A study on investors perception towards bancassurance of private sector banks in Tamilnadu An empirical study

S. Dharmalingam , K.V. Kannan

1 2

Bharathiyar University, Coimbatore Tamil Nadu, India Department of Management Studies, Government College Attur, Tamilnadu India

INTRODUCTION Bancassurance Bancassurance is nothing but the collaboration between a bank and an insurance company wherein the bank promises to sell insurance products to its customers in exchange of fees. It is a mutual relationship between the banks and insurers. It is a new buzzword in India but it is taking roots slowly and gradually. Banks, insurance companies as well as the customers have accepted it. It is an international concept, which is spreading all around the world and is favorable to all. The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. 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. Where legislation also 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 financial institution are diverse and the concept of universal banking is been adopted. The growth of Bancassurance has been driven by the need to cut costs, increase inefficiencies and develop synergies in the banking and insurance Industries. Customer loyalty increases through holding of multiple products. In India, the concept of Bancassurance is very new. With the liberalization and deregulation of the insurance industry, Bancassurance evolved in India around 2002. Considering all this, the researcher has chosen to conduct A Study on Investors Preference towards Bancassurance an emerging concept in India. REVIEW OF LITERATURE: Article published in Finance and Development, June 2000 issue a quarterly magazine of IMF by the authors Tomas J T Balino and Angle Ubide state that " Bancassurance - a term coined by combining the two words bank and insurance (in French) - connotes distribution of insurance products through banking channels. Bancassurance encompasses terms such as All India Economics Conference organized by Shri Satya Sai Institute of Higher Learning, Puttaparthi in 2005 by Dr Satyananda Sahoo and Ms. Suja Joy (LIC) are acknowledge the scope for Bancassurance models as feasible source of sustainable income to banking sector by exploiting the synergy in the context of India having the largest banking network on the one hand and lower insurance penetration and insurance density on the other hand. It concludes that going by the present pace, bancassurance would turn out to be a norm rather than an exception in future in India and it would be a win-win situation for all the parties involved - the customer, the insurance companies and the banks Bancassurance according to Indian Perspective by Vikrant Sehgal and Rahul Abrol II nd year, MIB, IMT, Ghaziabad, says Bancassurance simply means selling of insurance products by banks. In this arrangement, insurance companies and banks undergo a tie-up, thereby allowing banks to sell the insurance products to its customers. This is a system in which a bank has a corporate agency with one insurance company to sell its products. By selling insurance policies bank earns a revenue stream apart from interest. It is called as fee-based income. This income is purely risk free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company. India's rural market has huge potential that is still untapped by the insurance companies. Setting up their own networks entails such a huge cost, that no company would be interested in doing so. Bancassurance again comes as an answer. It helps the insurance companies to tap the market at a much lower

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cost. As for the customer the competitive nature of the Indian market ensures that, the reduction in costs would result in benefits in terms of lower premium rates being passed on to him. Bancassurance in India-Tasks a Head by Nalini Prava Tripathy Volume 5, No. 10, June 2007, Birla institute of management technology, greater Noida. , Bancassurance as an alternative distribution channel was identified as a source of improving the non-interest income of banks. The distribution of insurance products through banks has been beneficial to both insurance and banking companies as well as the customers. The growth of banc assurance depends on how well the bank and the insurance companies are able to overcome the operational challenges that are being constantly thrown at them. So success of a bancassurance venture requires change in approach, thinking and work culture on the part of everybody involved. Bancassurance in India: Issues and Implications by Dr. Amit Kumar Dwivedi Amity University, Jaipur and Punit Kumar Dwivedi Lecturer (Finance), Vidya Dayini P.G. College, Santoshnagar, Hyderabad defines, The Bancassurance is the distribution of insurance products through the bank's distribution channels. Where in insurance products are offered a phenomenon 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. Conclusion of the issues and implications, 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. Texas A & M University, Mays Business School, Department of Finance on 10 May 2006 says, we provide evidence on the potential for bidder wealth gains in bancassurance mergers by examining a sample of such mergers in the United States and abroad. These combinations are expected to produce positive wealth gains if there are synergies between these two types of financial firms. We find positive bidder wealth effects that have significant relation to economies of scale (as measured by the size of the target relative to the bidder), potential economies of scope, and the

locations of the bidders and targets. These results suggest that the bancassurance architectural structure for financial firms does offer some benefits and thus may become more prominent in future years. Bancassurance trends and opportunity by Ravi Kumar V.V Icfai University Press In 2002, the Government of India allowed banks to enter the insurance sector, if not as new joint ventures, then certainly as volume 5, No. 10, June 2007 distribution outlets for insurance. Thus, the term Bancassurance was coined which meant distributing insurance products through banks. This reform measure brought in its wake a flurry of activity in this area. Banks and insurance companies announced a series of tie-ups in the area of distribution by way of corporate agency, referral tie-ups and selling insurance products related to banking products. Three years later, mixed result has seen with insurance companies, claiming that bancassurance had become an important channel with some insurance companies stating that individual agents would continue to be their focus. In an article titled "The New World of Banking" published in Finance & Development (June 2000 issue), a quarterly magazine of International Monetary Fund, the authors Tomas J T Balino and Angle Ubide state that "Four trends are fundamentally altering the financial world: consolidation of institutions, globalization of operations, development of new technologies, and universalization of banking". The last vehicle for this transformation of the financial sector is the universalization of banking, which is increasingly blurring the boundary between bank and nonbank financial services. This trend has already well developed in certain European countries - as exemplified by the widespread distribution of insurance products through bank branches, a phenomenon known as bancassurance. Journal of Risk & Insurance, Vol. 74, No. 4, pp. 777-794, December 2007 is Bancassurance a viable Model for Financial Firms. The bancassurance (i.e., bank and insurance company combinations) model for financial firm architecture has been widely used in Europe and recently has been adopted by U.S. financial firms. We provide evidence regarding the viability of bancassurance combinations for U.S. and non-U.S. mergers between 1997 and 2002. We find positive gains and no significant risk shifts for shareholders of bidding firms, and

that higher CEO stock ownership results in less positive gains for shareholders. These and other results suggest that bancassurance firms are viable entities that may play an important role in the future evolution of the U.S. financial system Objectives of the study To attain the primary objective the researcher frames the following secondary objectives, To identify the factors that influences the investors to purchase bancassurance To analyze the schemes of the policy that is favorable to the investors. To understand the investors satisfaction towards Bancassurance To suggest the various steps to improve the promotion of Bancassurance Research Design A research design is the conceptual structure within which research is conducted. It is the blueprint of the research study for the collection, measurement and analysis of data. The present study constitutes the Descriptive research design as it described the existing facts of the study. Sampling Plan It is very difficult to collect information from every member of a population .As time and costs are the major limitation that

the researcher faces. The sample size is 100 and convenience-sampling method applied to select sample. This research collected sample from 100 respondents of Private banks customers from Coimbatore District Statistical Tools used The following tools used for analyze, 1. 2. 3. Percentage analysis Chi-square analysis ANOVA (One-Way)

DATA ANALYSIS AND INTERPRETATION

Demographic profile Awareness of the bancassurance scheme S. No 1 2 Aware of Bancassurance Yes No Total No. of respondents 90 10 100 Percentage 90 10 100

Gender of the investors preference to bancassurance S. No 1 2 3 4 5 Preference Easy mode of transaction Safe and Secure Good service Multiple service Familiar source Total No. of Respondents 25 47 16 8 4 100 Percentage 25 47 16 8 4 100

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Reasons for not chosing directagency mode S. No 1 2 3 4 Preference No advantage of lesser premium Not Familiar No Speedy settlement of claims Others Total No. of Respondents 29 49 20 2 100 Opinion on quality of service S. No 1 Better Services in Bancassurance channels No. of respondent 82 Percentage 82 Percentage 29 49 20 2 100

Direct Approach of agencies Total

18

18 100

Factors that influence to choose bancassurance S. No 1 2 3 4 Preference Multiple service at one place Safe and Secure Easy mode of transaction Others Total No. of Respondents 27 46 25 2 100 Percentage 27 46 25 2 100

Level of satisfation in bancassurance service S. No 1 2 3 4 5 Opinion Highly satisfied Satisfied Neither satisfied nor dissatisfied Dissatisfied Highly dissatisfied Total No. of Respondents 27 67 5 Nil 1 100 Percentage 27 67 5 Nil 1 100

Type of life insurance policy preferred by investors S. No 1 2 3 4 Type of Life Insurance Save Guard Pension Plus Aviva Easy life plus Life bond Total No. of Respondents 9 17 6 4 36 Percentage 25 47 17 11 100

Premium size preferred by investors in life insurance. S. No 1 Premium size Below 5,000 No. of Respondents 5 Percentage 14

5
2 3 4 5 6 5,000 to 10,000 10,000 to 25,000 25,000 to 50,000 50,000 to 100,000 Above 100,000 Total 10 7 8 5 1 36 28 19 22 14 3 100

Chi-square analysis
Table showing the chi-square method and showing the relationship between Gender of the respondents and Investors preferences to take Policy through Bancassurance mode. Investors Preference S.No Gender Easy transaction 21 6 27 Safe and Secure 32 14 46 Good Services 14 2 16 Multiple service 6 1 7 Familiar Source 2 2 4 Total 75 25 100

1 2

Male Female Total

The calculated value of chi-square = 3.92 Degrees of freedom in this case = (r1) (c1) (21) (51) = 4

The table value of chi-square for 4 degrees of freedom at 5% level of significance is 9.488 Inference

The calculated value of chi-square is less than the table value. Therefore, null hypothesis is accepted. It is conclude that there is no significant relationship between gender and the investors preferences to take Policy through bancassurance.

Table indicating the chi-square method and showing the relationship between Age of the respondents and the Investors preferences to take Policy through Bancassurance. Investors Preference S.No Age Safe and Secure 1 15 25 5 46 Good Services 2 5 9 0 16 Multiple service 0 4 3 0 7 Familiar Source 1 0 2 1 4

Easy transaction

Total

1 2 3 4

Below 18 18 to 30 30 to 50 Above 50 Total

2 12 12 1 27

6 36 51 7 100

The calculated value of chi-square = 133.11 Degrees of freedom in this case = (r1) (c1) (41) (51) = 12

The table value of chi-square for 12 degrees of freedom at 5% level of significance is 21.026 Inference The calculated value of chi-square is greater than the

table value. Therefore, null hypothesis is not accepted. It is conclude that there is a significant relationship between age of the respondents and the investors preferences to take Policy through bancassurance.

Table showing the chi-square method and showing the relationship between Income of the respondents and the Investors preference to take Policy through Bancassurance. Investors Preference S.No Income Easy transaction Safe and Secure Good Services Multiple service Familiar Source Total

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1 2 3 4 5 Below 10000 10000 - 25000 25000 - 100000 Above 100000 Nil Total 14 7 2 1 3 27 14 13 3 11 5 46 10 4 0 1 1 16 0 1 1 4 1 7 2 0 1 0 0 4 40 25 7 17 10 100

The calculated value of chi-square = 14.525 Degrees of freedom in this case = (r1) (c1) (51) (51) = 16

The table value of chi-square for 16 degrees of freedom at 5% level of significance is 14.525 Inference The calculated value of chi-square is lesser than the table value. Therefore, null hypothesis is accepted. It is conclude that there is no significant relationship between income of the

respondents and the investors preferences to take Policy through bancassurance. ANOVA Test Table showing the ANOVA method and showing significant relationship between age of the respondents and Satisfaction level with the service of bancassurance.

ANOVA Table Satisfaction Level Sum of Squares Between Groups Within Groups Total .704 36.686 37.390 ANOVA Table value: 0.608 Df 3 96 99 Mean Square .235 .382 F .614 Sig. .608

Level of Significance: 0.05 (5% significance level)

Inference Since, the observed significance level is greater than the expected significance level. So there is no significant variance

between age of the respondents and the satisfaction level with the service of bancassurance. Table showing the ANOVA method and significant relationship between income of the respondents and level of satisfaction in the service of bancassurance.

ANOVA Table Satisfaction Level Sum of Squares Between Groups Within Groups Total .793 36.597 37.390 Df 4 95 99 Mean Square .198 .385 F .515 Sig. .725

Level of Significance: 0.05 (5% significance level) ANOVA Table value: 0.725

Inference Since, the observed significance level is greater than the expected significance level. Therefore, there is no significant variance between income of the respondents and the

satisfaction level with the service of bancassurance. Table showing the ANOVA method and showing significant relationship between Age of the respondents and Type of Insurance policy.

ANOVA Table Type o f insurance Sum of Squares Between Groups Within Groups Total .403 22.347 22.750 Df 3 96 99 Mean Square .134 .233 F .577 Sig. .632

Level of Significance: 0.05 (5% significance level) ANOVA Table value: 0.632

Inference Since, the observed significance level is greater than the expected significance level. Therefore, there is no significant variance between age of the respondents and the type of insurance policy FINDINGS Findings on basis of SIMPLE PERCENTAGE ANALYSIS, 75% of the major respondents are male 52% of the major respondents were in the age group between 30 to 50 years. 53% of the major respondents are salaried people. 30% of the major respondents have monthly income Rs.5,000 and above. 64% respondents are investors invested in General Insurance. 47% of the respondents are taken up their policy in pension plus. 28% respondents prefer to have premium size range between Rs. 5,000 to Rs. 10,000 for life Insurance. 46% of the respondents prefer to have 10 to 15 years Maturity period for Life Insurance policy. 47 % of the respondents prefer to have Health guard Insurance policy. 44% of the respondents are preferred to have premium size range below 2000 for General Insurance. 47% of the respondents prefer to take policies through Bancassurance mode because of safety and security. 50% of the respondents replied that direct agency mode is not familiar source. 96% of the respondents say that a proper guidance given by bank to choose policies. 82% of the respondents are getting better service through bancassurance channels.

45% respondents are aware of Aviva Life Insurance scheme available 46% of the respondents are accepting bancassurance due to Safe and Secure. 67% of the respondents are satisfied with the service Bank . 90% respondents are aware of bancassurance scheme Findings on basis of CHI-SQUARE ANALYSIS, There is no significant relationship between the age of the respondents and the type of Insurance Policy. There is no significant relationship between gender of the respondents and the investors preferences to take Policy through bancassurance. There is a significant relationship between age of the respondents and the investors preferences to take Policy through bancassurance. There is no significant relationship between income of the respondents and the investors preferences to take Policy through bancassurance. Findings on basis of ANOVA, There is no significant variance between age of the respondents and the satisfaction level with the service of bancassurance. There is no significant variance between income of the respondents and the satisfaction level with the service of banc assurance. There is no significant variance between age of the respondents and the type of insurance policy

8 Raj Madhavan and Craig Schlenoff

SUGGESTIONS Most of the Investors are aware of General Insurance policies and they have taken Bankss bancassurance services for the same. However, less number of respondents has invested through Banks in Life Insurance policy. Therefore, the present organization can devise suitable step to educate the investors to invest in Life policies. Investors are aware of Aviva life insurance, Bajaj Allianze, Mutual fund and much of the investors are less aware of Western Union Money transfer and Export Credit Guarantee Corporation of India. Therefore, bank has to concentrate on increasing the awareness on other schemes. Bank can provide efficient training to their financial advisors. Because they are the one who interact directly with the investors and answer to any queries of the investors. So better training will give confidence to advisors to deal with the potential customers and guide customers to choose suitable policies Insurance Products can be tailored according to bank markets, rather than insurers 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 investors. CONCLUSION The concept of Bancassurance in India is still in its nascent stage, but the tremendous growth and the potential reflects a very bright future for bancassurance in India. With the coming up of various products and services tailored as per the investors needs there is every reason to be optimistic that bancassurance in India will play a long inning. However, 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. From the study, it is possible to find that there is sufficient awareness about the Bancassurance concept among the respondents, most of the respondents have already invested in Bancassurance and are aware of the schemes offered by the bank. By increasing the number of policies, number of investors by efficient approach towards potential investors and services that are more efficient to the investors by proper training will help to increase the market share bank. If the investors are properly educated through more awareness that is effective programmes, the scope for Bancassurance can be increase largely in Bank in the future. The bridge has 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! REFERENCE [1] Article published in Finance and Development, June 2000 issue a quarterly magazine of IMF by the authors Tomas J T Balino and Angle Ubide [2] All India Economics Conference organized by Shri Higher Learning, Puttaparthi in Satya Sai Institute of [3]

2005 by Dr Satyananda Sahoo and Ms. Suja Joy (LIC Bancassurance in India-Tasks a Head by Nalini Prava Tripathy Volume 5, No. 10, June 2007, Birla institute of management technology, greater Noida [4] In an article titled "The New World of Banking" published in Finance & Development (June 2000 issue), a quarterly magazine of International Monetary Fund, the authors Tomas J T Balino and Angle Ubide. [5] Journal of Risk & Insurance, Vol. 74, No. 4, pp. 777-794, December 2007 is Bancassurance a viable Model for Financial Firms.