Final Project of 100 Marks

BANCASSURANCE—PATHWAY TO SUCCESS
INTRODUCTION
The term ‘bancassurance’ 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 ‘Corporate Agency’ regulations in October 2002.
The French termed it ‘Bancassurance’, the Germans termed it ‘Allfinanz’ and

some familiarize it with the terms ‘Integrated Financial Services’ or ‘Assurebanking’.
Bancassurance in simple words is ‘Distribution by Convergence’.
Definition:
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
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Features of Bancassurance:
The features of bancassurance states as follows:
 Banks Act as Corporate Agents:
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.
 Win-Win Model:
Bank Act
Under bancassurance, banks can develop strong relationships with their customers
and sell insurance products. Insurance companies affirm that marketing ‘risk 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.
 Additional Revenue:
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.
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 Valuable Inputs from Bankers:
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.
 Reduced Costs:
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.
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CONVERGENCE STRATEGIES
Having embraced Bancassurance, insurers and banks have a demanding task of

developing suitable strategies for the successful execution of their collaborative plans.
The project enumerates the critical success factors that bancassurers need to
consider as they move ahead to meet their strategic objectives.
The strategies to be adopted should be primarily revolved around the customer and be
directed towards enhancing the value to the customer. It implies that strategy execution
should lead to customer attraction and retention.
Technology adoption is one strategy that is gaining significant coverage
for varied reasons. As the level of technology is enhanced in the banks, they are able to
develop new operating capabilities, thereby offering extraordinary service to customers.
For customer attraction and retention, Insurers will also have to evolve strategies for
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technology adoption. Data management systems enable maintenance of seamless data

in an integrated fashion. The enormous customer data existing with the banks can be
effectively data mined to obtain information on customer profiling, demographic
preferences, etc. this data intelligence can be proactively used in product innovation and
services modeling. Apart from data mining, data that is maintained in timely and in
error-free manner will enable smooth execution of the business processes. Tailor-made
technological applications can then be used to touch the business processes in the
collaboration process thereby ensuring faster execution through automated services. Not
surprisingly, the reduced costs and enhanced revenues will confer competitive
advantage to the technology adopters.
DISTRIBUTION THROUGH DIFFERENT DISTRIBUTION
CHANNELS:
TRADITIONAL BANCASSURANCE DIRECT

ING VYSYA 0 20 80
MET LIFE 10 10 80
TATA AIG 15 5 80
ALLIANZ 25 5 70
HDFC 10 15 75
ICICI PRUDENTIAL 5 20 75
BIRLA 20 25 55
AVIVA 0 85 15
SBI LIFE 0 20 80
100%
80% DIRECT
60%
BANCASSURANCE
40%
20% TRADITIONAL
0%
TATA AIG
MET LIFE
ING VYSYA
ALLIANZ
SBI LIFE
ICICI
AVIVA
BIRLA
HDFC
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GROWTH OF BANCASSURANCE
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
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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.
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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.
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BANCASSURANCE – A WIN WIN SITUATION
Bancassurance is a win win situation for both the banks as well as the insurance
companies. Banks and insurance companies are the entities which are linked to each
and every individual in today’s era. Banks have been improving and progressing from
the traditional till the modern age. Insurance too provide an assurance to the every
common individual. A win win situation for banks and insurance companies is that
banks provide bancassurance to retain their existing customers as well as to attract new
customers. And for insurance companies is that to earn revenue and create a channel for
diversification.
Banks aims to provide satisfaction of more financial needs to their customers
under one roof i.e. if a customer comes to a bank to deposit a cheque he can at the same
time interact with the bank personnel about the new insurance products coming in so
van the bank personnel can do if the customer approaches to him. While for an
insurance company is to provide quality customer access.
The banks can diversify the revenue by providing both the bank products as well
as the insurance products to their customers while insurance companies can have a
quicker geographical reach to the end customers.
It is more profitable resource utilization for the banks as the banks profits can be
increased by selling the insurance products. Whereas if a bank sells insurance products
to their customers in creates a brand equity for the insurance companies.
Bancassurance enriches the work environment for the banks whereas insurance
companies leverage service synergies with the banks.
The last but not the least bancassurance establishes sales orientated culture for the
banks while for the insurance companies it establishes a low cost acquisition channel.
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BANCASSURANCE – WILL THE CUSTOMER REALLY

BENEFIT?
The opening up of the insurance sector is a reality, and the Insurance Regulatory
and Development Authority (IRDA) has licensed three players.
It is natural that banks, which deal with the public on a day-to-day basis, think of
entering this sector. In fact, in April, the RBI approved, and issued guidelines for, the
entry of banks into the insurance sector. The guidelines permit any scheduled c
commercial bank to undertake insurance business as an agent of insurance companies,
on a fee basis, without any risk participation, while banks wishing to set up joint
ventures to undertake insurance business with risk-participation have to satisfy the
eligibility criteria.
Normally, the maximum equity a bank can hold in a joint venture is 50 per cent of
the insurance company's paid-up capital. The RBI may, however, selectively permit an
initial higher equity contribution by a promoter bank, pending divestment of equity
within the prescribed period. Thus, the SBI has been allowed equity participation of 74
per cent in its joint venture.
The eligibility criteria also stipulate that as on March 31, 2000 the bank's net
worth should be not less than Rs 500 crore, the CRAR not less than 10 per cent, and the
level of NPAs reasonable. Vysya Bank has entered an agreement with the Netherlands
major ING Insurance, while Centurion Bank has tied up with Canada Life.
Financial majors such as the UTI, ICICI, IDBI, and HDFC extended the scope of
their services by opening up banks, and their performance is encouraging enough to
extend activity on similar lines. Thus, banks and insurance companies can together
create an integrated financial services group, providing customers one-stop financial
shopping.
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The LIC and the GIC have reportedly approached the Centre for licenses to offer
their customers banking and allied services. When banks, insurers and financial
conglomerates come together, as is increasingly happening, exploiting the cross-selling
potent ail of the enlarged group is usually stated as the primary goal. This, the emerging
bank-insurer claims, will create lucrative revenue synergies and generate increased
profits for the stakeholders.
To achieve success, the bank-insurance entity needs to focus on a multi-brand,

multi-distribution channel. The optimum synergy is to have an overall umbrella brand
for the group that endorses the various product and distribution channel brands
throughout the organization.
This strategy encourages the provision of individualized services with the back-up
of the large financial group, and makes it easier to sell different products through
different channels. For instance, a complex unit-linked life insurance product is better
sold through brokers or agents, while a standard term product can be handled by bank
branches; bancassurance can, at best, sell such simple products as auto insurance, home
loan and accident insurance cover.
On the critical question of cross-selling, the aspirations of banks and insurers

cannot be over-ambitious, as experience in other countries indicates that, in general,
financial institutions have not achieved great success in cross-selling to their own
customer base. The key to success in this area is to have a customer overview and, thus,
a common database designed along customer, rather than product, lines.
The future trends point towards the banks (say, the SBI) grappling with the task of
bringing together the businesses of banking and insurance. What will be crucial is the
handling of the most important component -- the customer. As customers become more
aware, demanding and sophisticated, with fast-changing life-styles, they want greater
convenience in financial services. The emergence of remote distribution channels, such
as PC-banking and Internet-banking, was a response to just such a demand for quick k
service.
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In India, the main channel for insurance distribution is directly through an agent.
The dependence on direct-agent selling may continue as life and pension products have
long-term commitment and require advice. However, possible fallout of bank-insurance
synergy could be the emergence of newer distribution channels seeking a market share
in the network.
A quick glance at the global scene indicates that more banks are expanding into
non-life business, and that insurance companies are seeking banking networks. The
formation of the huge European financial conglomerates Credit Suisse and Winterthur
could be the first of a long line of new conglomerates.
In other countries, the all-finance concept is already at work. Instances are:

Caisses Desjardins in Quebec; Bradesco in Brazil; a very large financial group, Lippo,
in Indonesia and Malaysia; and the Bank of Bangkok group in Thailand. Is all-finance
the only possible avenue for insurance development? While it is certainly one of the
major ones, there are also new developments in distribution channels, such as the
Internet and telemarketing.
Recently, major American banks have again turned their attention to insurance for
a variety of reasons:
• Lure of high commissions.

• Presence of a large under-served market, and an inefficient distribution system.
• Hype about success of bancassurance in Europe.
Many of the banks understand that they are really in a `share-of-wallet' business.
They need to get more out of their customers' financial services business before
somebody else does.
Thus far, the renewed efforts of bank-insurance access on the life side have not
been too successful. Only a paltry 3 per cent of all new life insurance premiums are
generated through banks and savings institutions, though the banks have achieved
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varying success rates so far in marketing non-life business. Substantial gains have been
achieved in home-owner's insurance, while the auto insurance business is encountering
roadblocks.
Regulatory concerns
In India, insurance, banking and securities are regulated by different entities. And
with sound reason too. They are fundamentally different businesses with varying
regulatory requirements though with one common denominator -- the consumer. This
could be the main reason why several countries are moving towards establishing some
sort of integrated approach. Each industry provides personal financial services for
millions of customers who put their trust in the regulator. The regulators need to equip
themselves to handle the emerging situation.
The IRDA regulations provide for the emergence of newer distribution channels,
such as bancassurance, the Internet, direct marketing and through corporate bodies
(non-insurance players). The expansion may be advantageous to customers, but proper
checks and balances must be in place. Insurance, even when sold by banks or combined
with other products, is still insurance and needs to be regulated as such. There is a
definite need to preserve IRDA's authority over all insurance-related products.
Modernization of financial services' is an intriguing phrase. It has been heard

repeatedly in Europe and the US over the last 10 years. Obviously, India is also going
through this phase. Countries are trying suitably worded laws. Several amendments and
guidelines have been made in the Insurance Act, 1938 and in banking regulations to
accomplish a smooth change-over to the new situation. It seems clear that barriers
which have long separated the businesses of insurance, banking and securities are
penetrable, though it is still hard to tell how much the customers will benefit.
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BENEFITS OF BANCASSURANCE
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
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And If The Coin Had A Third Side Truly We Can Say That The Customer Also Wins.
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Following are the benefits of bancassurance to the banks:
 Fee- based income:

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.
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Example:
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)
 Increased Return on assets (ROA):

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.
 Increase staff productivity:

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.
 Profitability:
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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.
 Enhances customer relationship:

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.
 Creating a universal banking platform:

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 “One-stop financial supermarket”.
 Increasing the customer base:

Banks can garner fresh business by using insurance as a selling hook.
Following are the benefits of bancassurance to the Insurers:
 Cheaper than agents:

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.
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 Rural penetration:
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.
 Cost – reduction:
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.
Example: 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.
 Greater control of their business:

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.
 Market penetration:
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.
 Targeting middle-income customers:
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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.
 Facilities Growth:
Reduced costs and high premium turnover results in profitability, thereby
facilitating growth.
Example: Bajaj Allianz has witnessed a 350% growth due to bancassurance.
 Provides Competitive advantage:

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.
Following are the benefits of bancassurance to the Customers:
 Availability of a complete package:

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
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“One-Stop Shop” where a customer can apply for mortgages, pensions, savings and
insurance products.
Example:
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.
 Reduced costs:
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.
 Good quality product:

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.
 Time savings & convenience:

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.
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BENEFITS OF SELLING INSURANCE PRODUCTS

THROUGH BANKS
As the banks understand customers’ needs, deliver

trusted advice and create lasting value, they are
strategically positioned to cross-sell various products to
their customers because of their extensive branch network, use of their long-standing
relationship with both corporate and retail customers, huge customer database of raw
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information on the customers spending patterns and investment purchase, degree of

ownership of customer bases, lower cost bases personalized service, rural penetration,
cheaper mode vis-à-vis agents, product control and brand image. Information is the
capital that earns high returns. Banks that use information as a competitive asset can
transform even the toughest challenge into growth opportunities. The offer of a
repertoire of financial products helps to sustain and even enhance the product-loyalty
factor. The attempt to develop relevant services and proactive development of customer
relationship requires maximizing Customer Relationships and minimizing business risk.
Bancassurance, apart from generating higher non-interest income, has other spin-
off benefits. Capturing of huge captive business readily available in branches by assets
financed brought under the Corporative Agency and the likelihood of branches bringing
in incremental business by insuring other insurable assets of the borrower.
Hence, it provides an option for banks to seek more stable, less volat6ile fee-based
income and to add value to their existing operations by surmounting debilitating
constraints on growth and enhanced Return on Assets (RoA). No wonder, then
bancassurance as a potent instrument of catalyzing business transformation to meet the
onslaughts of progressive liberalization is widely considered both appropriate and
warranted.
FACTORS FOR THE SUCCESS OF BANCASSURANCE
Banks and insurance companies are very different in both in value and culture. In
India, the selling of insurance through banks is yet to emerge as regular activity and,
therefore, using traditional products and systems may not be appropriate.
The bitter experience of banks in bancassurance even with innovative products in the
previous years was mainly due to poor marketing, poor publicity, monthly payments
during times of inflation and declining value of money, lack of product promotion
initiated by the branch staff to avoid manual strain in mobilizing and maintaining
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accounts for bancassurance products under different heads and conventional way of
dealing with the customer in explaining with the merits of taken bancassurance
products.
Fundamental to bancassurance is the convenience and accessibility to the

customer.
 Lower cost of distribution due to sales productivity:

The potential to be tapped is ample and increasing the clientele base for
the insurance products will reduce the cost of distribution. Banks can leverage their
existing strengths to develop additional mass.
 Mining data base:

Banks have huge database of clients. Bank should ensure relevant and
flexible database system.
 Bank customer relationship:

Dealing with high net-worth customers MAY REQUIRE INSURANCE
Specialists to address complex sales issues. Banks officials need to be very clear about
service standards, policy issues, processing issues and sales and marketing support.
 The trust and esteem in which customer hold on banks:

Banks enjoy pride of place in the heart of people because of their
experience.
 The existing bank branch network/infrastructure:

Branch network should be utilized in with much more ambience for selling
insurance products.
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Life insurance products based on the insurers desires (sales driven): rather than
the consumer’s need (market oriented), in rural and semi-urban area also, similar
policies can be canvassed for sale. However, in these branches, the bank should be
proactive and innovative to suggest a proper planning for payment of premiums.
 Information technology:
The banks are technology- know-how now and competing with each other
on the service front. Technology up gradation can ensure more effective utilization of
the synergies the banks posses in bancassurance. Banks should train and equip their
staff with backing of technology, to deliver the requirements. Utilization of ATMs and
debit cards act as payment mechanism.
The banks culture must be transformed to sell insurance and it must be ensured
that shelf space is adequately provided in a banks retail delivery system. It is important
to note though, that if the bank’s sales culture is not compatible with selling insurance,
then specialist insurance salesmen may be needed.
The decision on what types of insurance products to be sold and methods of

distribution of these products are symbiotically related. The effort and expertise
required to sell a product must be in connection with skills available and cost base of
the chosen distribution method.
KEY SUCCESS FACTORS FOR BANCASSURANCE
Integration at an operational level is the success of bancassurance

relationships.
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DISTRIBUTION PRODUCT
SYSTEM: DESIGN: SALES
APPROACH:
Performance peaks Tailoring insurance
if insurance products to the A proactive sales
products are sold banks need approach fuels
exclusively enhance the sales revenue growth.
through bank efficiency.
agent.
SUCCESSFUL PARTNERSHIP OF BANKS AND INSURANCE COMPANIES
acceptance. selling potentials.

and employee to fully realize cross-
increases customer system is necessary
to the bank brand Integrating IT
A positioning close
IT SYSTEMS:
STRATEGY:
BRANDING
SOURCE: Monitor - J.P. Morgan Study on Bancassurance
The key policy challenge, at this stage, is to ensure the financial stability of the
new insurers, while at the same time encouraging entrepreneurship, product innovation
and increasing insurance penetration especially in rural and semi-urban areas.
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There is, therefore, a case for gradually replacing across-the-board capital

requirements with capital stipulations inked to the risk and claims characteristics of a
particular line of business as in practice in some advanced countries as recommended
by the Advisory Group on Insurance Regulation [2001]. This would increase the
number of players and product innovation. Also, while the present statutory stipulations
are adequate, there is a need to explore the possibilities of linking prudential norms to
the size of the balance sheet, especially when the terms of adequacy norms (IRDA,
2002). Presently, insurers are mainly offering insurance schemes, which are based on
assured returns. This is fraught with serious risks, especially with interest rate
scenario/market condition changes. In order to stave off the risks, associated with
assured return schemes, insurers need to shift to unit-linked insurance schemes based on
the market rates of return. While the joint ventures formed by new insurers with
entities, including banks and NBFCs, having a large branch/ dealer network, minimize
establishment costs, the contagion risks also get amplified in the process. This would
require close co-ordination among the regulating agencies.
BANCASSURANCE CHANNEL AS AN ALTERNATIVE
Bancassurance has been proposed as an attractive alternative to the traditional

agency model. It has the potential to offer manpower, customer database, and
28
relationship banking of the bank but it has its challenges in terms of defining
partnership terms, learning and unlearning. Bancassurance is a format where the
insurance companies offer their insurance products through the distribution channels of
bank along with a complete
range of banking and investment products and services to a common customer database
purports to serve the interests of the bank in leveraging its infrastructure and the
insurance company in quick entry and growth.
Potential of the banking channel:

Banks have played a significant role in mobilizing the savings in India and
forming the backbone of the Indian financial system. They have penetrated the interiors
through their branches. Over the years, the share of bank deposits in the total financial
assets of households has risen to about 40per cent. This is indicative of their immense
reach to households and their savings. It is estimated that out of a total of 65,700
branches of commercial banks, each branch serves, on an average, 15,000 people. There
are a total of 406 million accounts with aggregate deposits of more than Rs10 trillion.
Rural and semi-urban bank accounts constituted close to 60per cent in terms of number
of accounts indicating the number of potential lives that could be covered by insurance
with the frontal involvement of banks.
RBI GUIDELINES AND BANCASSURANCE MODELS
The RBI guidelines for banks will lead to the emergence of three
Different bancassurance models:
29
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
30
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.
• The ‘Integrative Model’ distributes products to customers through existing bank

channels. So, bank staff requires extensive training to know the details of the
insurance products on offer. Telemarketing and direct mail are examples of
integrative approaches.
• The ‘Specialist Model’ normally distributes complex insurance products through

their product experts who are generally representatives of the insurance company.
So, it requires less training but higher compensation to support the referral process.
• The ‘Financial Planning Model’ offers each customer with a prospect of full
financial planning package addressing all the individual’s financial concerns, risk
tolerance and location in the cycle of life. This process is beneficial to the customer,
bank and the insurer.
To move a bank in the direction of an effective user of the financial planning

model, the bank’s sales force has to be taught how to handle prospects and make
referrals and properly approach the customer/prospect. The effective business model is
the one which helps in pushing sales as well as satisfying customer needs and helping to
become a ‘one-stop shop’.
31
Listed below are various patterns of Distribution Alliances for Bancassurance

when it first started in India:
• Banks selling products of their insurance subsidiary exclusively.
• Banks selling products of an insurance associate (partner) on an exclusive

basis.
• Banks offering products of several insurance companies as `super market’.
32
BANCASSURANCE — A SWOT ANALYSIS
A SWOT analysis of bancassurance in India indicates a clear growth prospect.

The strength of the huge pool of skilled banking and insurance professionals coupled
with the very low level of insurance density offers great opportunities. The penetration
level that the Indian banking sector attained over the years of its operation in the sub-
continent provides a huge database and a wide reach for the successful implementation
of bancassurance.
Added to these positive aspects, bancassurance has also gained the requisite
regulatory support. However, the absence of the necessary technological infrastructure
and the inflexibility in product innovation can hamper the growth prospects of
bancassurance in India.
Bancassurance as a means of distribution of insurance products is already in force.

Banks are selling Personal Accident and Baggage Insurance directly to their Credit
Card members as a value addition to their products.
Banks can straightaway leverage their existing capabilities in terms of database

and face-to-face contact to market insurance products to generate some income for
themselves, which up till now was not thought of.
Huge capital investment will be required to create infrastructure particularly in IT

and Telecommunications, a call center will have to be created, top professionals of both
industries will have to be hired, a Research and Development cell will need to be
created to generate new ideas and products. It is therefore essential to have a SWOT
analysis done in the context of bancassurance experiment in India.
33
1.1. Strengths:
In a country of 1 Billion people, sky is the limit for personal lines
insurance products. There is a vast untapped potential waiting to be mined particularly
for life insurance products. There are more than 900 Million lives waiting to be given a
life cover (total number of individual life policies sold in 1998-99 was just 91.73
Million).
There are about 200 Million households waiting to be approached for a

householder's insurance policy. Millions of people traveling in and out of India can be
tapped for Overseas Mediclaim and Travel Insurance policies. After discounting the
population below poverty line the middle market segment is the second largest in the
world after China. The insurance companies worldwide are eyeing on this, why not we
pre-empt this move by doing it ourselves?
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.
SBI LIFE have a good range of personal line products already lined up; therefore R &
D efforts to create new products will be minimal in the beginning. Additionally, GIC
with
4,200 operating offices and LIC with 2,048 branch offices are almost already
omnipresent, which is so essential for the development of any bancassurance project.
1.2. Weaknesses:
The IT culture is unfortunately missing completely in all of the future
collaborators i.e. banks as well as insurance companies. A late awakening seems to
have dawned upon but it is a case of too late and too little. Basic IT requirement like
networking (LAN) is not in place even in the headquarters of some institutions, when
the need today is of Wide Area Network (WAN) and Vast Area Network (VAN).
Internet connection is not available even to the managers of operating offices.
34
The middle class population that we are eyeing at is today overburdened, first by
inflationary pressures on their pockets and then by the tax net. Where is the money
left to think of insurance? Fortunately, banks are now a days coming out with
some schemes that get IT exemptions but their also a need to be given tax exemption to
the customers further. Another drawback is the inflexibility of the products i.e. it cannot
be tailor made to the requirements of the customer. For a bancassurance venture to
succeed, it is extremely essential to have in-built flexibility so as to make the product
attractive to the customer.
1.3. Opportunities:
Banks' database is enormous even though the goodwill may not be the
same as in case of their European counterparts. This database has to be divided
variously and various homogeneous groups are to be churned out in order to position
the bancassurance products. With a good IT infrastructure, this can really do wonders.
Other developing economies like Malaysia, Thailand and Singapore have already
taken a leap in this direction and they are not doing badly. There is already an
atmosphere created in the country for liberalization and there appears to be a political
consensus also on the subject. Therefore, RBI or IRDA should have no hesitation in
allowing the marriage of the two to take place. This can take the form of merger or
acquisition or setting up a joint venture or creating a subsidiary by either party or just
the working collaboration between banks and insurance companies.
1.4. Threats:
Success of a bancassurance venture requires change in approach, thinking
and work culture on the part of everybody involved. Our work force at every level are
so well entrenched in their classical way of working that there is a definite threat of
resistance to any change that bancassurance may set in. Any relocation to a new
company or subsidiary or change from one work to a different kind of work will be
dislike with forcefulness.
35
Another possible threat may come from non-response from the target customers.
This happened in USA in 1980s after the enactment of Garn - St Germaine Act. A rush
of joint ventures took place between banks and insurance companies and all these failed
due to the non-response from the target customers. US banks have now again (since late
1990s) turned their attention to insurance mainly life insurance.
The investors in the capital may turn their face off in case the rate of return on
capital falls short of the existing rate of return on capital. Since banks and insurance
companies have major portion of their income coming from the investments, the return
from bancassurance must at least match those returns. Also if the unholy alliances are
allowed to take place there will be severe competition in the market resulting in lower
prices and the bancassurance venture may never break-even.
36
BANCASSURANCE OPPORTUNITIES
Globalization of markets advances in technology, changing demographic and

socio-economic pattern are some trends that will result in new or changing needs for
insurance protection and financial planning. Banks and insurance companies should
sharpen in their skills and potential in these areas and take advantages of emerging
opportunities. In addition to traditional products, banks need to develop special
insurance products in order to fulfill creating needs come from banking transaction or
improving certain products to make lucrative and helpful to the customers.
The motives behind banks selling bancassurance are the product diversification
and a source of additional fee-based income. In turn, return on asset can be increased
with more fee-based income. In addition, they can leverage their name, recognition and
reputation at both local and regional levels. Insurance companies see bancassurance as a
tool for increasing their market penetration and premium turnover. The customer sees
bancassurance as bonanza in terms of reduced price, high quality product and delivery
at doorsteps.
Bancassurance in India is in very early stages of development, it’s new and

untried but the potential is undoubtedly large. While many forms of bancassurance van
contribute to improving cross selling, only much closer forms of integration are likely
to yield benefits in operation efficiency.
37
INDUSTRY PERSPECTIVE
‘Bancassurance’ is identified as an alternative distribution channel to improve the

non-interest income of banks. The distribution of insurance products through banks has
been beneficial not only to the insurance and banking companies, but also to the
customers. The growth of bancassurance depends on how well the bank and the
insurance companies are able to overcome the operational challenges that are being
constantly thrown at them. The need of the hour for bancassurance venture is to
inculcate new ideas, new approach and work culture.
Concept of Bancassurance
Bancassurance as a concept first began in India, when the insurance industry opened up
to private participation in December 1999. It is the concept used to describe the sale of
insurance products in a bank. Bancassurance, which is also known as Allfinanz –
describes a package of financial services that can fulfill both banking and insurance
needs at the same time. The features like distribution, legal, fiscal, cultural and
behavioral aspects for an integral part of the concept. Distribution is the key issue in
bancassurance and is closely linked to the regulatory climate of the country.
Bancassurance is one-stop financial service to meet the requirements of banking
services and also provide reliable protection to customers.
Relevance of Bancassurance:
The banking sector reforms are aimed at making the banks sound and competitive.
Banks are the key pillars of India’s financial system. Public has immense faith in banks.
Banks enjoy considerable goodwill and access in the rural regions. The bank network
established in India is vast and has expertise about the financial needs and saving
patterns of the customers. Apart from this, banks has enormous retail customer base.
The world over, banks have realized that offering value added services such as
insurance helps to meet customer’s expectations. Bank’s entry into the distribution
38
helps to popularize insurance as an important financial protection product. Banks

consider bancassurance for the following reasons:
 Falling interest rates coupled with declining deposits are a major source of
concern banks.
 Increased competitiveness has led to increased credit risk resulting in a telling
effect on the balance sheet.
 Experts feel that sustaining similar growth rate is not possible in the coming years
unless there is a change in the strategy.
 The margins of the banks in the banks in their core lending business are declining
sharply.
So, opportunities like bancassurance augment their income. Bancassurance

develops sales culture within the bank. It helps to change the traditional mindsets of
banking companies. Insurance distribution helps to increase the fee-based earnings of
banks to a considerable extent. Again fee-based selling helps to enhance the levels of
staff productivity in the banks. The insurance sector offers ample helps to enhance the
levels of staff productivity in the banks. The insurance sector offers ample opportunity
for the banks to widen their horizon of financial intermediation.
Apart from this, insurance companies are also equally eager to enhance their
geographical reach within minimum time and cost, establishing brand equity in the new
market, ensuring higher probability of success in the sales process. A tie-up with a bank
having an appropriate customer base can give an insurer a cheap access to these areas.
Selling insurance through traditional methods in rural sectors is very expensive.
Further, selling insurance to existing mass market banking customers is far less
expensive then selling to a group of unknown customers. The banks can bring insurance
service to the poor people at minimum cost. The distribution of insurance products
through banks has been beneficial to insurance and banking companies and also to the
customers.
39
INDIA’S PERSPECTIVE
Coming to India, bancassurance is a new buzzword in India. It originated in India

in the year 2000 when the Government issued notification under Banking Regulation
Act which allowed Indian Banks to do insurance distribution. It started picking up after
Insurance Regulatory and Development Authority (IRDA) passed a notification in
October 2002 on 'Corporate Agency' regulations. As per the concept of Corporate
Agency, banks can act as an agent of one life and one non-life insurer. Currently
bancassurance accounts for a share of almost 25-30% of the premium income amongst
the private players in India.
After the Narsimham committee report, the Indian banking system had undergone
reforms in merchant banking, lease and term finance, capital markets, hire purchase,
real estate finance, etc. A few years ago, banks in India entered into the insurance
market to augment their income from insurance business. Indian rural market, which
had a massive potential, was still untapped by the insurance companies. No insurance
company dared to establish its own network in rural areas due to the requirement of
huge capital outlay. Hence, insurance companies planned to capture potential markets.
Eventually, they came out with ‘bancassurance’ as this network helped the insurers to
tap those markets that were left untapped at a much lower cost with the help of the
banks. The competitive nature of the Indian market ensures that the reduction in costs
would result in benefits, in the form of lower premium rates to the clients.
The Indian insurance market comprises 20 private players and the public sector
giant, LIC. Out of these, companies that entered first into the market benefited by
associating themselves with various other banks exclusively for bancassurance
agreements. Under this agreement, banks are appointed as corporate agents, empanelled
with one insurance company, to sell the products. Banks, with their reputation and
market share, can convert their customers into policyholders. Bancassurance is a
creative marketing approach that helps in converting bank customers into insurance
40
policyholders. Many private players started venturing into this new field to expand
their market operations. SBI Life Insurance Company plays a predominant role in
bancassurance. This certainly indicates a positive trend for bancassurance in the Indian
banking sector. The company plans to explore insurance business with the potential of
State Bank of India’s 9000 plus branches spread across the country and also the 4000
branches of its associate banks.
Bancassurance is expected to prosper in India because of the following reasons:

 Indian economy is growing at 9% (in normal economic conditions and not during
the recession period).
 Increasing purchasing power parity.
 Huge inflow of FDI.
 Expansion of middle income class Indians.
 Huge banking infrastructure across urban, semi-urban and rural India.
By now, it has become clear that as economy grows it not only demands stronger and
vibrant financial sector but also necessitates provision of more sophisticated and variety
of financial and banking products and services. As India is being considered one of the
fast developing economies among the emerging market economies, financial sector has
also become more vibrant with the financial reforms. In fact, in recent years, it is
surmised that even the ‘global economic growth’ hinges on growth prospects of the
emerging economies like China and India to a greater extent. Significantly, Indian
economy has recorded an average growth of over 8.5 per cent for the last four years,
with macroeconomic and financial stability (RBI, 2006) and indications are that it may
grow at even better rate in the near future provided there is good monsoon. Experience
also showed that economic growth had strongly supported the expansion of middle
income class in most of the Asian countries, and now it is the turn of India. Experience
reveals that at the initial growing stage of the economy the primary financial needs are
met by the banking system and thereafter as the economy moves on to higher levels, the
need for the other non-banking financial products including insurance, derivatives, etc.,
41
are strongly felt. Moreover, as India has already more than 200 million middle class
population coupled with vast banking network with largest depositor’s base, there is
greater scope for use of bancassurance. For instance, as at end March 2005, there were
more than 466 lakh bank accounts with scheduled commercial banks. In simple words,
it is aptly put that bancassurance has promised to combine insurance companies’
competitive edge in the “production” of insurance products with banks’ edge in their
distribution, through their vast retail networks.
In 2007, India has 88 scheduled commercial banks (SCBs) - 28 public sector
banks (that is with the government of India holding a stake), 29 private banks (these do
not have government stake; they may be publicly listed and traded on stock exchanges )
and 31 foreign banks. Altogether they have a combined network of over 53,000
branches and reach in urban, semi urban & rural areas of nation. There are 70324 bank
offices in India and around 16000 people are served by each bank office. It’s a huge
banking infrastructure and among the best banking network in the world.
Bancassurance if taken in right spirit and implemented properly can be a win-win
situation for the all the participants, viz., banks, insurers and the customers.
42
WORLDS PERSPECTIVE
Bancassurance has given grown ay a different shapes and forms in

different pace and taken different shapes and forms in different countries depending on
the demography, economic and legislation prescription in that country. During the past
two decades, bancassurance has taken deep roots in various countries, especially in
Europe.
In UK about a third of policies are sold through banks.
In Spain 72% of premium income comes through bancassurance, whereas in France it is
55%.
France, Italy and Spain recorded a penetration of more than 60% due to large middle
class population and favorable tax treatment.
It had little success in Germany, even after the purchase of Dresdner Bank in 2001 by
Allianz, the country’s largest insurer.
Bancassurance recorded a huge growth in Europe but not in USA and Canada. In the
US, there were regulatory hurdles as till recently banks were not allowed to do
insurance business and vice versa.
The spread of diversified financial firms offering various services such as
insurance and securities underwriting, apart from traditional banking, received an
impetus by the Gramm-Leach-Bliley Act (GLBA), 1999 in the USA. The Insurance
Regulatory and Development authority (IRDA) established in 1999 progressively

attempted to lay down the ground rules in India. Historically, there are integrated
organic and merger approaches to the growth of Bancassurance.
Even after Gramm-Leach Bliley Act of 1999, target customers have not
responded well. In china, banks are limited to playing the role of tied agents to
insurance companies, which can still provide a good platform for bancassurance to
develop. It is a relatively new concept in Australia and Asia.
In the Asian markets, bancassurance has become a favorite choice of bankers and
insurers and as a result governments have been offering legislative support.
43
HARNESSING THE POTENTIAL
Bancassurance has already been in force in some form or the other. For example,
banks have already been selling personal accident and baggage insurance directly to
their credit card members as a value addition to their products. Banks have also been
distributing the mortgage-linked insurance products like fire and motor vehicle
insurance to their customers. Most of these have been a part of add-on with the existing
services and products. They, however, are yet to use their information and database on
saving habits of customers to generate the leads for insurance business. In order to
implement the bancassurance mechanism the banks require adequate networking among
the bank branches. This, in turn, requires a substantial investment in IT to connect
various branches effectively. Particularly, the branches in rural and semi-urban areas
remain unconnected. Complete integration of branch network involves huge
investments for creating IT and communication infrastructure. Due to the proliferation
of saving products and emerging investment opportunities in India, The bancassurance
faces the challenge of selling insurance through the banking channel. The competing
returns from other products such as mutual funds posed a major challenge to
bancassurance. Most of the life insurance products are highly structured and have less
flexibility in customizing them to the specific needs of the clients. However, unit-linked
products fit this bill well and the banks can meet this challenge. In bancassurance
system, there are also co-branding issues and the partnership needed to ensure that they
do not give inconsistent messages and destroy value in the process. Leveraging on both
brands is challenging. The implementation of bancassurance also assumes cultural
integration between the two partners. Implementing bancassurance requires different
competencies and skills. One of the important challenges in this is managing
involvement of the bank staff. This is a challenging task as the banks are not
approaching the customers for business but executing requests of customers. For
example, the insurance companies think that target-setting is important for business
growth and, for this purpose, the bank and the insurance company need to develop an
effective sales management and an organization strategy; there has to be a joint
44
ownership of targets. Banks have a lot of information and data on consumers’ saving
habits and these can be effectively used for lead generation. For this purpose, the
partners need to develop appropriate mechanisms which ensure better use of this
information. While implementing the bancassurance mechanism, insurance companies
may also experience the difference in pace with which targets are achieved and tasks
are executed. The partners may move at different pace. Capturing the market is
important as the competition is high. The style of working in two cultures can be
different. Incentive systems across various channels are different and these have
implications for each channel. The gaps can become visible and reducing these gaps
may require continuous interaction and training of bank staff. The integrated model
partnerships include a whole new range of challenges such as the challenge of scale,
integration of culture, and speed. The banks experience the challenge of working with
targets and developing new performance measurements. For this, the response time in
deploying adequate resources is critical. Since in bancassurance the partners are going
to use technology and database services, there is a concern about how systematically the
relevant information on consumers interacting with banks is captured. In order to
explore
this channel, insurance companies are required to establish a strong leadership, work
closely with the bank partner and develop this partnership, and develop innovative but
simple products. Data mining and CRM approaches need to be strengthened at the bank
level through appropriate use of technology. It is observed that a customer-focused
approach that fitted in with the bank culture is a critical factor in making bancassurance
a success. The bancassurance sales are radically different from agency-based sales.
Developing an appropriate strategy of sales management and selection, retention, and
training of people involved in the bancassurance programme is also important. These
are required to be strengthened to reinforce and institutionalize the bancassurance
processes.
The incentives and rewards play a significant role to drive the behavior of people but
this has to be developed keeping in view the bank environment and sensitivities.
45
CHALLENGES TO BANCASSURANCE
• LACK OF TRAINED MARKETING PEOPLE:

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.
• LEGAL ISSUES:
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.
• COMPETITION:
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:
• The shift away from manufacturing to pure distribution requires banks to better
align the incentives of different suppliers with their own.
46
• Increasing sales of non-life products, to the extent those risks are retained by the
banks, require sophisticated products and risk management.
• The sale of non-life products should be weighted against the higher cost of
servicing those policies.
• Banks will have to be prepared for possible disruptions to client relations arising
from more frequent non-life insurance claims.
47
EMERGING TRENDS
Bancassurance, the provision of insurance services

by banks, is an established and growing channel for insurance distribution, though its
penetration varies across different markets. Europe has the highest bancassurance
penetration rate. In contrast, penetration is lower in North America, partly reflecting
regulatory restrictions. In Asia, however, bancassurance is gaining in popularity,
particularly in China, where restrictions have been eased. The research shows that
social and cultural factors, as well as regulatory considerations and product complexity,
play a significant role in determining how successful bancassurance is in a particular
market.
The outlook for bancassurance remains positive. While development in

individual markets will continue to depend heavily on each country’s regulatory and
business environment, bancassurers could profit from the tendency of governments to
privatize health care and pension liabilities. 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.
Bancassurance has been designed to target the mass market. Bancassurers have
started segmenting the market and this has resulted in tailor-made products for specific
market place. The quest for additional growth and the desire to market specific clients
made some bancassurers to switch from using a standardized, single channel
distribution strategy. Some of the bancassurers have started focusing exclusively on
distribution. In some markets, face-to-face contact is preferred as it helps in improving
bancassurance business.
Nevertheless, banks have started opting fro direct marketing and Internet Banking
as vehicles for disseminating insurance products. Emerging channels have become
48
increasingly competitive due to tangible cost benefits embedded in product pricing and
its convenience to market.
Though bancassurance has traditionally targeted the mass market, bancassurers

have begun to finely segment the market, which has resulted in tailor-made products for
each segment. The quest for additional growth and the desire to market to specific client
segments has in turn led some bancassurers to shift away from using a standardized,
single channel sales approach to adopting a multiple channel distribution strategy. Some
bancassurers are also beginning to focus exclusively on distribution.
In some markets, face-to-face contact is preferred, which tends to favor

bancassurance development. Nevertheless, banks are starting to embrace direct
marketing and Internet banking as tools to distribute insurance products. New and
emerging channels are becoming increasingly competitive, due to the tangible cost
benefits embedded in product pricing or through the appeal of convenience and
innovation.
Finally, the marketing of more complex products has also gained ground in
some countries, alongside a more dedicated focus on niche client segments and the
distribution of non-life products. The drive for product diversification arises as
bancassurers realize that over-reliance on certain products may lead to undue volatility
in business income.
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ENSURING SUCCESS
Banks are now major distribution channels for selling insurance products.
Bancassurance plays a significant role in banking operations. It is a much discussed
concept in insurance markets at present. It was started by banks in France and other
European countries.
A number of insurers have tied up with banks and several banks have started
offering the service of bancassurance through selected risk products. According to
Ramachandran, CEO and MD of Aviva Life insurance, “Bancassurance constitutes to
be an important distribution channel and it currently contributes more than 50% their
business.
• UNIQUE STRATEGIES
Bancassurers must do some groundwork and develop new strategies to sell
insurance products through this channel, especially in emerging markets. Through tie-
ups, some insurers plan to buy shelf space in banks and sell insurance products to
potential customers. Unless banks recruit a trained marketing force, it will be a tough
task to sell insurance products.
• IDENTIFYING CUSTOMERS
Identifying the target customers is yet another important aspect. Banks
have a large depositor base of corporate, as well as retail clients, that they can tap.
Talking of retail clients, lower end and middle-income group customers constitute a
major chunk who have, over a period of time, built a good rapport with the bank staff
and as a result, hold a big potential for bancassurance. The success of bancassurers
depends on how effectively the necessary information regarding the products is
imparted to the employees of respective branches of the bank. Bankers are not expected
50
to understand the intricacies of the operations of the insurance industry. They simply
have to identify customers with potential needs for insurances products.
• REAP THE BENEFITS

Bancassurance has attracted the attention of both the bankers and the
insurers as it is a major step towards the creation of new ventures for selling insurance
products. The insurance company reaps the benefits of this synergy by tapping the
sources of new business made available by the branch network of the banks to
geographically distant clients.
The insurance company must aim at taking full advantage of the customer database and,
at the same time, realize that it can now benefit from this cheaper distribution network.
Bancassurance has become one of the fastest-growing revenue streams for banks in
India. Banking institutions are reaping benefits from the bancassurance. Fee-based
income from bancassurance is now generating significant revenues and is expected to
grow in the future.
• LOWER DISTRIBUTION COSTS

Bancassurance helps in reducing the distribution costs for the insurers as
firms have a lower expense ratio. Obviously, when expenses are reduced the ultimate
benefit will go to the insured, by way of lower premium rates.
• CUSTOMER RELATIONSHIPS
When compared to banks, insurance companies have ineffective customer
relationships. Customers usually trust banks and the banking system, than the insurance
companies. So, insurance companies can take help of banks in motivating the customers
to purchase products.
• OPERATIONAL EFFICIENCY
51
One of the most important reasons for considering bancassurance by banks

is: Increased return on assets. Banks with insurance fee income can cover more
operating expenses.
STATE BANK OF INDIA
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.
52
SBI Life Insurance Ltd., India’s leading private life insurance company
announced the launch of ‘Bancassurance 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, “‘Bancassurance
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.
53
ANALYSIS
A survey was conducted of about 50 people who did regular banking transactions.
These included several housewives, businessmen, professionals, students, etc. The
following analysis was done on the basis of the survey conducted:
• Are you aware of bancassurance?
No 20%
Yes
Yes 80% No
Among those who surveyed, 80% of respondents were aware that their bank provided
bancassurance. They knew with which Insurance Company their bank has tie up with;
also they were aware about various policies provided by their banks. However, 20% of
the respondents were amused with the term bancassurance and didn’t know anything
about it and the services provided by their banks.
54
• On your choice which mode of insurance distribution channel would you prefer to
buy the policy from?
Ins urance
co m panies Banks
20% 2 3%
Brokers
7%
Ag ents
50%
50% people preferred agents because they provide personalized services. 20% took
insurance from companies because of their trust on the company. 23% said they would
buy insurance from banks because of the brand name and their trust on banks. Only 7%
said that they would buy insurance from brokers.
• Which bank do you feel would excel in bancassurance? Rate them accordingly
55
100
90%
90
80
70%
70
60
50 38%
40
30
20
10
0
Public Private Foreign banks

Sector Banks Sector Banks
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.
• Do you think bancassurance has a good future?
No,5%
Yes
No
Yes,95%
56
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 5% 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.
• Do you find any difference in the services provided by the banks and insurance
companies?
YES
NO
80% of the people did not find any difference between the services provided by banks
but the remaining 20% of them did find some difference in the services. As said by the
20% people they found that the bank was charging much for the services than the
insurance company.
• Does you bank provide you with some incentives in kind of gifts or hampers?
57
Y ES
NO
75% of the people were offered by gifts and hampers for the services taken by them.it
was also seen that the borrowers who had borrowed a large amount of loan were
provided with the gifts and hampers. Rest 25% who did not borrow large amount were
not given any incentives.
• Reasons for taking bancassurance
90 80% 28% 65% 40%

80
70
60
50
40
30
20
10
0
Security Savings Brand Image of Bank Image of
Bank Insurance
58
There was a mixed response from the customers. 80% said that they took the
insurance policy because of security benefits. 65% said that since, they trusted their
bank, they took the policy. There were 40% who said that the brand image of the
company also mattered. Only 28% said that savings was a reason that encouraged them
to buy insurance policy.
THE FOLLOWING TABLE ILLUSTRATES THE BUSINESS GENERATED BY

SELECTED COMPANIES THROUGH THE BANCASSURANCE CHANNEL:
COMPANY 2002 2004 2006
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%
59
90%
80%
70%
60% 2002
50% 2004
40% 2006
30%
20%
10%
0%
l
d
ia
fe
nz
ar
ife
fe
A
sy
nt
Li
ia
ir l VIV
Li
nd
de
IL
y
un
ll
V
et
ta
B
ru
M
S
aj
S
IP
IN
a
aj
C
IC
F
B
D
IC
Thus we can have a look on the chart to see the services of bancassurance provided by
the different banks to their customers.
FINDINGS
 Although the concept is simple enough in theory, but in practice it has been found
to be far from straightforward.
 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.
60
 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.
 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.
 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.
 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.
RECOMMENDATIONS
 The Insurance companies need to design products specifically for distributing

through banks. Trying to sell traditional products may not work so effectively.
 The employees of the banks who are selling insurance products must be given
proper training so that they can answer to any queries of the customers and can provide
them products according to their needs.
 Banks should also provide after sales services and they should be more aggressive
in selling the insurance products.
61
 Banks should also do the settlement of claims which will increase the trust and
reliability of the customers on the banks.
 In India, since the majority of the banking sector is in public sector which has
been widely responsible for the lethargic attitude and poor quality of customer service,
it needs to rebuild the blemished image. Else, the bancassurance would be difficult to
succeed in these banks.
 A formal and standard agreement between these banks and the insurance
companies should be taken up and drafted by a national regulatory body. These
agreements must have necessary clauses of revenue sharing. In case of possible
conflicts, the bank management and the management of the insurance company should
be able to resolve conflicts arising in future.
 For bancassurance to succeed, products and processes will need to be tailored to

bank markets, rather than adjusted to insurer’s specifications.
 Banks and Insurance companies should apply all the skills and potential in this
area and take advantage of the same and they should improve the products from time to
time according to the needs of the customers.
 From the analysis it should be recommended that banks should constantly look
out to explore new avenue to supplement their non interest income so called as
BANCASSURANCE.
 Bancassurance has become indispensable especially for those new insurance

companies which began their operation post reforms. Employees of banks should be
deployed and trained for the marketing of insurance products.
62
 With almost half of the population likely to be in the ‘wage earner’ bracket by
2010, there is every reason to be optimistic that bancassurance in India will play a long
inning.
CONCLUSION
If insurance in India is to succeed, it can only be through the bancassurance

channel. Insurance carriers and banks can become part of the vision through strategic
partnerships. Now is the time to position their company for the new millennium of
insurance product distribution. The growth of bancassurance depends on how well the
bank and the insurance companies are able to overcome the operational challenges that
are constantly thrown at them.
In India, the signs of initial success are already there despite the fact that it is a
completely new phenomenon. The factors and principles of why it is a success
63
elsewhere exists in India, and there is no doubt that banks are set to become a
significant distributor of insurance related products and services in the years to come.
With the opening up of insurance sector and with so many players entering the
Insurance industry it is required by Insurance Companies as well by the banks to come
up with well established infrastructure facilities with good call centre service to attract
and provide information to customer regarding different good policies & their premium
pay scheme.
Bancassurance thus by arranging for seminars and approaching to people and

provide brochures or rather visiting to the companies and colleges increase their
business and create awareness about their banks selling insurance products.
Bancassurance has less hassle as of customers today has hardly any time to visit the
insurance company. But when a bank carry on bancassurance it can easily raise their
profit i.e. as and when the customer comes to bank for any of their purposes like
depositing their cheque can always seek information from the bank about the new
insurance product which would suite their requirement and needs.
The success of the bancassurance business 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
is a very difficult task. But bank can make this simple as the banks have a good
distribution strength and tremendous man power to reach out such a huge customer
base.
Bancassurance is the new insurance marketing mantra for selling insurance plans
with the help of bankers by exploiting the synergies between them. Since bancassurance
is the combination of two sectors, each of the regulators has given out detailed
guidelines for banks getting into the insurance sector. Though initially, bancassurance
64
has targeted the mass market, of late, bancassurers have begun to finely segment the
market. This has resulted in tailor-made products for each segment.
Where legislation has allowed bancassurance had mostly been a phenomenal

success and although slow to gain pace, is now taking of across Asia, especially now
that banks are starting to become more diverse financial institution and the concept of
universal banking is being adopted.
In the field of bancassurance banks will bring a customer database, leverage their
name, recognition & reputation of both local and regional levels. If they are using
personal contact with customers and non-customers then only they can success in the
field of bancassurance.
But the proper implementation of bancassurance is still facing so many hurdles
because of poor manpower management, lack of call centers, and no personal contact
with customers, inadequate incentives to agents and unfullfilment of other essential
requirements.
The bank network- especially the public sector and cooperative bank branches are
spread across the length and breadth of the country with 6500 branches. There is
immense potential in the Indian market with only 4500-5000 bank branches currently
distributing insurance.
From the banks perspective, such a model offers a great opportunity to improve
their profitability by enhancing a fee based income. This income is purely risk free for
the bank since the bank plays the role of an intermediary for sourcing business to the
insurance company.
Finally we can say that the bancassurance would mostly depend on how well
insurers and bankers understanding is with each other and how they are capturing the
opportunity and how better service they are providing to their, customers. Let us you all
65
pay more attention towards the policies and enjoy the service provide by banks and
Insurance Companies by the mode of Bancassurance.
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!
QUESTIONNAIRE
1. Are you aware of bancassurance?
2. On your choice which mode of insurance distribution channel would you prefer to
buy the policy from?
3. Which bank do you feel would excel in bancassurance? Rate them accordingly
66
4. Do you think bancassurance has a good future?
5. Do you find any difference in the services provided by the banks and insurance
companies?
6. Does you bank provide you with some incentives in kind of gifts and hampers?
7. Reasons for taking bancassurance.
67
68
BIBLIOGRAPHY
• New trends in banking – VV RAVI KUMAR
• ICFAI – Kasturi Nageshwar Rao
• PROFESSIONAL BANKER — The IcFai university press (June 2009)
• FUTURE SCENARIO OF INDIAN BANKING — Dr. R.K. Uppal
• Business World
• Business Today
WEBLIOGRAPHY
• http:// myicwai.com/knowledge bank/fm41.pdf.
• http:// www.managementparadise.com
• http:// sify.com/finance
• http:// www.domain-b.com
• http://www.moneycontrol.com
• http://sbilife.co.in/sbilife/application
69
• www.India Infoline.com
70

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BANCASSURANCE—PATHWAY TO SUCCESS

The term ‘bancassurance’ refers to selling of insurance products by banks. Here,

The French termed it ‘Bancassurance’, the Germans termed it ‘Allfinanz’ and

Bancassurance in simple words is ‘Distribution by Convergence’.

 Banks Act as Corporate Agents:

Instead of running after individual agents for business, insurance companies

 Valuable Inputs from Bankers:

Another advantage of bancassurance is that the employees of banks can learn

Banks play a significant role in building up a feasible healthcare program in India.

Having embraced Bancassurance, insurers and banks have a demanding task of

technology adoption. Data management systems enable maintenance of seamless data

TRADITIONAL BANCASSURANCE DIRECT

Since its emergence in 1980s in France, Bancassurance traversed to the global

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

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

BANCASSURANCE – A WIN WIN SITUATION

BANCASSURANCE – WILL THE CUSTOMER REALLY

To achieve success, the bank-insurance entity needs to focus on a multi-brand,

On the critical question of cross-selling, the aspirations of banks and insurers

In other countries, the all-finance concept is already at work. Instances are:

• Lure of high commissions.

Modernization of financial services' is an intriguing phrase. It has been heard

Bancassurance is an important tool in the hands of Bankers, Insurers and

Following are the benefits of bancassurance to the banks:

 Fee- based income:

 Increased Return on assets (ROA):

 Increase staff productivity:

Bancassurance provides financial benefits in the form of commission,

 Enhances customer relationship:

 Creating a universal banking platform:

 Increasing the customer base:

Following are the benefits of bancassurance to the Insurers:

 Cheaper than agents:

 Greater control of their business:

 Targeting middle-income customers:

 Provides Competitive advantage:

Following are the benefits of bancassurance to the Customers:

 Availability of a complete package:

 Good quality product:

 Time savings & convenience:

BENEFITS OF SELLING INSURANCE PRODUCTS

As the banks understand customers’ needs, deliver

information on the customers spending patterns and investment purchase, degree of

FACTORS FOR THE SUCCESS OF BANCASSURANCE

Fundamental to bancassurance is the convenience and accessibility to the

 Lower cost of distribution due to sales productivity:

 Mining data base:

 Bank customer relationship:

 The trust and esteem in which customer hold on banks:

 The existing bank branch network/infrastructure:

The decision on what types of insurance products to be sold and methods of

KEY SUCCESS FACTORS FOR BANCASSURANCE

Integration at an operational level is the success of bancassurance

SUCCESSFUL PARTNERSHIP OF BANKS AND INSURANCE COMPANIES

acceptance. selling potentials.

SOURCE: Monitor - J.P. Morgan Study on Bancassurance

There is, therefore, a case for gradually replacing across-the-board capital

BANCASSURANCE CHANNEL AS AN ALTERNATIVE

Bancassurance has been proposed as an attractive alternative to the traditional

Potential of the banking channel:

RBI GUIDELINES AND BANCASSURANCE MODELS

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

Setting up of a separate joint venture insurance company with risk participation