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CHAPTER 1 INTRODUCTION 2
EXECUTIVE SUMMARY
INTRODUCTION TO BANKING
INTRODUCTION TO INSURANCE
ABOUT BANCASSURANCE
BIBLIOGRAPHY 56
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BANCASSURANCE: AN OVERVIEW
Executive Summary
This has given rise to a new form of business wherein two big
financial institutions have come together and have integrated all their
strength and efforts and have created a new means of marketing and
promoting their products and services. On one hand it is the Banking
sector which is very competitive and on the other hand is Insurance sector
which has a lot of potential for growth. When these two join together, it
gives birth to BANCASSURANCE.
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BANCASSURANCE: AN OVERVIEW
Further the project also includes the case study of SBI Life
Insurance Company, its various products, the growth they have
experienced since the opening up of a wholly owned subsidiary of SBI
Bank that sells insurance products.
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BANCASSURANCE: AN OVERVIEW
CHAPTER-1
1. Definition
2. History
1. Definition
2. History
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BANCASSURANCE: AN OVERVIEW
Introduction to Banking
The Insurance Act, 1938 was the first legislation governing all
forms of insurance to provide strict state control over insurance
business.Today there are 14 general insurance companies and 14 life
insurance companies operating in the country. But today also the
insurance companies are trying to capture Indian markets as not many
people are aware of it.
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BANCASSURANCE: AN OVERVIEW
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BANCASSURANCE: AN OVERVIEW
About Bancassurance
1. Meaning
2. Origin
3. Models of Bancassurance
I. Structural classification
II. Product based classification
III. Bank Referrals
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BANCASSURANCE: AN OVERVIEW
What is BANCASSURANCE?
With the opening up of the insurance sector and with so many players
entering the Indian insurance industry, it is required by the insurance
companies to come up with innovative products, create more consumer
awareness about their products and offer them at a competitive price. Since
the banking services, insurance and fund management are all interrelated
activities and have inherent synergies, selling of insurance by banks would be
mutually beneficial for banks and insurance companies. With these
developments and increased pressures in combating competition, companies
are forced to come up with innovative techniques to market their products
and services. At this juncture, banking sector with it's far and wide reach, was
thought of as a potential distribution channel, useful for the insurance
companies. This union of the two sectors is what is known as
Bancassurance.
Meaning
Bancassurance is the distribution of insurance products through the bank's
distribution channel. It is a phenomenon wherein insurance products are
offered through the distribution channels of the banking services along with a
complete range of banking and investment products and services. To put it
simply, Bancassurance, tries to exploit synergies between both the insurance
companies and banks.
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BANCASSURANCE: AN OVERVIEW
Origin
Germany took the lead and it was called “ALLFINANZ”. The system of
bancassurance was well received in Europe. France taking the lead,
followed by Germany, UK, Spain etc. In USA the practice was late to start
(in 90s). It is also developing in Canada, Mexico, and Australia.
Models of Bancassurance
I. Structural Classification
a) Referral Model
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BANCASSURANCE: AN OVERVIEW
clients data base, parts with only the business leads to the agents/ sales
staff of insurance company for a ‘referral fee’ or commission for every
business lead that was passed on. In fact a number of banks in India have
already resorted to this strategy to begin with. This model would be
suitable for almost all types of banks including the RRBs /cooperative
banks and even cooperative societies both in rural and urban. There is
greater scope in the medium term for this model. For, banks to begin with
can resort to this model and then move on to the other models.
b) Corporate Agency
Apart from the above two, the fully integrated financial service
involves much more comprehensive and intricate relationship between
insurer and bank, where the bank functions as fully universal in its
operation and selling of insurance products is just one more function
within. This includes banks having wholly owned insurance subsidiaries
with or without foreign participation. The great advantage of this strategy
being that the bank could make use of its full potential to reap the benefit
of synergy and therefore the economies of scope. This may be suitable to
relatively larger banks with sound financials and has better infrastructure.
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BANCASSURANCE: AN OVERVIEW
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BANCASSURANCE: AN OVERVIEW
III.Bank Referrals
There is also another method called 'Bank Referral'. Here the banks do not
issue the policies; they only give the database to the insurance companies.
The companies issue the policies and pay the commission to them. That is
called referral basis. In this method also there is a win-win situation every
where as the banks get commission, the insurance companies get databases of
the customers and the customers get the benefits.
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BANCASSURANCE: AN OVERVIEW
Utilities of Bancassurance
1. For Banks:
i. As a source of fee based income
ii. Product diversification
iii. Building close relations with the customers
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BANCASSURANCE: AN OVERVIEW
For Banks
From the banks’ point of view, opportunities and possibilities to earn fee
income via Bancassurance route are endless. A typical commercial bank
has the potential of maximizing fee income from Bancassurance up to
50% of their total fee income from all sources combined. Fee Income from
Bancassurance also reduces the overall customer acquisition cost from the
bank’s point of view. At the end of the day, it is easy money for the banks
as there are no risks and only gains.
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BANCASSURANCE: AN OVERVIEW
Product Diversification
In terms of products, there are endless opportunities for the banks. Simple
term life insurance, endowment policies, annuities, education plans,
depositors’ insurance and credit shield are the policies conventionally
sold through the Bancassurance channels. Medical insurance, car
insurance, home and contents insurance and travel insurance are also the
products which are being distributed by the banks. However, quite a lot of
innovations have taken place in the insurance market recently to provide
more and more Bancassurance-centric products to satisfy the increasing
appetite of the banks for such products.
Insurers who are generally accused of being inflexible in the pricing and
structuring of the products have been responding too well to the
challenges (say opportunities) thrown open by the spread of
Bancassurance. They are ready to innovate and experiment and have set
up specialized Bancassurance units within their fold. Examples of some
new and innovative Bancassurance products are income builder plan,
critical illness cover, return of premium and Takaful products which are
doing well in the market.
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BANCASSURANCE: AN OVERVIEW
Stiff Competition
Rural Penetration
Insurance industry has not been much successful in rural penetration of
insurance so far. People there are still unaware about the insurance as a
tool to insure their life. However this gap can be bridged with the help
of Bancassurance. The branch network of banks can help make the rural
people aware about insurance and there is also a wide scope of business
for the insurers. In oder to fulfill all the needs bancassurance is needed.
Now a days the insurance companies are trying to exploit each and
every way to sell the insurance products. For this they are using
various distribution channels. The insurance is sold through agents,
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BANCASSURANCE: AN OVERVIEW
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BANCASSURANCE: AN OVERVIEW
Chapter-2
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BANCASSURANCE: AN OVERVIEW
3. In cases where a foreign partner contributes 26% of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign
Investment Promotion Board, more than one public sector bank or private
sector bank may be allowed to participate in the equity of the insurance
joint venture. As such participants will also assume insurance risk, only
those banks which satisfy the criteria given in paragraph 2 above, would
be eligible.
5. Banks which are not eligible for ‘joint venture’ participant as above,
can make investments up to 10% of the net worth of the bank or Rs.50
crore, whichever is lower, in the insurance company for providing
infrastructure and services support. Such participation shall be treated as
an investment and should be without any contingent liability for the bank.
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BANCASSURANCE: AN OVERVIEW
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BANCASSURANCE: AN OVERVIEW
Benefits of Bancassurance
1. To Banks
2. To Insurance companies
3. To Customer
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BANCASSURANCE: AN OVERVIEW
To Banks
(B) Banks have face-to-face contract with their customers. They can
directly ask them to take a policy. And the banks need not to go any
where for customers.
(C) The Bankers have extensive experience in marketing. They can
easily attract customers & non-customers because the customer &
non-customers also bank on banks.
(D) Banks are using different value added services life-E. Banking tele
banking, direct mail & so on they can also use all the above-
mentioned facility for Bankassurance purpose with customers & non-
customers.
(F) By providing customers with both the services under one roof,
they can improve overall customer satisfaction resulting in higher
customer retention levels.
(I) Banks can cross sell insurance products E.g.: Term insurance
products with loans.
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BANCASSURANCE: AN OVERVIEW
To Insurers
(A) The Insurance Company can increase their business through the
banking distribution channels because the banks have so many customers.
(B) By cutting cost Insurers can serve better to customers in terms lower
premium rate and better risk coverage through product diversification.
(F)The insurance companies can also get access to ATM’s and other
technology being used by the banks.
(H) The product can be customized as per the needs of the customers.
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BANCASSURANCE: AN OVERVIEW
To Customers
(D) Easy access for claims, as banks are a regular visiting place for
customers.
(E) Innovative and better product ranges and products designed as per
the needs of customers.
(G) 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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BANCASSURANCE: AN OVERVIEW
Distribution Channels:
1. Career agents
2. Special advisers
3. Salaried agents
4. Bank employees
5. Corporate agency & Brokerage firm
6. Direct response
7. Internet
8. E- Brokerage
9. Outside lead generating techniques
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Distribution Channels
Career Agents:
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Salaried Agents:
Internet:
Internet banking is already securely established as an effective and profitable
basis for conducting banking operations. Bancassurers can feel confident that
Internet banking will also prove an efficient vehicle for cross selling of
insurance savings and protection products. Functions requiring user input
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(check ordering, what-if calculations, credit and account applications) should
be immediately added with links to the insurer. Such an arrangement can also
provide a vehicle for insurance sales, service and leads.
Various Trends
Challenges
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o
Trends
Though bancassurance has traditionally targeted the mass market,
but bancassurers have begun to finely segment the market, which
has resulted in tailor-made products for each segment.
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Banks even offer space in their own premises to accommodate the
insurance staff for selling the insurance products or giving access
to their client’s database for the use of the insurance companies.
Challenges
The banks also have fear that at some point of time the insurance
partner may end up cross-selling banking products to their
policyholders. If the insurer is selling the products by agents as
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well as banks, there is a possibility of conflict if both the banks and
the agent target the same customers.
SWOT Analysis
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats
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SWOT Analysis:
Banking and Insurance are very different businesses. Banks
have less risk but the insurance has a greater risk. Even though, banks
and insurance companies in India are yet to exchange their wedding
rings, Bancassurance as a means of distribution of insurance products is
already in force in some form or the other.
Strengths:
In a country like India of one billion people where sky is the limit
there is a vast untapped potential waiting for life insurance
products. Our other strength lies in a huge pool of skilled
professionals whether it is banks or insurance companies who may
be easily relocated for any bancassurance venture.
Banks have the credibility established with their constituents
because of a variety of services and schemes provided by
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them.They also enjoy pride of place in the hearts of people
because of their long presence and sustained image.
Banks are very well aware with the psychology of the customers
because of their interaction with the customers on regular basis.
Because of this the bankers can guess the attitude and diverse
needs of the customers and could change the face of insurance
distribution to personal line insurance.
People rely more upon LIC and GIC for taking insurance. If the
products of LIC and GIC are provided through bancassurance it
would be an added advantage to the insurance companies.
With the help of banks trained staff, its brand name and the
confidence and reliability of people on the banks, the selling of
insurance products can be done in a more proper way.
Other than all these things there is a huge potential for insurance
sector, as the population of India is high and a large part of it has
remained untapped till now. So this can create an added advantage
for both banks and insurers.
Weaknesses:
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collaborations. The internet connections are also not properly
provided to the staff.
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To undertake the distribution of the insurance products, the bank
employees have to undergo certain minimum period of training,
followed by a test and then get themselves licensed. Moreover the
standards of the examination have been raised in the recent past
making it difficult for many examinees to clear the same.
Opportunities:
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There are many people in many areas that are still unaware about
the insurance and its various products and are waiting that
somebody should come and give them the information about it.
In urban and metro areas, where the customers are willing to get
many services like lockers and safe deposit systems and other
products and services from banks, there is a good opportunity to
market many property related general insurance policies like fire
insurance, burglary insurance and medi-claim insurance etc.
Threats:
If no strict norms are there for such ventures then many unholy
ventures may take place which may give rise to tough competition
between bancassurers resulting in lower prices and the
Bancassurance venture may never break because of such situations.
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Indian scenario
Global scenario
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Indian Scenario
The business of banking around the globe is changing
due to integration of global financial markets, development of new
technologies, universalization of banking operations and diversification
in non-banking activities. Due to all these movements, the boundaries
that have kept various financial services separate from each other have
vanished. The coming together of different financial services has
provided synergies in operations and development of new concepts. One
of these is bancassurance.
Global Scenario
Bancassurance has grown at different pace and taken different
shapes and forms in different countries depending on the demography,
economic and legislations in that country. During the last two decades,
bancassurance has taken deep roots in various countries, especially in
Europe. Bnacassurance, so far, has been basically European.
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Bancassurance has seen tremendous acceptance and growth
across nations. Although it enjoys a penetration rate in excess of 50% in
France, Spain, Italy and Belgium, other countries have opted for more
traditional networks. The Life insurance market in the UK is largely in
the hands of the brokers. With advent of bancassurance, their market
share has increased from 40% in 1992 to 54% in 1999. Sales agents also
play an important role on a market entirely regulated by the Financial
Services & Markets Act (FSMA) which imposes very strict marketing
conditions. In Germany, the market continues to be dominated by general
sales agents, even if their market share has declined from 85% in 1992 to
54% in 1999.
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Future scope for Bancassurance
India has already more than 200 million middle class population
coupled with vast banking network with largest depositors base, there is
greater scope for use of bancassurance. In emerging markets, new
entrants have successfully employed bancassurance to compete with
incumbent companies. Given the current relatively low bancassurance
penetration in emerging markets, bancassurance will likely see further
significant development in the coming years.
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Other tie-ups
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CHAPTER-3
No 20%
Yes
Yes 80% No
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Have You Taken An Insurance Policy From Your Bank?
Yes 34% No
Yes
No 66%
Interpretation: Among the people who were surveyed, there were only
34% people who had taken insurance policy from their respective banks.
Remaining 66% respondents didn’t opt to take a policy from their banks.
70 63%
60
50 42%
40
3023%
20 18%
10
0
48
Deposit Based Loan Based Life Insurance Others
90
80% 28% 65% 40%
80
70
60
50
40
30
20
10
0
49
On Your Choice Which Mode Of Insurance Distribution
Channel Would You Prefer To Buy The Policy From?
Insurance companies
20% Banks
23%
Brokers
7%
Agents
50%
50
100
90%
90
80
70 70%
60
50 38%
40
30
20
10
0
Interpretation: 90% people said that private sector banks would excel in
this because of their aggressive selling policies and they provide quality
services to the customers. 70% votes were given to foreign banks.
Because foreign banks have proper management and aggressive selling
strategies. The public sector banks were given the least votes because of
their lazy approach to work.
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No,5%
Yes
No
Yes,95%
Interpretation: 95% people said that they believe that Bancassurance has
a very bright future because there is an immense potential for the
insurance industry in India. But 7% believe that because of the emergence
of the new technology such as ATM’s, Internet banking etc the banks will
soon go virtual so there is not much scope for it.
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CHAPTER-4
FINDINGS
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.
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.
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.
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.
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Banks now-a-days are trying to provide each and every service to its
customers. So by providing insurance, banks can add one more service
to their list.
Recommendations
Banks should also provide after sales services and they should be more
aggressive in selling the insurance products.
Banks should also do the settlement of claims which will increase the
trust and reliability of the customers on the banks.
Banks and Insurance companies should apply all the skills and
potential in this area and take advantage of the same and they should
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improve the products from time to time according to the needs of the
customers.
Conclusion
The life Insurance Industry in India has been progressing at a
rapid growth since opening up of the sector. The size of country, a diverse
set of people combined with problems of connectivity in rural areas,
makes insurance selling in India a very difficult task. Life Insurance
Companies require good distribution strength and tremendous man power
to reach out such a huge customer base.
The bridge has been reached and many are beginning to walk those
cautious steps across it. Bancassurance in India has just taken a flying
start. It has a long way to go ……….. after all The SKY IS THE LIMIT!
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Questionnaire used for survey
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Bibliography
www.google.com
www.wikipedia.com
www.insuranceforum.com
www.rbi.org.in
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