Bancassurance
It is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance product Bank allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff.
Distribution channels in Bancassurance
-Career Agents -Special Advisers -Salaried Agents -Bank Employees / Platform Banking -Corporate Agencies and Brokerage Firms -Direct Response -Internet -e-Brokerage -Outside Lead Generating Techniques
Distribution Models
Integrative / Generalist Model The integrative model distributes products through existing bank channels, and in its most well-known European version, branch bankers themselves sell insurance products to customers. Specialist Model The specialist model distributes investment or other complex insurance products through product experts who are generally employees or representatives of the insurance company
Financial Planning Model
The financial planning model is the only team approach. This method offers each customer and prospect a full financial planning package addressing all of the individual's financial concerns, risk tolerances and location in the cycle of life. This process is beneficial for the customer, the bank and the insurer, as the customer is viewed outside the numbers
Key Value Drivers for success of bancassurance
Brand equity
The strategy should leverage the bank's brand equity with consumers. Consumers throughout the world rate bankers higher than insurance agents in terms of such criteria as objectivity of advice and product knowledge
Technology
Bancassurers should plan a technological infrastructure that will exploit customer information found in the bank's database to uncover sales opportunities and produce transactional simplicity for insurance customers.
Distribution
The distribution model should accomplish the following objectives:
It should cater to all segments of the banking population i.e Branch Walk-in, fresh accounts, non walk in customers, employees of corporate houses.
It should work as a single shop for all financial requirements for the bank customer
It should effectively utilize the existing branch banking platform
Reason why bancassurance and not insurance
in the emerging scenario, customers prefer to have a
consolidation and delivery of all financial services at a single window in the form of financial super market, irrespective of whether financial or banking transactions,
one of the factor is that banks continue to command the highest trust and faith among Indian savers and investors and of the total pool of financial savings of household.
Banc assurance is cost effective for the insurance companies, and that cost gets distributed in the form of profit to banks and insurance companies
There is more number of bank branches as compared to insurance companies Besides, the bank branch network of 62000 is virtually impossible to replicate and would be indispensable in penetrating newer markets such as rural markets.
To the insurance companies
Advantages
Through this new distribution network, the insurance company significantly extends its customer base and enjoys access to customer s who were previously difficult to reach. The insurance company has the opportunity to vary its distribution methods, in order to avoid excessive dependence on a single network.
The insurance company often benefits from the trustworthy image and reliability that people are more likely to attribute to banks .
To the bankers
First of all, the bank sees bancassurance as a way of creating a new revenue flow and diversifying its business activities. The bank becomes a sort of supermarket, a one-stop shop for financial services, where all customers needs whether financial or insurance- related can be met . The distribution costs can be seen as marginal since, in most cases, it is the banks existing employees who sell the insurance products.
Disadvantages
At present ,the Bancassurance is facing problems such as poor management lack of call centers
no personal contact
inadequate infrastructure inadequate incentive to agents
in complete fulfillment of other essential requirements.
RBI Guidelines: Any Commercial Bank can undertake insurance business as an agent of insurance company on fee basis. There is no risk participation for such banks. Joint Ventures will be allowed for financially strong banks who are wishing to undertake insurance business with risk participation if they satisfy the following criteria: - Net worth of the bank should be not less than Rs.500 crore. - Capital Adequacy Ratio should be not less than 10% in the bank. - There should be reasonable level of (NPA) - The bank should have earned net profit continuously for last three years.
IRDA Norms:
According to IRDA,a private sector participant has to fulfill the following requirements to enter into the insurance business:
[Link] should have a minimum paid up capital of Rs.100 Crores
[Link] has to be made in the policyholder funds only in India. [Link] is a restriction of international companies to the minority equity holdings up to 26%. [Link] bank selling insurance should have a Chief Insurance Executive to handle all the activities and matters relating to the insurance
Few Tie-ups in India:
[Link] Insurance Corporation (LIC)has a tie up with Corporation Bank,Indian Overseas Bank, etc
2 State Bank of India has tie up with State Bank of India Insurance Company.
[Link] Allianz General Insurance Company has tie up with Karur Vysya Bank and lord Krishna Bank. [Link] Sun life Insurance Co td has tie up with the following banks for the purpose of Insurance such as - Bank of Rajasthan, Andhra Bank,Citi [Link] bank with Chubb, USA and Standard life,USA [Link] Vysya Bank has tie up with Royal sundaram and ING life Insurance,Canada
Thank you!