Selling Insurance Products Through Banks Essay Sample

It’s a combination of the term ‘Bank’ and ‘Insurance’ . It means that insurance have started selling at that place merchandise through Bankss. It’s a new construct to Indian market but it is really widely used in western and developed states. It is profitable both to Banks and Insurance companies and has a really bright hereafter to be the most develop and efficient agencies of distribution of Insurance merchandise in really near hereafter. Insurance company can sell both life and non-life policies through Bankss. The portion of premium collected by Bankss is increasing in a nice mode from the clip it was introduce to the Indian market. In India Bancassurance in usher by Insurance Regulatory and Development Authority Act ( IRDA ) . 1999 and Reserve Bank of India. All Bankss and insurance company have to run into peculiar demand to acquire into Bancassurance concern.

It is predicted by experts that in future 90 % of portion of premium will come from Bancassurance concern merely. Presently there are more and more banking and Insurance Company and embarking into Bancassurance concern for better concern chance in future. The banking concern is besides bring forthing more net income by more premium collected by them and they besides receive committee like normal insurance agent which addition there net incomes and better repute for the Bankss as there service base besides addition and are able to supply more service to clients and even more client are attracted toward bank. It is even profitable for Insurance Company as they receive more and more gross revenues and higher client base for the company. And they have to straight cover with an organisation which cut down there force per unit area to cover with each client face to face. In all Bancassurance has proved to be boom in whole Banking and Insurance sphere.

Bancassurance is defined as ‘Selling Insurance merchandises through banks’ . The word is a combination of two words ‘Banc’ and ‘assurance’ signifying that both banking and insurance merchandises and service are provided by one common corporate entity or by banking company with coaction with any peculiar Insurance company. In concrete footings bancassurance. which is besides known as Allfinanz describes a bundle of fiscal services that can carry through both banking and insurance demands at the same clip.

Financial Services

Banking

Insurance

Bancassurance Bancassurance
The use of the word picked up as banking and insurance companies merged together and Bankss sought to supply insurance. in the market which has been liberalized late. But it is a controversial issue as many experts feels that this ides gives banking sector excessively great a control over fiscal market in that state. Therefore it has besides been restricted in many states excessively. But. still which states have permitted Bancassurance in their market has seen a enormous roar in that sector. The portion of premium collected by them has increased in changeless and nice mode. This success coincided with a favourable revenue enhancement for life insurance merchandises. every bit good as with the consumers’ turning demands. in footings of center and long term nest eggs. which is due to an insufficiency of the pension strategies in India.

The links between bank and insurance takes topographic point through assorted ways ( distribution understandings. joint ventures. creative activity of a company new company ) which gives rise to a complete turbulence refering selling schemes and the puting up of insurance products’ distribution. More and better insurance starts coming in market. This watercourse of market has merely been opened really late for the Indian market and there is batch of development left to be done by the authorities and regulative authorization. But this has proven to be a roar for the Insurance and Banking companies together and both the different sector of the industry has shown better consequence and betterment in their ain field due coming of the whole new construct of BANCASSURANCE. Bancassurance in its simplest signifier is the distribution of insurance merchandises through a bank’s distribution channels. It is the proviso of insurance and banking merchandises and service through a common distribution channel or through a common base.

Banks. with their geographical spreading incursion in footings of customer’s range of all sections. have emerged as feasible beginning for the distribution of insurance merchandises. It takes assorted signifiers in assorted states depending upon the human ecology and economic and legislative clime of that state. This construct gained importance in the turning planetary insurance industry and its hunt for new channels of distribution. However. the development of bancassurance as a construct and its practical execution in assorted parts of the universe. have thrown up a figure of chances and challenges. The construct of bancassurance was evolved in Europe. Europe leads the universe in Bancassurance market incursion of Bankss confidence in new life concern in Europe which ranges between 30 % in United Kingdom to about 70 % in France. However. barely 20 % of all United States Bankss were selling insurance against 70 % to 90 % in many Western European states. In Spain. Belgium. Germany and France more than 50 % of all new life premiums is generated by Bankss confidence. In Asia. Singapore. Taiwan and Hong Kong have surged in front in Bancassurance so that with India and China taking probationary measure frontward towards it. In Middle East. merely Saudi Arabia has made some

lame efforts that even failed to truly take off or do any alteration in the system. The motivations behind bancassurance besides vary. For Banks. it is n agencies of merchandise variegation and beginning of extra fee income. Insurance companies see bancassurance as a tool for increasing their market incursion and premium turnover. The client sees bancassurance as a bonanza in footings of decreased monetary value. high quality merchandises and bringing at the doorsills. With the liberalisation of the insurance sector and competition tougher than of all time before. companies are progressively seeking to come out with better inventions to remain that one-step in front. Progress has decidedly been made as can be seen by the figure of advanced merchandises deluging the market today – merchandises with attractive premiums. unitized merchandises. unit-linked merchandises and advanced riders.

But a hitherto untapped field is the 1 affecting the distribution of these insurance merchandises. Currently. insurance agents are still the chief vehicles through which insurance merchandises are sold. But in a immense state like India. one can ne’er be excessively certain about the degrees of incursion of a merchandise. It hence makes sense to look at well-balanced. alternate channels of distribution. Nationalized insurance companies are already good established and have an extended range and presence. New participants may happen it expensive and clip devouring to convey up a distribution web to such criterions. Yet. if they want to do the most of India’s big population base and make out to a worthwhile figure of clients. doing usage of other distribution avenues becomes a must. Alternate channels will assist to convey down the costs of distribution and therefore profit the clients

What is bank confidence?
Bancassurance is the distribution of insurance merchandises through a bank’s distribution channels. It is a service that can carry through both banking and insurance demands at the same clip. Bancassurance as a construct foremost began in India when the insurance industry opened up to private engagement in December 1999. There are fundamentally four theoretical accounts of bancassurance:

Distribution confederation between the insurance company and the bank. Joint venture between the two companies. Amalgamations between a bank and insurance company. Bank builds or buys ain insurance merchandises.

Most of the bancassurance operations fall in the first theoretical account.

How does it assist?

Every insurance company has a wants to turn rapidly to cut down painful start-up disbursal overproductions. Banks with their immense webs and big client bases give insurance companies an chance to make this expeditiously. It gives the companies an chance to tap the rural sectors. Selling insurance through traditional methods in these sectors falls really expensive. A tie up with a bank with an appropriate client base can give an insurance company a inexpensive entree to these countries. Banassurance enables to hold a immense pool of skilled professionals. The borders of the Bankss in their nucleus loaning concern are worsening aggressively. Opportunities like banassurance augment their income. Banassurance enables to develop a gross revenues civilization within the bank. It helps to alter the traditional mentality of banking companies.

Though a comparatively new construct. banassurance has been a phenomenal success in most of the instances. Presently Bankss are non merely imparting organisations but are emerging as more diverse fiscal establishments. The distribution of insurance merchandises through Bankss has been good to both insurance and banking companies every bit good as the clients

Why should Bankss come in insurance?
There are several grounds why Bankss should earnestly see Bancassurance. the most of import of which is increased return on assets ( ROA ) . One of the best ways to increase ROA. presuming a changeless plus base. is through fee income. Banks that build fee income can cover more of their operating disbursals. and one manner to construct fee income is through the sale of insurance merchandises. Banks that efficaciously cross-sell fiscal merchandises can leverage their distribution and processing capablenesss for profitable runing disbursal ratios. By leveraging their strengths and happening ways to get the better of their failings. Bankss could alter the face of insurance distribution. Sale of personal line insurance merchandises through Bankss meets an of import set of consumer demands. Most big retail Bankss engender a great trade of trust in wide sections of consumers. which they can leverage in selling them personal line insurance merchandises. In add-on. a bank’s subdivision web allows the face to confront contact that is so of import in the sale of personal insurance.

Another advantage Bankss have over traditional insurance distributers is the lower cost per gross revenues lead made possible by their ample. loyal client base. Banks besides enjoy important trade name consciousness within their geographic parts. once more supplying for a lower per-lead cost when advertisement through print. wireless and/or telecasting. Banks that make the most of these advantages are able to perforate their client base and markets for above-average market portion. Other bank strengths are their selling and processing capablenesss. Banks have extended experience in selling to both bing clients ( for keeping and cross merchandising ) and non-customers ( for acquisition and consciousness ) .

They besides have entree to multiple communications channels. such as statement inserts. direct mail. ATMs. teleselling. etc. Banks’ proficiency in utilizing engineering has resulted in betterments in dealing processing and client service. By successfully mining their client databases. leveraging their repute and ‘distribution systems’ ( subdivision. phone. and mail ) to do assignments. and utilizing ‘sales techniques’ and merchandises tailored to the in-between market. European Bankss have more than doubled the transition rates of insurance leads into gross revenues and have increased gross revenues productiveness to a ratio which is more than adequate to do Bancassurance a extremely profitable proposition.

The Legal Requirements
RBI guideline for Bankss come ining into insurance sector provides three options for Bankss. They are:

Joint ventures will be allowed for financially strong Bankss wishing to set about insurance concern with hazard engagement ; For Bankss which are non eligible for this joint-venture option. an investing option of up to 10 % of the net worth of the bank or Rs. 50 crores. whichever is lower. is available ; Finally. any commercial bank will be allowed to set about insurance concern as agent of insurance companies. This will be on a fee footing with no-risk engagement.

The Insurance Regulatory and Development Authority ( IRDA ) guidelines for the bancassurance are:

Each bank that sells insurance must hold a main insurance executive to manage all the insurance activities. All the people involved in selling should under-go compulsory preparation at an institute accredited by IRDA and go through the scrutiny conducted by the authorization. Commercial Bankss. including concerted Bankss and regional rural Bankss. may go corporate agents for one insurance company. Banks can non go insurance agents.

Banking on Bancassurance
Though much bustle was made about bancassurance. an alternate channel to peddle hazard merchandises through Bankss. the channel is yet to pick up gait as of today. Most of the insurance companies have already tied up with Bankss to research the potency of the channel that has been a success narrative in Europe and statute laws are besides in topographic point. For insurance companies and Bankss the convergence brings about benefits for both but so what’s halting it from taking off in a large manner? Bancassurance chiefly Bankss on the relationship the client has developed over a period of clip with the bank. And forcing hazard merchandises through Bankss is a cost-efficient matter for an insurance company compared to the agent path. while. for Bankss. sing the falling involvement rates. fee based income coming in at a minimal cost is more than welcome. SBI Life Insurance Company a predominant participant in bancassurance is positive about the channel conveying about a transmutation in the manner insurance has been sold so far. The company is ba RBI guideline for Bankss come ining into insurance sector provides three options for Bankss.

They are: nking to a great extent on bancasurance and programs to research the potency of State Bank of India’s 9000 plus subdivisions spread across the state and besides its 4000 plus associate Bankss – one of the grounds why SBI Life Insurance is non puting much accent on increasing its agent force from the present 3000. The company plans to name Certified Insurance Facilitators ( CIFs ) in a phased mode at its subdivisions. For now around 320 CIFs. one from each of its bank subdivisions have been identified for the intent in add-on to puting up insurance counters at its banking mercantile establishments. The figure is expected to travel up to 500. ‘Out of our present concern of around Rs 150-200 crore bancassurance has brought in 50 per centum while corporate bureau and the agent channel have contributed about 10 per centum and 40 per centum respectively’ . says Pradeep Pandey. Head. PR. SBI Life Insurance Company. The company aims at geting 75 per centum of the entire concern through bancassurance and the balance through the other channels by 2007.

Assorted theoretical accounts are used by Bankss for bancassurance. One is the insurance salesman of the several company being posted in the bank. the other is where a choice group of wealth direction people of the bank sell insurance and the 3rd is where the bank employees are incentivised to peddle insurance merchandises. But the pertinent inquiry is how far will bancassurance win when insurance is a merchandise that is sold non bought in our state. Insurance needs difficult merchandising but Bankss have ne’er been aggressive about selling fiscal merchandises. Says Pradeep Pandey’ I agree that in our state insurance consciousness is low but with falling involvement rates. Bankss are on the expression out for extra gross and bancassurance can supply them fee based income – insurance is one mercantile establishment where income can be gained. And the cost that Bankss have to incur is minimum. With all the other substructure in topographic point already. the cost is merely approximately developing a few individuals’ . And will merchandises sold through bancassurance be any different? ‘The merchandises sold will be the same. In the first stage we plan to sell gift and pension’ opines Mr Pandey. SBI Life Insurance.

On the contrary Shivaji Dam. CEO. OM Kotak Mahindra Life Insurance begs to differ. ’Yes merchandises will hold to be different to be sold through bancassurance. They will hold to be term and nest eggs merchandises with non much of complications. In other words merchandises that are inactive and simple’ OM Kotak Mahindra Life Insurance has tied up with Dena Bank and its ain Kotak Bank for bancassurance. The company is aiming about 10 per centum of the concern during its start up stage. Adds Shivaji Dam. ’ Our focal point will non be the flush category but the in-between class’ But in instance of SBI Life there is no such accent on a section of the population possibly sing the broad range its bank subdivisions have even in the remotest corners of the state.

Besides SBI Life plans to offer its complete basket of merchandises but OM Kotak will be selling choice merchandises. Insurance companies are no uncertainty optimistic about the channel but it does come with a few restrictions. While sale of insurance comes at a lower cost through this channel in comparing to the bureau path and the insurance company additions much through the big bank web spread across the state the possible can be impeded if bank functionaries do non actively generate leads. Besides it is yet to be seen how far purchasing shelf infinite in a bank helps push sale of insurance. Besides the mark audience is limited to those persons who visit the bank during the on the job hours. And with engineering altering at a rapid gait ATMs and cyberspace banking have been cut downing the individual’s visits to the bank which could possibly be a moistener for bancassurance. Insurance companies are positive about the bancassurance channel raking in volume concern at a low cost and Bankss have been salivating over the feebased income that it will convey. But unless merchandises are simple. easy to understand and easy to market much of the benefits the bancassurance channel holds. may stay merely on paper.

Will bancassurance chink?
Bancassurance. the much talked about channel of insurance distribution through Bankss that originated in France and which has been a success narrative in Europe is yet to take off here. A figure of insurance companies have already tied up with Bankss and some Bankss have already flagged off bancassurance through soft launches of select hazard merchandises. While reams have been written about the legion benefits of bancassurance sing the broad scale handiness of hazard merchandises it will enable. regulations and ordinances sing the same are yet to fall in topographic point. Fee based income: For Bankss. bancassurance would intend a major addition. Since involvement rates have been falling and net income on offtake of recognition has been low all Bankss have been able to make is prolong themselves but non gain much.

Enter bancassurance and fee based income through Hawking of hazard merchandises would be guaranteed. Alone schemes: Before taking the dip. Bankss as besides insurance companies need to work hard on chalking out schemes to sell hazard merchandises through this channel particularly in an emerging market as ours. Through tie-ups some insurance companies plan to purchase shelf infinite in Bankss and sell insurance to those who volunteer to buy them. But unless Bankss set up a trained undertaking force that will concentrate on hard-selling hazard merchandises. doing much headroom is hard particularly with a fiscal merchandise that is non so easy bought over the counter.

Identifying Target audience: Besides. placing the mark audience is yet another of import facet. Banks have a big depositor base of corporate every bit good as retail clients they can tap. Talking of retail clients the lower terminal and middle-income group clients constitute a major ball who have over a period of clip built a good resonance with the bank staff and therefore keep large potency for bancassurance. Reduced costs: While merchandises such as retirement planning will affect an intricately worked out program with the aid of a fiscal adviser. simple merchandises such as an accident screen in other words pure hazard merchandises will be sold through this channel enabling nest eggs on solicitation costs of these merchandises. So will insurers base on balls on a portion of the additions on cost economy ( salvaging on agent preparation etc ) to clients?

At present insurance companies are non-committal on this 1. Besides there are no immediate programs to redesign merchandises to accommodate the bancassurance channel but Bankss are gung-ho about cross-selling merchandises. Legal issues: Conversely. the Insurance Regulatory Development Authority ( IRDA ) has adopted a cautious attack before Bancassurance is flagged away. While on the one manus it is an economical proposition to sell hazard merchandises through the legion bank subdivisions spread across the state the fact that claim colony differences take an remarkably long clip in our state is one of the causes for concern. In such a state of affairs will Bankss be in a place to contend for the cause of their clients is a major concern? Besides regulative governments for both – Bankss and insurance companies are different. Furthermore. Bankss may hold to portion with confidential information about their clients. Now where should Bankss pull a line?

THE WIN – WIN CONDITION FOR BANKS AND INSURANCE COMPANIES.

Banks

Insurance

Customer keeping

• Grosss and channel of variegation

• Satisfaction of more fiscal demand under same roof. • Revenue variegation • More Profitable resources use. • Establish gross revenues oriented civilization. • Enrich work environment.

• Quality client entree.

• Establish a low cost acquisition channel. • Creation of Brand Image. • Quicker Geographical range. • Leverage service synergisms with Bank.

Bancassurance in India – A SWOT Analysis
Even though. Bankss and insurance companies in India are yet to interchange their nuptials rings. Bancassurance as a agency of distribution of insurance merchandises is already in force in some signifier or the other. Banks are selling Personal Accident and Baggage Insurance straight to their Credit Card members as a value add-on to their merchandises. Banks besides participate in the distribution of mortgage linked insurance merchandises like fire. motor or cattle insurance to their clients. Banks can straightaway leverage their bing capablenesss in footings of database and face to confront contact to market insurance merchandises to bring forth some income for themselves which hitherto was non thought of. Once Bancassurance is embraced in India with full force. a batch will be at interest. Huge capital investing will be required to make substructure peculiarly in IT and telecommunications. a call centre will hold to be created. top professionals of both industries will hold to be hired. an R & A ; D cell will necessitate to be created to bring forth new thoughts and merchandises. It is hence indispensable to hold a SWOT analysis done in the context of Bancassurance experiment in India.

Strengths
In a state of 1 Billion people. sky is the bound for personal lines insurance merchandises. There is a huge untapped possible waiting to be mined peculiarly for life insurance merchandises. There are more than 900 Million lives waiting to be given a life screen ( entire figure of single life policies sold in 1998-99 was merely 91. 73 Million ) . There are about 200 Million families waiting to be approached for a householder’s insurance policy. Millions of people going in and out of India can be tapped for Overseas Mediclaim and Travel Insurance policies. After dismissing the population below poorness line the in-between market section is the 2nd largest in the universe after China. The insurance companies worldwide are eyeing on this. why non we preempt this move by making it ourselves? Our other strength lies in a immense pool of skilled professionals whether it is Bankss or insurance companies who may be easy relocated for any Bancassurance venture. LIC and GIC both have a good scope of personal line merchandises already lined up. therefore R & A ; D attempts to make new merchandises will be minimum in the beginning. Additionally. GIC with 4200 operating offices

and LIC with 2048 subdivision offices are about already omnipresent. which is so indispensable for the development of any Bancassurance undertaking.

Failings
The IT civilization is unluckily losing wholly in all of the hereafter confederates i. e. Bankss. GIC & A ; LIC. A late waking up seems to hold dawned upon but it is a instance of excessively late and excessively small. Elementary IT demand like networking ( LAN ) is non in topographic point even in the central office of these establishments. when the demand today is of Wide Area Network ( WAN ) and Vast Area Network ( VAN ) . Internet connexion is non available even to the directors of operating offices. The in-between category population that we are eyeing at are today overburdened. first by inflationary force per unit areas on their pockets and so by the revenue enhancement cyberspace. Where is the money left to believe of insurance? Fortunately. LIC schemes acquire IT freedoms but personal line merchandises from GIC ( mediclaim already has this benefit ) like homeowner. travel. etc. besides need to be given revenue enhancement freedom to foster the cause of insurance and to increase domestic gross for the state. Another drawback is the inflexibleness of the merchandises i. e. it can non be tailor made to the demands of the client. For a Bancassurance venture to win it is highly indispensable to hold in-built flexibleness so as to do the merchandise attractive to the client. Opportunities

Banks’ database is tremendous even though the good will may non be the same as in instance of their European opposite numbers. This database has to be dissected diversely and assorted homogenous groups are to be churned out in order to place the Bancassurance merchandises. With a good IT substructure. this can truly make admirations. Other developing economic systems like Malaysia. Thailand and Singapore have already taken a spring in this way and they are non making severely. There is already an ambiance created in the state for liberalization and at that place appears to be a political consensus besides on the topic. Therefore. RBI or IRA should hold no vacillation in leting the matrimony of the two to take topographic point. This can take the signifier of amalgamation or acquisition or puting up a joint venture or

making a subordinate by either party or merely the working coaction between Bankss and insurance companies.

Menaces
Success of a Bancassurance venture requires change in attack. thought and work civilization on the portion of everybody involved. Our work force at every degree are so good entrenched in their classical manner of working that there is a definite menace of opposition to any alteration that Bancassurance may put in. Any resettlement to a new company or subordinate or alteration from one work to a different sort of work will be resented with emphasis. Another possible menace may come from non-response from the mark clients. This happened in USA in 1980s after the passage of Garn – St Germaine Act. A haste of joint ventures took topographic point between Bankss and insurance companies and all these failed due to the non-response from the mark clients. US Bankss have now once more ( since tardily 1990s ) turned their attending to insurance chiefly life insurance. The investors in the capital may turn their face off in instance the rate of return on capital falls short of the bing rate of return on capital. Since Bankss and insurance companies have major part of their income coming from the investings. the return from Bancassurance must at least lucifer those returns. Besides if the unhallowed confederations are allowed to take topographic point there will be ferocious competition in the market ensuing in lower monetary values and the Bancassurance venture may ne’er break-even.

Benefits and value proposition in bancassurance
Advantages to Bankss

Productiveness of the employees additions. By supplying clients with both the services under one roof. they can better overall client satisfaction ensuing in higher client keeping degrees. Increase in return on assets by constructing fee income through the sale of insurance merchandises. Can leverage on face-to-face contacts and consciousness about the fiscal conditions of clients to sell insurance merchandises. Banks can traverse sell insurance merchandises Eg: Term insurance merchandises with loans.

Advantages to insurance companies

Insurance companies can work the banks’ broad web of subdivisions for distribution of merchandises. The incursion of banks’ subdivisions into the rural countries can be utilized to sell merchandises in those countries. Customer database like customers’ fiscal standing. disbursement wonts. investing and purchase capableness can be used to custom-make merchandises and sell consequently. Since Bankss have already established relationship with clients. transition ratio of leads to gross revenues is likely to be high. Further service facet can besides be tackled easy.

Advantages to consumers

Comprehensive fiscal advisory services under one roof. i. e. . insurance services along with other fiscal services such as banking. common financess. personal loans etc. Enhanced convenience on the portion of the insured Easy entree for claims. as Bankss are a regular spell. Innovative and better merchandise scopes

The other benefits include • Better client keeping and stronger relationships. • Clear competitory advantage in the rural countries. • Possibility that the insurer’s history every bit good as the histories from the claimants will stay with the bank. • Insurance merchandises can augment the value of the banking merchandises and services. • Banks are in better place to offer complete integrated fiscal solutions. Value Propositions The services offered by the Bankss every bit good as the insurance companies. are related to assets and hazards. They have to be managed. These establishments manage hazards and assets for the clients. cut downing and taking over the hazards and transforming the assets. The nucleuss of the concerns are similar. though non same. The basic values offered by Bankss. Insurance companies and other fiscal establishments are indicated below.

Banks offer to its clients liquidness ( while at the same clip doing long term loans ) . safety. trust ( pull offing estates on behalf of donees ) . aggregation of involvement or dividends payments of committednesss ( leases and insurance premiums for illustration ) and rentes. Insurance companies chiefly protect clients from hazards ( political. fiscal. commercial. concern. and human ) . In life insurance. there is major constituent of direction of an plus. which is created by the policy. The benefits of the insurer’s expertness in plus direction. base on ballss on the clients by manner of premiums degrees and fillips. The liquidness concerns of insurance companies are different from liquidness concerns of Bankss. Securities house chiefly supply information and advice. They besides act as agents or agents for the clients. but non take duty for hazards and assets. Pension financess manage the economy made straight or through employers and assist the pensionaries manage the hazards of loss of income in old age. Common financess are plus transformers. supplying little rescuers easy entree to complex portfolios of capital market. without giving the demands of liquidness.

Most clients. large and little. single and companies are all interested in all these services. That is the justification for construct of a individual window for all fiscal services. Bancassurance is a measure in this development

Selling and Distribution Channels in Bancassurance
One of the most important alterations in the fiscal services sector over the past few old ages has been the growing and development of bancassurance. Banking establishments and insurance companies have found bancassurance to be an attractive and profitable complement to their existing activities. The successes demonstrated by assorted bancassurance operations peculiarly inEurope have triggered an avalanche of amalgamations and acquisitions across continents and attempts are on to retroflex the early success of bancassurance in other parts of the universe every bit good. Distribution is the cardinal issue in bancassurance and is closely linked to the regulative clime of the state. Over the old ages. regulative barriers between banking and insurance have diminished and has created a clime progressively friendly to bancassurance.

The transition of Gramm-Leach Bliley Act of 1999 in US and IRDA Bill in India in 2000 have stimulated the growing of bancassurance by leting usage of multiple distribution channels by Bankss and insurance companies. Bancassurance experience in Europe every bit good as in other choice states offers valuable counsel for those interested in insurance distribution through the banking channel in developing markets. Many Bankss and insurance companies are looking with great involvement at constructing new gross through bancassurance – including big. traditional companies that wouldn’t have considered such an attack about a decennary ago. Of peculiar involvement. many believe. is the possible for bancassurance in developing economic systems such as those of Latin America and Southeast Asia.

Distribution channels in Bancassurance
Traditionally. insurance merchandises have been promoted and sold chiefly through bureau systems in most states. With new developments in consumers’ behaviours. development of engineering and deregulating. new distribution channels have been developed successfully and quickly in recent old ages. Bancassurers make usage of assorted distribution channels: -Career Agents -Special Advisers -Salaried Agents -Bank Employees / Platform Banking -Corporate Agencies and Brokerage Firms -Direct Response -Internet -e-Brokerage -Outside Lead Generating Techniques

The chief features of each of these channels are: Career Agents: Career Agents are full-time commissioned gross revenues forces keeping an bureau contract. They are by and large considered to be independent contractors. Consequently an insurance company can exert control merely over the activities of the agent which are specified in his contract. Despite this restriction on control. calling agents with suited preparation. supervising and motive can be extremely productive and cost effectual. Furthermore their degree of client service is normally really high due to the reclamation committees. policy doggedness fillips. or other client service-related awards paid to them. Many bancassurers. nevertheless avoid this channel. believing that agents might oversell out of their involvement in measure and non quality. Such jobs with calling agents normally arise. non due to the nature of this channel. but instead due to the usage of improperly designed wage and/or inducement bundles.

Particular Advisers: Particular Advisers are extremely trained employees normally belonging to the insurance spouse. who distribute insurance merchandises to the bank’s corporate clients. Banks refer complex insurance demands to these advisers. The Clients largely include flush population who require personalised and high quality service. Normally Particular advisers are paid on a salary footing and they receive incentive compensation based on their gross revenues.

Salaried Agents: Having Salaried Agents has the advantages of them being to the full under the control and supervising of bancassurers. These agents portion the mission and aims of the bancassurers. Salaried Agents in bancassurance are similar to their opposite numbers in traditional insurance companies and have the same features as calling agents. The lone difference in footings of their wage is that they are paid on a salary footing and calling agents receive incentive compensation based on their gross revenues. Some bancassurers. concerned at the bad promotion which they have received as a consequence of their calling agents concentrating to a great extent on gross revenues at the disbursal of client service. have changed their gross revenues forces to salaried agent position.

Platform Bankers: Platform Bankers are bank employees who spot the leads in the Bankss and gently suggest the client to walk over and talk with appropriate representative within the bank. The platform banker may be a Teller or a personal loan helper and the representative being referred to may be a tarined bank employee or a representative from the spouse insurance company. Platform Bankers can normally sell simple merchandises. However. the clip which they can give to insurance gross revenues is limited. e. g. due to limited gap hours and to the demand to execute other banking responsibilities. A farther limitation on the effectivity of bank employees in bring forthing insurance concern is that they have a limited mark market. i. e. those clients who really visit the subdivision during the gap hours. In many set-ups. the bank employees are assisted by the bank’s fiscal advisors. In both instances. the bank employee establishes the contact to the client and normally sells the simple merchandise whilst the more flush clients are attended by the fiscal advisors of the bank which are in a place to sell the more complex merchandises. The fiscal advisors either sell in the subdivision but some Bankss have besides established nomadic gross revenues forces.

If bank employees merely act as “passive” insurance gross revenues staff ( or make non actively bring forth leads ) . so the bancassurer’s potency can be badly impeded. However. if bank employees are used as “active” Centres of influence to mention warm leads to salaried agents. calling agents or particular advisors. production volumes can be really high and profitable to bancassurers.

Set-up / Acquisition of bureaus or securities firm houses: In the US. quite a figure of Bankss cooperate with independent bureaus or securities firm houses whilst in Japan or South Korea Bankss have founded corporate bureaus. The advantage of such agreements is the handiness of specializers needed for complex insurance affairs and -in the instance of securities firm houses – the chance for the bank clients to have offers non merely from one insurance company but from a assortment of companies. In add-on. these gross revenues channels are more conceived to function the flush bank client.

Direct Response: In this channel no sales representative visits the client to bring on a sale and no face-to-face contact between consumer and marketer occurs. The consumer purchases merchandises straight from the bancassurer by reacting to the company’s advertizement. mailing or telephone offers. This channel can be used for simple packaged merchandises which can be easy understood by the consumer without account.

Internet: Internet banking is already firmly established as an effectual and profitable footing for carry oning banking operations. The sensible outlook is that personal banking services will progressively be delivered by Internet banking. Bancassurers can besides experience confident that Internet banking will besides turn out an efficient vehicle for cross merchandising of insurance nest eggs and protection merchandises. It seems likely that a turning proportion of the flush population. everyone’s mark market. will happen Bankss with family name trade names and proved accomplishments in e-business a really acceptable beginning of nonbanking merchandises. There is now the Internet. which looms big as an effectual beginning of information for fiscal merchandise gross revenues. Banks are good advised to do their new web sites every bit synergistic as possible. supplying more than mere standard bank informations and current rates. Functions necessitating user input ( look into telling. what-if computations. recognition and history applications ) should be instantly

added with links to the insurance company. Such an agreement can besides supply a vehicle for insurance gross revenues. service and leads.

E-Brokerage: Banks can open or get an e-Brokerage arm and sell insurance merchandises from multiple insurance companies. The changed legislative clime across the universe should assist migration of bancassurance in this way. The advantage of this medium is scale of operation. strong trade names. easy distribution and first-class synergism with the cyberspace capablenesss.

Outside Lead Generating Techniques: One last method for
developing bancassurance eyes involves “outside” lead bring forthing techniques. such as seminars. direct mail and statement inserts. Seminars in peculiar can be really effectual because in a non-threatening ambiance the insurance counsellor can do a presentation to a little group of concern people ( such as the local chamber of commercialism ) . field inquiries on the subject. so cod concern cards. Adding this technique to his/her lead coevals repertory. an insurance counsellor frequently can non assist but be successful. To do the overall gross revenues attempt wage anticipated benefits. insurance companies need to besides assist their bank spouses determine what the “hot buttons” will be for pulling the attending of the reader of both direct and e-mail. Great opportunities await bancassurance spouses today and. in most instances. success or failure depends on exactly how the procedure is developed and managed inside each fiscal establishment. This includes the big regional bank and
the little one-unit community bank.

Bancassurance Ventures Must Have Clear Aims
Insurance companies Banks

Berylliums aligned with good Public image of bank Forge relationship Earlier in customer’s life Lower acquisition costs

Penetrate client base further with more merchandises Leverage positive image Increase client trueness & A ; keeping

Customers

Buy lower-costs merchandises Buy more merchandises from a Single beginning Get better. more efficient Service

Key driver of Bancassurance
Elsewhere in Asia has been the followers. Banks are seeking ways to raise extra net incomes without committedness of extra capital in a low involvement rate environment ; increased competition ; cut downing border. Insurance Companies are seeking new clients utilizing new distribution activities to make such section. As celebrated above. the biggest driver in India is different at nowadays: Bankss are seeking an alternate method of redeploying their excess workers. Of class. this is a 1 clip merely phenomenon. Therefore. over clip. we will see other factors that have played of import functions in other states will besides play out in India. It might be informative to analyze what succeeded in America for the enlargement of bancassurance concern. A study by LIMRA identified the undermentioned elements for success of bancassurance: ? Strength of the Brand. ? Gross saless Staff Management/Training. ? The Branch Network/Geographical Coverage. ? Bank and Insurance merchandises form a complementary scope. ? Single position of the client. ? Focus on Customer Service/satisfaction. ? Use of Customer Relation Management Tools and Techniques. ? Integration of the bank and insurance organisations bring forthing a individual civilization. ? Supplying advice/solutions. non selling merchandises.

Requirements for success in Bancassurance
? Attractive Insurance Product Base ? Cost-Efficient Distribution System ? Linked and Leveraged Bank and Insurance Products ? Concurrent Sale of Bank and Insurance Products ? Appropriate Structure Based on Level of Integration Between Bank and Insurer

Achieving Success
To accomplish success in bancassurance. Asiatic companies must get the better of a host of challenges. Some are cultural. while others reflect a deficiency of inducements to bring forth gross revenues every bit good as the natural struggles between banking and insurance merchandises. The most successful merchandises from a gross revenues position are those that are linked to banking merchandises ( e. g. . loans and recognition insurance ) or that are really similar to banking sedimentations ( surely in the initial phases of the bancassurance operation ) and offer superior returns to sedimentations. albeit over a longer term than the usual clip sedimentations. Some obstructions are state specific. For illustration. in South Korea. each bancassurer must hold at least three life spouses and three non-life spouses. and all of these spouses must have less than 50 % of the new concern generated by the bank. in their several sectors. in any given one-fourth. Not defying the many obstructions to success and challenges faced. bancassurance ventures have enjoyed success in Asia. For illustration. Exhibit 3 shows the impressive outgrowth of bancassurance in Hong Kong. Prior to 1999. market portion attributable to bancassurers was minimum.

To accomplish the degree of success of bancassurance. Bankss will necessitate to have insurance companies or work really closely with insurance company spouses to reconstitute the value concatenation and supply merchandises suited for bank clients. Equally long as regulative restraints exist. confederations will be a critical portion of the attempt by US Bankss to set up their insurance concern. Banks must develop successful confederations in the close term and use those experiences to measure the chance to purchase or construct insurance companies as ordinances alterations. There are five cardinal attacks to organizing insurance partnerships that form a continuum from complete outsourcing to finish ownership: list lease. working with a 3rd party seller. bureau purchase. integrated confederation. and ownership. Each of these attacks involves a different degree of value concatenation ownership and control.

The Indian Context
In India. no company is allowed to transact both insurance and concern. They banking are unbroken separate. In fact. even a company registered. insurance company has to take an as between life and non-life concern. It can non make both: Therefore. the Bankss in India can non hold the advantages. which are available in the European context. There are joint ventures in India between Bankss and foreign insurance companies. State Bank of India. HDFC. ICICI and Vysya Bank are illustration. But apart from a greater willingness to assist each other. the joint venture will non give either party advantage in the a greater other’s concern. The joint venture is an wholly independent Operation with unit of separate forces and financess and capable to different ordinances.

The lone manner in which Bankss can be associated with the insurance concern in India is by going a corporate agent. for wage. bankc a ndo so for a peculiar life The insurance company and/or specifics non insurance company. The bank can non develop any of its intim Ate -life contacts with the clients. Since 2000many Bankss and insurersg rhenium vitamin E vitamin D to a have a rra n g vitamin E m vitamin E n T field-grade officer R m u tu a cubic decimeter B vitamin E n vitamin E tantrums. T H vitamin E L IC h a s tie vitamin D tungsten ith m O rhenium th a n O N vitamin E b a n K. S o a ls O h a V vitamin E O For more than a 100 old ages. . insurance concern had been sold through insurance agent and their supervisors. This system had non been really satisfactory. The LIC inherited this system. The attempts to do the agents more professional had non yielded really satisfactory consequences. despite inducements and developing programmes. M any of them continue to handle the bureau concern casually. a beginning of extra income. The every bit merely turnover had been high and the attempts of refilling the strength. dearly-won. The Bankss have skilled staff. to which the procurance of insurance can transfer as a responsibility. This was an chance made available after the ordinance of IRDA.

Bancassurance in India
Bancassurance normally means selling insurance merchandises under the same roof of a bank. Though bancassurance had roots in France in the 1980s. and dispersed across different parts of Continental Europe since. it has spread its wings in Asia – in peculiar. in India. In India. there are a figure of grounds why bancassurance could play a natural function in the insurance market. First. Bankss have a immense web across the state. Second. Bankss can offer fee-based income for the employees for insurance gross revenues. Third. Bankss are culturally more acceptable than insurance companies. Covering with ( life ) insurance. in many parts of India. conjure up an image of a bad portents. Some bank merchandises have natural complementary insurance merchandises. For illustration. if a bank gives out a place loan. it might take a firm stand on a life insurance screen so that in instance of decease of the borrower. there is no job in paying off the place loan. Bancassurance is: “The proviso of a complete scope of banking. investing and insurance merchandise and services. to run into the single demands of the clients of the bank and its associates. ”

Bancassurance in Asian market:
Two Asiatic markets of great involvement for their possible size are China and India. Although their insurance markets are comparatively immature. bancassurance is now emerging in both states. India opened to private competition merely two old ages ago. and so far 12 life insurance companies have entered to vie with the Life Insurance Corporation of India. Three-fourthss of these new entrants have formed relationships with Bankss ( a figure with several banking spouses ) . Some dealingss are peculiarly strong. holding been established as joint venture spouses. At present. aliens can non keep more than a 26 % interest. Clearly. bank subdivisions are an first-class manner to widen range over the immense geographicss of India and China. In China. the regulative implemented upper limit arrangement fee of 8 % between Bankss and insurance companies has led to the huge bulk of gross revenues to day of the month being individual premium ( or short term ) in nature. Furthermore. it appears that relationships at the subdivision degree presently
carry more weight than those at head office. taking to what some perceivers call “branch assurance” instead than bancassurance. As in many markets in Asia. bancassurance in China and India is in its early yearss. Nonetheless. bancassurance will certainly organize an of import constituent of the Asiatic insurance landscape.

Bancassurance Across The Globe
Bancassurance” is a term. which foremost appeared in France after 1980 to specify the sale of insurance merchandises through banks’ distribution channels. But this term does non merely mention specifically to distribution. Other characteristics. such as legal. financial. cultural and/or behavioural facets form an built-in portion of the construct of bancassurance. In fact. all these features combined can explicate the pronounced differences in bancassurance across the Earth. Although it is clearly a prevailing characteristic on some markets. stand foring over two tierces of the premium income in Life Insurance. other markets do non look to hold chosen it as their theoretical account. This type of distribution is prevailing in markets such as France. Spain and Portugal. followed by Italy and Belgium. Bancassurance represents over 65 % of the premium income in Life Insurance in Spain. 60 % in France. 50 % in Belgium and Italy. -In these states. in merely 10 old ages. bancassurance has become widely recognized as a successful theoretical account. In France. in the seventiess. Bankss had to postulate with a mature and extremely competitory market in banking. By doing usage of bing statute law in insurance. bancassurance has provided them with a new beginning of net income. Which served to diversify their banking activity and optimise their pick of merchandises. thereby increasing client trueness. Consumers were provided with simple solutions from a “one-stop shop” turn toing all their fiscal concerns: short-run liquidness. estate and retirement planning. belongings purchase. protection against any unanticipated events in mundane life. In 2000. bancassurance accounted for 35 % of Life Insurance premiums ; 60 % of nest eggs premiums ; 7 % for Property Insurance and 69 % of new premium income in single nest eggs. This success has made France the taking single nest eggs insurance market in Europe. In footings of premium income. it ranks foremost in bancassurance. Spain. like France. is among the most developed markets in bancassurance.

Today. it represents over 65 % of life insurance premium income compared with 43 % in 1992. However. this high growing rate is non specifically due to bancassurance. instead the whole of the life insurance market. which has sustained a 30 % addition per annum on norm in the past 15 old ages. In the last decennary. many international. frequently European. confederations have been made between Bankss and insurance groups. This has concentrated the bancassurance market. which was originally extremely disconnected. On the Spanish market. bancassurance developed more rapidly because of the well-established web of regional edifice societies. which today history for 50 % of Life insurance premiums in the bancassurance sector.

Bancassurance: Taking the lead

In the last fiscal twelvemonth. India has experienced a significant growing in the life insurance concern. The new concern premium growing rate for the fiscal twelvemonth 2004-05 over the old fiscal twelvemonth is 36 % . This growing is chiefly due to the aggressiveness witnessed in the private life insurance sector. which grew by 129 % . One of the drivers for this significant growing is the part of the banking industry. The private life insurance companies have been instrumental in edifice strong relationships with established Bankss for bancassurance. The bancassurance theoretical account. in simple footings means distribution of insurance merchandises by Bankss to their clients. Apart from holding the advantage of making out to the possible clients at the remotest of topographic points. it offers a complete basket of fiscal advice to clients under one roof.

Bancassurance has been a successful theoretical account in the European states lending 35 % of premium income in the European life insurance market. It contributes over 65 % of the life insurance premium income in Spain. 60 % in France. 50 % in Belgium and Italy. In the US. the Bankss were before non allowed to sell insurance due to the limitations imposed by Glass-Stegall Act of 1933. which acted as a Chinese wall between banking and insurance. As a consequence of this life insurance was chiefly sold through single agents. who focussed on wealthier persons. taking to a bulk of the American middle category families being under-insured. With the repealing of this Act in 1999. the doors were opened for Bankss to administer insurance and cater to the big in-between category section In the Asiatic markets. bancassurance has a limited portion of the entire gross revenues chiefly because of the close monopoly of the life agents in Japan. which is the largest life market.

But there is a displacement in stance with markets like Japan. South Korea and the Philippines where bancassurance was antecedently prohibited. taking a more accommodative stance towards this channel. It has been estimated that bancassurance would lend about 16 % of the life premium in the Asiatic markets in the twelvemonth 2006 chiefly due to the growing expected in India and China. In India the bancassurance theoretical account is still in its nascent phases. but the enormous growing and acceptableness in the last three old ages reflects green grazing land in future. The deregulating of the insurance sector in India has resulted in a stage where advanced distribution channels are being explored. In this stage. bancassurance has merely outshined other

The Problems in Bancassurance
Any bank acquiring into concern of selling insurance can non afford to hold insouciant attack to it. The staff. if deputed from within the bing bank staff. will hold to be specially trained in the elaboratenesss of insurance and the art of salesmanship. These accomplishments will be required at degrees different from the demands in banking operations. They will hold to be individuals who have an external orientation. The sum of concern acquired through the Bankss depends wholly on the personal accomplishments of specified individuals and the corporate insurance executives. An effectual and successful specified individual might possibly happen it more compensable to ramify off as an insurance agent on his ain. alternatively of being tied to the bank.

The options available to the bank to forestall this may lie in developing attractive compensations bundles. The relevant issues will be the limitations imposed by insurance Act every bit good as comparative force per unit areas within the brotherhoods of Bankss of employees. The committedness of senior direction is important to the success of the individuals deputed for the insurance work. The precedences for the directors may depend on the standards by which they will be appraised at the terminal of the twelvemonth. If the advancement in insurance is non of import standard. the support to the insurance activities may be reduced. They would see mainstream banking activities as more of import for their ain hereafter growing. The assessment and reward systems of the bank have to be suitably aligned.

The Future of Bancassurance
Although bancassurance ventures in Latin America and Asia have followed different waies. they portion the same aims and demands for success. All recognize the value of the bank’s client base. Bancassurance will finally take clasp in the US. The aims announced when Bank One acquired Zurich Insurance Operation point to bancassurance as a cardinal ground behind the acquisition. Experiences in both Latin America and Asia may turn out valuable to Bankss and insurance companies come ining into bancassurance ventures in the US and elsewhere. Indian Insurance Business Projected to US $ 60 Billion by 2010 The Associated Chambers of Commerce and Industry of India ( ASSOCHAM ) has projected a 500 % addition in the size of current Indian insurance concern from US $ 10 billion to US $ 60 billion by 2010 peculiarly in position of part that the rural and semi-urban insurance will do to it.

Rural and Semi-Urban Life Insurance concern is expected to touch US $ 20 billion figure in following 4 old ages from current degree of less than US $ 5 billion now as rural and semi-urban common people will desire themselves to guarantee them for better hereafter and their rise buying power will actuate them to travel towards insurance sector. In position of Assocham. the non-life insurance will lift to US $ 15 billion by 2010 from its negligible size now and in Urban countries. life insurance concerns are anticipated to make US $ 15 billion and that of non-life insurance US $ 10 billion. harmonizing to Chamber Paper on Insurance Sector: Its Future Perspective. Assocham has revealed that rural and semi-urban India shall lend US $ 35 billion to the Indian insurance industry by 2010. including US $ 20 billion by manner of life insurance and the remainder US $ 15 billion through non-life insurance strategies.

A big portion of rural India is still untapped due to hapless distribution. big distances and high costs relative to returns. Urban sector insurance is estimated to make US $ 25 billion by 2010. life insurance US $ 15 billion and non-life insurance US $ 10 billion. Estimating the potency of the Indian insurance market from the position of macro-economic variables such as the ratio of premium to GDP. Assocham Papers reveals that India’s life insurance premium. as a per centum of GDP is 1. 8 % against 5. 2 % in the US. 6. 5 % in the UK or 8 % in South Korea. Assocham findings farther reveals that in the coming old ages the corporate section. as a whole will non be a large growing country for insurance companies. This is because incursion is already good and companies receive good services. In both volumes and profitableness hence. the range for enlargement is modest. Survey suggested that insurer’s scheme should be to excite demand in countries that are presently non served at all. Insurance companies largely focus on fabrication sector. nevertheless. the services sector is taking a big and turning portion of India’s GDP. This offers huge chances for enlargement chances.

Bing an agricultural economic system once more there are huge chances for the insurance companies to supply the liability and hazards associated in this sector. The Paper found that the rural markets are still virgin districts to a great extent and offer exciting chances for insurance companies. To understand the chances for insurance companies in rural India. it is really of import to understand the demands of India’s villagers. their day-to-day lives. their curious demands and their occupational constructions. There are husbandmans. craftsmen. milkmen. weavers. insouciant laborers. building workers and tradesmans and so on.

More frequently than non. they are into more than one profession. The rural market offers enormous growing chances for insurance companies and insurance companies should develop feasible and cost-efficient distribution channels ; construct consumer consciousness and assurance. The Paper found that there are a entire 124 million rural families. About 20 % of all husbandmans in rural India own a Kissan Credit cards. The 25 million recognition cards used boulder clay day of the month offer a immense information base and chance for insurance companies. An extended rural agent web for sale of insurance merchandises could be established. The agent can play a major function in making consciousness. actuating purchase and rendering insurance services. There should be nil to halt insurance companies from seeking to prosecute their ain alone policies and aim whatever demands that they want to aim in rural India. Assocham suggests that insurance demands to be packaged in such a signifier that it appears as an acceptable investing to the rural people.

UCO inks bancassurance MoU with LIC
Barely a month before its scheduled Rs 200 crore ( Rs 2 billion ) initial public offering. UCO Bank on Monday signed a memoranda of understanding with the Life Insurance Corporation of India to market the latter’s insurance strategies from its subdivisions. “Our enterprise is non merely for selling merchandises. but to travel for a strategic confederation with LIC. ” UCO Bank president and pull offing manager V P Shetty said after subscribing the MoU in Kolkata. The affiliation was aimed at supplying value added services in the signifier of life insurance merchandises to over 2 crore ( 20 million ) clients of UCO. LIC president S B Mathur said things were truly go oning with the opening up of the insurance sector. and accomplishing and retaining clients was high on the docket. With involvement borders coming down and costs lifting. increasing fee-based income had become of import for both the Bankss and insurance companies. he said. Mathur said it was a win-win state of affairs for both LIC and UCO Bank. It was more critical sing that PSU had become a sort of dirty word related with inefficiency. absence of work civilization. but what has happened in UCO and LIC during the last few old ages. had helped changed that impression. Shetty said. “Our involvement income is dwindling and to counterbalance for this we had to fall back to other avenues like this to increase fee-based income. ”

SBI-New India Bancassurance Tie Up
State Bank of India. the country’s largest Bank a