Bancassurance

The bank insurance model (BIM), also sometimes known as bancassurance, is the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products, an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base. BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well. Bank staff and tellers, rather than an insurance salesperson, become the point of sale and point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training. The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers. Bancassurance, the sale of insurance and pensions products through a bank, has proved to be an effective distribution channel in a number of countries in Europe, Latin America, and Asia

Contents

1 Usage 2 Business models across the world

Usage
BIM differs from classic or Traditional Insurance Model (TIM) in that TIM insurance companies tend to have larger insurance sales teams and generally work with brokers and third party agents. An additional approach, the hybrid insurance model (HIM), is a mix between BIM and TIM. HIM insurance companies may have a sales force, may use brokers and agents and may have a partnership with a bank. BIM is extremely popular in European countries such as Spain, France and Austria. The use of the term picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial

idea, and many feel it gives banks too great a control over the financial industry or creates too much competition with existing insurers. In some countries, bank insurance is still largely prohibited, but it was recently legalized in countries such as the when the GlassSteagall Act was repealed after the passage of the GrammLeach-Bliley Act. But revenues have been modest and flat in recent years, nd most insurance sales in U.S. banks are for mortgage insurance, life insurance or property insurance related to loans. But China recently allowed banks to buy insurers and vice versa, stimulating the bancassurance product, and some major global insurers in China have seen the bancassurance product greatly expand sales to individuals across several product lines. Privatbancassurance is a wealth management process pioneered by Lombard International Assurance and now used globally. The concept combines private banking and investment management services with the sophisticated[clarification needed] use of life assurance as a financial planning structure to achieve fiscal advantages and security for wealthy investors and their families. The banks are the agent of the insurance companies to sell them more and more policies.

Business models across the world

'Integrated models' is insurance activity deeply integrated with bank's processes. Premium is usually collected by the bank, usually direct debit from customer's account held in that bank. New business data entry is done in the bank branches and workflows between the bank and the insurance companies are automated. In most cases, asset management is done by the banks asset management subsidiary. Insurance products are distributed by branch staff, which is sometimes supported by specialised insurance advisers for more sophisticated products or for certain types of clients. Life insurance products are fully integrated in the banks range of savings and investment products and the trend is for branch staff to sell a growing number of insurance products that are becoming farther removed from its core business, e.g., protection, health, or non-life products. Products are mainly medium- and long-term tax-advantaged investment products. They are designed specifically for bancassurance channels to meet the needs of branch advisers in terms of simplicity and similarity with banking products. In particular, these products often have a lowrisk insurance component. Bank branches receive commissions for the sale of life insurance products. Part of the commissions can be paid to branch staff as commissions or bonuses based on the achievement of sales targets. 'Non-integrated models' The sale of life insurance products by branch staff has been limited by regulatory constraints since most investment-based products can only be sold by authorised financial advisers who have obtained a minimum qualification. Banks have therefore set up networks of financial advisers authorised to sell regulated insurance products.They usually

operate as tied agents and sell exclusively the products manufactured by the banks in-house insurance company or its third-party provider(s). A proactive approach is used to generate leads for the financial advisers from the customer base, including through mailings and telesales. There is increasing focus on developing relationships with the large number of customers who rarely or never visit a bank branch. Financial planners are typically employed by the bank or building society rather than the life company and usually receive a basic salary plus a bonus element based on a combination of factors including sales volumes, persistency, and product mix. Following the reform of the polarisation regime, banks will have the possibility to become multitied distributors offering a range of products from different providers. This has the potential to strengthen the position of bancassurers by allowing them to meet their customers needs.

Types of Bancassurance
Insurance can be broadly grouped into life insurance and indemnity insurance. You will be able to understand the insurance type by referring to the following table. Type Selling product type Pure endowment insurance Body of the Life insurance Mortality life insurance insured Endowment insurance Indemnity Property of the Property, interest, insurance insured responsibility, guarantee Target Insurance product type Insurance product type Car, fire, vessel, credit assurance, travel, leisure, etc.

Selecting of the insurance product

As mentioned above, when selecting the product you should have the proper situation and corresponding purposes to cope with.
Credit insurance

The suitable insurance product when borrowing or borrowed money from the financial institute. You can take up a credit guarantee insurance to increase your credit before borrowing money.

If you cannot meet your obligations or seriously injured due to an unexpected accident after borrowing money, the insurance company will compensate for the loss.

Pension (saving type) insurance Type Interest rate Half-way cancellation Pension commencement age Payment period

Characteristics and cautions

Select a fixed rate type or variable interest rate type from a long-term view. Refrain from half-way cancellation because it is disadvantageous to tax payment reduction. If the pension age is too early, the pension amount becomes smaller. If the payment period is long, the pension amount increases and payment of premium becomes less burdensome.

Educational endowment insurance and child insurance coverage

The educational endowment insurance and child insurance coverage grows as much as your child grows. The desirable product is the one that insures your childs disease and accident at a time. In particular, the product with a large special contract insurance amount for hospitalization expenses and surgery expenses is recommended. To prepare school expenses for your child, it is more advantageous to take up the savings feature insurance that offers higher profits.

Accident insurance

You can get compensation, if you are injured due to an accident during your daily life or leisure activities. Mostly, the accident insurance product is a guarantee feature insurance. It is advantageous to take up the comprehensive guarantee insurance to get compensation for the comprehensive accident, such as a house fire, cancer, or driver.

Medical expense insurance coverage

For medical expense insurance coverage, the product with wide coverage is recommended, considering the insurance characteristics. It is recommended to select a product with a large coverage amount for cancer and stroke, which usually runs up high medical expenses.

Travel and leisure insurance

Travel and leisure insurance has the very short insurance period, compared with the pension or savings insurance.

Considering the characteristics of the insurance, it is recommended to select a product with wide coverage and low insurance premium. When traveling abroad, make sure that you can get help in the country youre traveling

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BANCASSURANCE
What is Bancassurance?

Bancassurance is a French term referring to the selling of insurance through a bank's established distribution channels. In other words, we can say Bancassurance is the provision of insurance (assurance) products by a bank. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry. In some countries, bancassurance is still largely prohibited, but it was recently legalized in countries like USA when the Glass Steagall Act was repealed after the passage of the Gramm Leach Bililey Act. Bancassurance is the selling of insurance and banking products through the same channel, most commonly through bank branches. Selling insurance.means distribution of insurance and other financial products through Banks. Bancassurance concept originated in France and soon became a success story even in other countries of Europe. In India a number of insurers have already tied up with banks and some banks have already flagged off bancassurance through select products. Bancassurance has become significant. Banks are now a major distribution channel for insurers, and insurance sales a significant source of profits for banks. The latter partly being because banks can often sell insurance at better prices (i.e., higher premiums) than many other channels, and they have low costs as they use the infrastructure (branches and systems) that they use for banking. Bancassurance primarily rests on the relationship the customer has developed over a period of time with the bank. And pushing risk products through banks is a much more cost-effective affair for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost

is more than welcome.

Advantages of Bancassurance:
The following factors have mainly led to success of bancassurance (i) Pressure on banks' profit margins. Bancassurance offers another area of profitability to banks with little or no capital outlay. A small capital outlay in turn means a high return on equity. (ii) A desire to provide one-stop customer service. Today, convenience is a major issue in managing a person's day to day activities. A bank, which is able to market insurance products, has a competitive edge over its competitors. It can provide complete financial planning services to its customers under one roof. (iii) Opportunities for sophisticated product offerings. (iv) Opportunities for greater customer lifecycle management. (v) Diversify and grow revenue base from existing relationships. (vi) Diversify risks by tapping another area of profitability.

(vii) The realisation that insurance is a necessary consumer need. Banks can use their large base of existing customers to sell insurance products. (viii) Bank aims to increase percentage of non-interest fee income (ix) Cost effective use of premises

Various Models for Bancassurance

Various models are used by banks for bancassurance. (a) Strategic Alliance Model : Under this Model, there is a tie-up between a bank and an insurance company. The bank only markets the products of the insurance company. Except for marketing the products, no other insurance functions are carried out by the bank. (b) Full Integration Model : This model entails a full integration of banking and insurance services. The bank sells the insurance products under its brand acting as a provider of financial solutions matching customer needs. Bank controls sales and insurer service levels including approach to claims. Under such an arrangement the Bank has an additional core activity almost similar to that of an insurance company. (c) Mixed Models: Under this Model, the marketing is done by the insurer's staff and the bank is responsible for generating leads only. In other words, the database of the bank is sold to the insurance company. The approach requires very little technical investment.

Status of Bancassurance in India

Reserve Bank of India (RBI) has recognized "bancassurance" wherein banks are allowed to provide physical infrastructure within their select branch premises to insurance companies for selling their

insurance products to the banks customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premia collected. This would utilize the resources in the banking sector in a more profitable manner. Bancassurance can be important source of revenue. With the increased competition and squeezing of interest rates spreads profit of the are likely to be under pressure. Fee based income can be increased through hawking of risk products like insurance. There is enormous potential for insurance in India and recent experience has shown massive growth pace. A combination of the socio-economic factors are likely to make the insurance business the biggest and the fastest growing segment of the financial services industry in India. However, before taking the plunge in to this new field, banks as insurers need to work hard on chalking out strategies to sell risk products especially in an emerging competitive market. However, future is bright for bancassurance. Banks in India have all the right ingredients to make Bancassurance a success story. They have large branch network, huge customer base, enjoy customer confidence and have experience in selling non-banking products. If properly implemented, India could take leadership position in bancassurance all over the world Government of India Notification dated August 3, 2000, specified Insurance as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of the Banking Regulation Act, 1949. Then onwards, banks are allowed to enter the insurance business as per the guidelines and after obtaining prior approval of Reserve Bank of India .