Bancassurance in India: A new strategy

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.

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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.

5 Things which Your Insurance Agent Would Hide From You

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.

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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.

Conclusion

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?

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Comments

  1. Chirag says

    Bancassurance is a great model.
    While selling insurance policies online is also working out for Insurers.
    Insurers like Aviva are selling term term insurance (i-life) online, other insurance companies which sell insurance online are – Aegon, HDFC, ICICI.

  2. Nine Million Dollars says

    Dear Prashant,

    Thanks for acknowledging both our views. Every article on the blog is written with a view to open discussions.

    Keep visiting my blog for more frequent updates/articles

    Nine Million Dollars Team

  3. Prashant Vaishnav says

    Nine Million dollars and Mr. Dhawal Sharma, Both are right, the first person says why bancassurance is needed in India while the second one says that bancassurance does not fulfill customized needs of its clients and there is a no follow-up from the service provider.
    I think if a system is full of drawbacks and not perfect, it does not mean that the system should be vanished, instead of it all it requires is improvement
    so..the banks and the insurance companies should focus on customer relationship building and satisfaction of the client.
    Nice thoughts from both.
    Keep it up………….

  4. Dhawal Sharma says

    I have a slightly different view on the issue. To me, bancassurance is one of the leading lights for all the MIS-SELLING going on in INSURANCE. Me being an insurance agent, meet a lot of people on regular basis, who have been given policy by their banks/relationship managers. These policies were basically ULIP with huge charges, sold indiscriminately without understanding the need of the client. Few of the bad points i want to raise on this forum are

    * Banks/Relationship managers push these policies just to meet their stiff targets. The relationship managers selling these policies are NOT licensed by clearing IRDA exam. So they dont need the nuances of Insurance. All they have to say to the innocent account holders is “Sir ji, aap ka paise double ho jayega 3 saalon main.” Its the ICICI PRUDENTIAL people through their bancaasurance channel who first spread this epidemic of “sirf 3 saal dena hai, uske baad premium nahi bhi doge to chalega.”

    * Most of the policies sold through Relationship manager of a particular bank today are in the “orphan policy” catagory. That means, there is nobody to service the client on the policy. Nobody is there to remind him of renewals, let him know of the status of fund value etc. More so, if Mr AMIT has sold a policy of HDFC STANDARD LIFE to Mr RAJIV from X branch of HDFC, now he himself is saying to Mr RAJIV, after moving to KOTAK BANK, that HDFC POLICY is not performing well and all. And you should now surrender it and start new investments in KOTAK LIFE INSURANCE.

    * A lot many of clients who are businessman say that bank refuse to give them challans or extend OD limit unless they buy insurance policy from them. Some times the helping staff himself asked unashamedly to the customer “sir, dekh lo humne aapka loan pass kara diya” or “Sir, aapka draft bhi humne credit kar diya” “to sir, thodi hamari help bhi kar do targets main aur ek policy le lo.”

    *Banks put a mandatory clause to anyone taking loan from them to buy insurance from their sister concern.

    * I have my friends in SBI BANKASSURANCE. They told me that all they do is put FILTER on to accountholder’s EXCEL SHEET. Check out the clients with balance of more than 10 or 12 lakhs for more than 6 to 12 months, and just give them a call, “Sir hamara relationship manager aap ke paas aa raha hai, aap ko bas ek form pe sign karna hai.” That client, in his blind faith on the bank, buy an insurance policy.

    I can site numerous such reasons, not to be in favor of bancassurance. I might be sounding biased because i myself is an insurance agent but i believe public at large will agree with my viewpoints above..

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