly been a phenomenal success and although slow to gain pace, is now taking of across Asia, especially now that banks are starting to become more diverse financial institution and the concept of universal banking is being adopted.

In the field of bancassurance banks will bring a customer database, leverage their name, recognition & reputation of both local and regional levels. If they are using personal contact with customers and non-customers then only they can success in the field of bancassurance.

But the proper implementation of bancassurance is still facing so many hurdles because of poor manpower management, lack of call centers, no personal contact with customers, inadequate incentives to agents and unfullfilment of other essential requirements.

Finally we can say that the bancassurance would mostly depend on how well insurers and bankers understanding is with each other and how they are capturing the opportunity and how better service they are providing to their, customers. Let us you all pay more attention towards the policies and enjoy the service provide by banks and Insurance Companies by the mode of Bancassurance.

EXAMPLE:

BAJAJ ALLIANZ GENERAL INSURANCE INDIA