What is Bancassurance?
Bancassurance, i.e., banc + assurance, refers to banks selling the insurance products
Official definition of Bancassurance: According to IRDA, ‘Bancassurance’ refers to banks acting as corporate agents for insurers to distribute insurance products.
Insurance Products include Life or Non-Life products
Bancassurance in India is defined as those banks which are dealing in insurance products of both life and non-life type in any forms.
History: The starting Point
Bancassurance term first appeared in France in 1980, to define the sale of insurance products through banks’ distribution channels. This term is extremely familiar among the European countries as banks selling insurance products in most of these countries are a common feature. Banks are being used as an effective alternate channel to distribute insurance products either as ‘stand-alone insurance products’ or ‘add-ons to the bank products’ by way of combining the insurance with typical banking products/services.
Birth of Bancassurance in India
As per March 2008, the number of Insurance companies in india,
|Life Insurance Companies||15 Private Insurance Companies|
|1 Public Insurance Company (LIC)|
|Non- life Insurance Companies||9 Private Insurance Companies|
|4 Public Insurance Company|
As regarding the present size of the insurance market in India, it is stated that India accounts not even one per cent of the global insurance market. However, studies have pointed out that India’s insurance market is expected to grow rapidly in the next 10 years. Insurance industry in India for fairly a longer period relied heavily on traditional agency (individual agents) distribution network, Therefore, the zeal for discovering new channels of distribution and the aggressive marketing strategies were totally absent and to an extent it was not felt necessary
Also Read: How LIC Money Plus Policy was sols to Layman
As the insurance sector is poised for a rapid growth, in terms of business as well as number of new entrants tough competition has become inevitable. Consequently, addition of new and more number of distribution channels would become necessary.
How Bancassurance model is helpful to us (Comman man)?
The most immediate advantage for customers is that, in insurance business the question of trust plays a greater role, especially due to the inbuilt requirement of a long term relationship between the insurer and the insured. In India, for decades, customers were used to the monopolistic attitude of public sector insurance companies, despite there were many drawbacks in their dealing, they enjoyed customer confidence, this trend continues even now mainly due to their Government ownership. The customers to move over to private insurance companies that are collaborated with foreign companies which are less known to the Indian public would take little more time. The void between the less known newer private insurance companies and the prospective insured could be comfortably filled by the banks because of their well established and long cherished relationship. Under these circumstances, any new insurance products routed through the Bancassurance channel would be well received by the customers. Above all, in the emerging scenario, customers prefer to have a consolidation and delivery of all financial services at a single window in the form of ‘financial super market’, irrespective of whether financial or banking transactions, because such availability of wide range of financial/ banking services and products relieves the customers from the painstaking efforts of scouting for a separate dealer for each service/ product. Customers could also get a share in the cost savings in the form of reduced premium rate because of economies of scope, besides getting better financial counseling at single point.
Example of the Bancassurance in India
In the case of ICICI-Prudential Life Insurance company, within two years of its operations, it could reach more than 25 major cities
in India and as much as 20 per cent of the life insurance sale are through the Bancassurance channel. ICICI bank sells its insurance products practically at all its major branches, besides it has Bancassurance partnership arrangements with 19 other banks as also as many as 200 corporate tie-up arrangements ICICI Prudential seem to exploit the Bancassurance potential to the maximum. ICICI stated that Bank of India has steadily grown the life insurance segment of its business since its inception.
I think it’s a win win stratregy for the banks as well for the insurance companies, as the banks get their commission for selling the insurance products and in the same way the insurance companies get the wide spread networking of their branches.
Now my question to you Is Bancassurance disadvantageous?