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The term µbancassurance¶ refers to selling of insurance products by banks. Here,
insurance companies tie-up with the banks and through them sells insurance products to the
customers. Under this system, banks act as corporate agents to insurance companies in selling
their insurance plans. As a result, banks earn additional revenue besides regular interest income
from banking business, known as fee-based income. It is purely a risk free income for the
banks, since they act as corporate agents between the insurance company and the client.
Bancassurance is at a nascent stage in India. It originated in 2000 when the government issued
notification under the Banking Regulation Act which allowed Indian banks to conduct
insurance business. It gained momentum after the Insurance Regulatory and Development
Authority (IRDA) passed a notification on µCorporate Agency¶ regulations in October 2002.

The French termed it µBancassurance¶, the Germans termed it µAllfinanz¶ and some
familiarize it with the terms µIntegrated Financial Services¶ or µAssurebanking¶.

Bancassurance in simple words is µDistribution by Convergence¶.




^
The Bancassurance is the distribution of insurance products through the bank's distribution
channels. It is a phenomenon where in insurance products are offered through the distribution
channels of the banking services along with a complete range of banking & investment
products & services. In simple term we can say bancassurance tries to exploit synergies
between both the insurance companies & banks.

There are only three parties required for the provision of the products:
? The bank
? The insurer and
? The customer
 h 

V?   

Instead of running after individual agents for business, insurance companies invented the
concept of bancassurance. Bancassurance helped them in motivating their customers to buy
insurance products with the help of banks. Here, bankers act as a corporate agent for the
insurance companies. The agent banker gets high commission on the first premium paid by the
customer and later a marginal commission on renewal premium till the maturity of the policy
for regular premium plans. A one time commission is also paid in case of single premium
policies.

V? m
m
 

Under bancassurance, banks can develop strong relationships with their customers and
sell insurance products. Insurance companies affirm that marketing µrisk products¶ through
banks is a cost effective proposition. Bancassurance is a successful model for both insurance
companies and banks. Currently, insurance companies are tying up with various commercial
banks to sell their products and lure more customers. At the same time, banks without any
additional investments on infrastructure are able to earn service-based income (commission) to
augment their core lending activities.

V? 



There are various advantages of bancassurance. For the banks, income from
bancassurance is only non-interest-based income. Interest is market driven and its movement
depends on market conditions. At present, banks are unable to get margins as a result of acute
competition and this is making it difficult for them to retain their customers. Hence, to meet the
overhead costs and to improve their incomes, more banks are getting into bancassurance with
 existing infrastructure. Bancassurance helps in generating additional revenue for the banks. By
providing multiple services at one place, the satisfaction level of customers can be increased.
For example, through bancassurance, a customer gets home loans, along with insurance as a
combined product. In the current global financial crisis many banks are looking at
bancassurance as it generates additional income in the form of fees. Financial experts say that
since interest rates have been falling and profits are declining, making survival difficult in the
current financial markets, banks must opt for bancassurance to leverage their income levels and
keep abreast with the changes and latest developments in the financial markets.

V? 6c  

Another advantage of bancassurance is that the employees of banks can learn marketing
techniques. It provides the insurance companies with valuable inputs. They can analyze the
insurance markets and recommended suitable plans to meet the requirements of customers.

V?  

Banks play a significant role in building up a feasible healthcare program in India. Only
2.5 million people have access to healthcare facilities. The demand for healthcare products,
which banks can distribute, is growing. Bancassurance helps in lowering distribution costs of
the insurers. It is imperative to discuss with financial advisers before an insurance product is
introduced in the market.
Hence, acquisition cost of insurance through banks is low. Selling insurance to existing
mass market of banking is less expensive than selling it to a group of unknown customers.
Experience in Europe has shown that bancassurance firms have a lower expense ratio. This
benefit could go to the insured public, by way of lower premiums.
 Äm
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Since its emergence in 1980s in France, Bancassurance traversed to the global arena and
gained currency as a new distribution channel for the insurance products. Bancassurance has
witnessed a rapid growth in almost all the countries across the globe. It has been more
successful in Europe than any other country of the world. Its growth primarily depends on a
country¶s demography, economic and legislative prescriptions. The concept of bancassurance
is relatively new in the US. The Glass Steagall Act of 1933 prevented banks in the USW from
entering into alliance with different financial services providers, thereby putting a barrier on
bancassurance. As a result, life insurance was primarily sold through individual agents, who
obviously targeted rich people, leaving a majority of the American middle class households
underinsured. With the US Government repealing the Act in 1999, the concept of
bancassurance stated making headway in the US also. In the Asian context, it has been
estimated that bancassurance would contribute almost 16% of the life premium in the Asian
markets in the coming years, primarily with the growth that is expected in India and China.

This concept gained currency in the growing global insurance industry and its search for
new channels of distribution. Banks, with their geographical spread and penetration in terms of
customer reach of all segments, have emerged as viable sources for the distribution of
insurance products. Presently, there is more activity here than anywhere else. And every one
wants to jump onto the bandwagon for a piece of the action cake.

Concept evolution is essentially the result of certain driving forces. In the case of
bancassurance, understanding the needs of the two financial intermediaries ± banks and
insurance companies that aim to develop the synergy can lead to the identification of the
driving forces. It implies that there has to be an upward thrust in the bank¶s bottom line, while
the insurer gets a wider penetration into the market in a cost effective manner. As in the case
of most coalitions, attaining a win-win is much easier in theory than in practice. It assures a
win-win concept for banks and insurers.
 The insurance industry has finally woken up from its long slumber to an altogether new
awakening. It is the rise of a new dawn that has brought with it opportunities in abundance.
From innumerable insurers, to affordable and quality covers for the consumer, from increase in
distribution channels to incorporating information technology measures, from net selling to
bringing about increased transparency - its all there. The omnipresent agent is no more the only
distribution channel today for insurance products. Increase in distribution channels has among
others also seen the concept of Bancassurance taking roots in India, and it is emerging to be a
viable solution to mass selling of insurance products.

Bancassurance is a long-standing dream of offering a seamless service of banking, life &

non-life products. India, being the one of the most populous country in the world with a huge
potential for insurance companies, has an envious chain of bank branches as the lifeline of its
financial system. Banks with over 65,000 branches & 65% of household investments are the
backbone of the Indian financial market. In India, there are 75 branches per million inhabitants.
Clearly, that's something insurance companies - both private and state-owned - would find
nearly impossible to achieve on their own. Considering it as a channel for insurance, it gives
insurance an unlimited exposure to Indian consumers.

Banks have expertise on the financial needs, saving patterns and life stages of the
customers they serve. Banks also have much lower distribution costs than insurance companies
and thus are the fastest emerging distribution channel. For insurers, tying up with banks
provides extensive geographical spread and countrywide customer access; it is the logical route
for insurers to take.

However, the evolution of bancassurance as a concept and its practical implementation in

various parts of the world, have thrown up a number of opportunities and challenges. Aspects
such as the most suited model for a given country with its economic, social and cultural effect
interacting on each other, legislative hurdles, and the mindset of persons involved in this
activity, have dominated the study and literature on bancassurance.
 The motives behind bancassurance also vary. For banks it is a means of product
diversification and a source of additional fee income. Insurance companies see bancassurance
as a tool for increasing their market penetration and premium turnover. The customer sees
bancassurance as a bonanza in terms of reduced price, high quality product and delivery at
doorsteps. Actually, everybody can be a winner here.



















 
" "hc
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Bancassurance is an important tool in the hands of Bankers, Insurers and Customers to

maximize their benefits at the same time, as everybody is a winner in this system.
The bancassurance concept is so well designed that, if you go for a toss, the results you
will get are HEADS: BANK WINS
TAILS: INSURER WINS And If The Coin Had A Third Side Truly We Can Say That The
Customer Also Wins.

 

To the Insurers To the Customers

To the Banks
*Cheaper than agents *Availability of a complete package
*Fee- based income
*Rural penetration *Reduced costs
*Increased Return on assets (ROA)
*Cost ± reduction *Good quality product
*Increase staff productivity
*Greater control of their business *Time savings & convenience
*Profitability
*Market penetration
*Enhances customer relationship
*Targeting middle-income customer
*Creating universal banking platform
*Facilities Growth
*Increasing the customer base
*Provides Competitive advantage


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For banks, bancassurance would mean a major gain. Since interest rates have
been falling and profit on off take of credit has been low, all banks have been able to do is
sustain themselves but not profit much. Hence the banks today have shifted their focus from
fund-based revenue (loans & advances) to fee-based income. Enter bancassurance and fee
based income through hawking of risk products would be guaranteed, thus giving an additional
boost to the banks bottom line.

"%
There are about 18 crore bank accounts. Let¶s assume a bank sells one insurance policy to each
of these account holders over a period of five years. Take a highly conservative average first
year premium per policy of Rs.5000 and an average commission of 15% that banks would
gain.

Banks can earn a total commission of Rs.13500 crore (going by a simple back-of-the-envelope
calculation: Rs.5000 x 15% x 18 crore accounts = Rs.13500 crore in commission)

A? c &'

One of the ways to increase ROA, assuming a constant asset base, is through fee
income. Banks that build fee income can cover more of their operating expenses. The sale of
insurance products builds fee income. Banks those effectively cross-sell financial products can
leverage their distribution and processing capabilities for profitable operating expenses ratios.




A? c  

(
 Bancassurance gives an opportunity to the bank staff to harness their sales skills
and adapt to the changing business environment. Selling of insurance products provides bank
employees with new challenges and enhanced skills thus improving their productivity and
efficiency.

A? 


(
Bancassurance provides financial benefits in the form of commission, profits
from new business, bank¶s fixed cost reduction, and increases the staff productivity. There by
resulting into profits.

A? "$ 

$

Bancassurance results in high customer relationship with the bank by providing
more services. It seeks Customer Loyalty by offering satisfactory and expanded base for
services. Selling whose range of financial services to clients increases Customer Retention.

A? 


 
  Bancassurance offers a good opportunity to increase the bank¶s share of the
customer requirements through the cross-selling of insurance products. All financial products
are available under one roof, thereby facilitating convergence. Bancassurance helps banks to
become one step closer to be ³One-stop financial supermarket´.

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Banks can garner fresh business by using insurance as a selling hook.

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Bancassurance may work out to be cheaper compared to companies appointing
agents for selling insurance products. This is particularly considering the bank¶s wide network
and the reach they have compared to the agents.

A? 

The existing wide network of banks in rural areas can be utilized for selling
insurance products. Penetration into the rural areas too becomes easier for banks. This channel
allows an insurer to effectively tap the rural sector. Selling insurance through traditional
methods in rural area is an expensive proposition. A tie up with a bank allows an insurance
company to access large customer base at a low cost.

A?  )

Studies reveal that 50% of an insurance company¶s cost is directly or indirectly
related to distribution. Expenses ratio in insurance activities through bancassurance is very
low. They can solve the difficulties arising out of price competition which has driven down the
margins and increased the compensation demand of successful agents.
"% SBI Life finds that this channel saves as much as 40% of their operating cost when
compared to business procured through their own regular agents.

A? Ä   $


Insurers who operate through bancassurance own and control relationships with
customers. Insurers found that direct relationships with customers gave them greater control of
their business at a lower cost. Insurers who operate through the agency relationship hardly have
any control on their relationship with their clients.

A? 

Wide network of branches form the ideal distribution channel. Urban as well as rural
both markets are tapped simultaneously. Banks have an established distribution network of
more than 68,000 branches spread throughout the country.

A?



  
Through agents the insurer can only sell fewer and large policies to a more up
scale client. The middleclass income holders who comprise the bulk of bank customers get
very little attention. By using bancassurance channel the insurer can capture much of its
underserved market.

A? h


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  Reduced costs and high premium turnover results in profitability, thereby
facilitating growth.
 "% Bajaj Allianz has witnessed a 350% growth due to bancassurance.

A?  
 


Provides competitive advantage over the non-bancassurers. Having been
accustomed to the customer¶s choices, banks are in a better position to understand the needs of
the customers and sell trailor made policies. Customers too, considering their long-standing
relationship with banks, find them more trustworthy.
Bancassurance acts as a source of new business to reach wider customer base with the help of a
bank.

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A? 


(  
 Combined bank and insurance products will find complete solution to the customers.
Banks and insurance companies are converging towards a model of global retail financial
institution offering a wide array of products. It leads to the creation of ³One-Stop Shop´
where a customer can apply for mortgages, pensions, savings and insurance products.

"%
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.

A?  
Bancassurance gives the insurance company the benefit of cost-effective distribution
channel, the benefit ultimately passing on to the customers in way of reduced premiums. The
customer gains as the costs are reduced.

A? Ä *
( 
Product innovation and distribution activities are directed towards the satisfaction of the
needs of the customer. Since banks can understand the needs of the customers in a better way,
the customer gets a good quality product. Also, customer gets the advantage of a customized
product as per his need and requirements.


A?


+ 

The customers can get risk coverage at bank itself which saves time and adds to the
customer¶s convenience. The ease of renewals adds to the customer¶s comfort. The customer
can obtain a basket of products under one roof.



 cÄc",c "!  !! "",!
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The RBI guidelines for banks will lead to the emergence of three
Different bancassurance models:

1) A bank can act as a corporate agent (as distinguished from a corporate broker) for
distributing insurance products of an insurer. Risk participation in this model is nil.

2) A bank can form a joint venture with an insurance company for doing bancassurance
business. There will be risk participation in this model, i.e.; through joint venture the bank can
underwrite or perform the principal function of insurance.

3) A bank which is not eligible to form a joint venture, can invest in the insurance company to
provide infrastructure and service support.

(1) Up to 10% of the net worth of the bank or

(2) Rs. 50 crore. Whichever is lower is available.

Setting up of a separate joint venture insurance company with risk participation and
subject to strict entry norms. Further, the bank must clearly distinguish its banking and
insurance business and insurance business. Rural cooperative credit institution could, as
suggested by The Task Force to Study the Cooperative Credit System (Chairman: J Capoor),
also distribute insurance products in under-served rural areas. While increasing outreach and
penetration of insurance products, this innovative modality could help to expand portfolio of
these institutions.

Following this, the RBI received 39 applications from commercial banks and RBI has
accorded approval to three banks for joint ventures on risk participation basis. Two banks,
which were given approval for strategic investment in insurance joint ventures and investment
in a distribution and service company, submitted revised application for joint venture in risk
participation basis, while 18 banks and a subsidiary of one bank were conveyed in principle
 approval for agency business. Out of the three banks, which has received RBI approval for
joint venture on risk participation basis, two banks, namely State Bank of India and Vysya

Bank have started their insurance operations under the registered names of SBI life and ING

Vysya respectively. The third bank, Punjab National Bank is the second amongst PSBs to
have received RBIs go ahead for both life and non life business.

Traditionally, insurance products have been promoted and sold principally through
agency systems in most countries. With new developments in the customers¶ behaviors,
evolution of technology and deregulation, new distribution channels have been developed
successfully and rapidly in recent years. Bancassurers have developed three basic distribution
models: Integrative, Specialist, Financial Planning model

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  Selling an insurance plan is not an easy task. It requires
professionals with marketing skills for convincing people to buy plan. But
most insurance selling banks do not have trained sales force and there is also an acute
competition from other insurance intermediaries who have well trained financial advisers (sales
force). At present, even the consumers are demanding more as a result of unprecedented
changes in the financial markets.

O?,"Ä,c!!"!
  Statutory restrictions have forced banks to provide their customers with limited
choices. The Insurance Regulatory Development Authority (IRDA) adopted a cautious
approach before flagging off bancassurance. While on the one hand, it is an economical
proposition to sell risk products through the numerous bank branches spread across the
country, the fact that claim settlement disputes take an unusually long time in our country is a
theory issue. In such a situation, banks must be protected to safeguard their reputation.
Otherwise, they may lose their prime banking business.

O?"
c
c 
  As mentioned earlier, most bancassurance ventures will be forced to achieve
optimum organization structures due to competition from independent agents. This competition
will devolve with the influx of insurance broking agencies who are free to bargain for the most
suitable products to satisfy the needs of customers.

These developments are expected to challenge traditional bancassurers in the following

ways:

O? The shift away from manufacturing to pure distribution requires banks to better align the

incentives of different suppliers with their own.

O? Increasing sales of non-life products, to the extent those risks are retained by the banks, require

sophisticated products and risk management.

O? The sale of non-life products should be weighted against the higher cost of servicing those

policies.
O? Banks will have to be prepared for possible disruptions to client relations arising from more

frequent non-life insurance claims.

!

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India¶s largest bank, state bank of India, which has a presence in
28 countries, is eyeing acquisitions aboard especially on US, ASIA AND Africa. The banks
global strategy includes expanding its overseas offices to 71 in 38 countries by the end of the
current fiscal, as against 52 offices in 28 countries now.

The bank registered a net profit of Rs.3105 crore in the 2002-2003 fiscal. SBI¶s
international business accounts for 5% of its total business income.
 SBI Life Insurance Company limited is a joint venture between State Bank of India and
Cardiff of France. SBI is the largest bank in India and Cardiff is a leading insurance company
in France operating in 28 countries. Cardiff is a wholly owned subsidiary of BNP Paribas, one
of the largest European banks.

SBI Life branch network will be expanded from 60 to 150 this year.

SBI aim to strengthen the bancassurance model through the branches of State
Bank of India and other associate banks we have tie-ups with. Currently, SBI Life products are
being sold in over 6,500 branches of the State Bank Group - around 1,500 branches are selling
individual policies and another 5,000 group products.

Bancassurance is the company's key distribution channel, contributing over 43 per cent to
the total premium o, at Rs 470 crore for the financial year ended March 31, 2006. This year we
hope to increase that to 50 per cent.

SBI Life now launches bancassurance online.

SBI Life Insurance Ltd., India¶s leading private life insurance company announced the
launch of µBancassurance Online¶ the first initiative of its kind with its Bancassurance
promoter, State Bank of India. Mr. O.P Bhatt, Chairman, State Bank of India formally
inaugurated the entrance.

While inaugurating the entry Chairman State Bank of India said, ³µBancassurance
Online¶ is a significant step towards integrating insurance with banking and it will provide my
staff member¶s information as well as education on life insurance.´

Bancassurance Online¶, an exclusive intranet facility, brings Life Insurance solutions at

par with SBI¶s Banking products, thereby reducing turnaround time to meet customer
requirements delightfully.

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 . /00/ /001 /002
ICICI Prudential 15% 30% 60%
SBI Life 15% 50% 62%
AVIVA 50% 70% 85%
Birla Sun Life 25% 25% 25%
ING Vysya 10% 15% 20%
Bajaj Allianz - 25% 56%
HDFC Standard 10% 40% 55%
Met Life 25% 20% 10%

hc c Ä!

A? Although the concept is simple enough in theory, but in practice it has been found to be far
from straightforward.

A? Almost many people have a fair idea about Bancassurance and that their banks sell various
insurance products. But still few people don¶t know about Bancassurance as a concept.
A? It has been also found out that the banks have various opportunities to cross sell insurance
products. The insurance companies also have the opportunity to take advantage of the bank¶s
network and other avenues.

A? It is also seen that customers have a lot of trust on the banks, and because of that trust the
customers will take the insurance products from banks.

A? As the brand name of the banks is important so is the brand image of the insurance companies.
So the banks and the insurance companies must tie-up with the right partners. This will help
them to create a better image in the minds of the customers.

A? It has also clear from the study that the private sector and the foreign banks have better future
in Bancassurance. But the public sector banks are also trying to give them a tough competition
e.g. SBI Life Insurance Co.

A? The banks fail to provide personalized services as are provided by the agents. So banks will
have to improve in that area. They should provide after sales services to the customers.