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Bachelor of Commerce Banking & Insurance Semester V In Partial Fulfillment of the requirements for the Award of Degree of Bachelor of Commerce -Banking & Insurance. Submitted By GAURAV CHAUHAN G. ROLL NO : 05
CERTIFICATE
This is to certify that GAURAV CHAUHAN G. student of T . Y . B . C o m ( B a n k i n g & I n s u r a n c e ) S h r i C h i n a i C o l l e g e of C o m m e r c e & E c o n o m i c s ( S e m e s t e r V) h a s s u c c e s s f u l l y completed project on BANCASSURANCE in the academic y e a r 2 0 0 9 - 2 0 1 0 , u n d e r t h e g u i d a n c e o f P r o f . N i s h i k an t Jha. CourseCo-ordinator Principal Project Guide/ Internal Examiner
External Examiner
DECLARATION
I,GAURAV CHAUHAN G student Of T.Y.B.Com (Banking & Insurance) Shri Ch i n a i College of Commerce &
This project bears the imprint of many people. I owe a considerable debt of gratitude to the University of Mumbai as well as my college, Shri Chinai College of Commerce & Economics for introducing the concept of research work in the curriculum of Banking & Insurance Degree Course. I want to acknowledge Miss. Jyoti madam, Professor of International Banking (sem V) at my college who has been my project guide assisting my work through out the completion of this project. I thank him for giving me his valuable time and experience. I am indebted to several former faculty members Miss. Mikita shah, professor of Fianancial management (sem IV) and Mr. Maqbool Shaikh, professor of Universal Banking (sem IV) for having a great influence on my thinking and research procedure. I am appreciative of all I have learned from their teaching contributions and their experience as professionals. I also want to acknowledge our coordinator Mr.Nishikant Jha for his extensive conduct of the I.T workshop in the academic year 2007-2008 with us. It was a learning activity and helped me widen my scope on the subject of Reality Banking.
I continually benefit from the wisdom and support of my colleagues at T.Y.B.B.I, Shri Chinai College of Commerce & Economics.
SR.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
CHAPTER INTRODUCTION HISTORY AND DEFINITION THE THREE DEVELOPMENT MODEL ADVANTAGES FOR INSURANCE COMPANY ADVANTAGES FOR THE BANK ADVANTAGES FOR THE CONSUMER ADVANTAGES FOR THE LEGISLATOR CASE STUDY: FRANCE: BNP PARIBAS ASSURANCE KEY FACTOR FOR THE SUCCESSFUL SALE OF LIFE INSURANCE POLICY THROUGH BANKING NETWORK THE FEATURE OF THE INSURERS PRODUCT ARE ESSENTIAL KEY SUCCESS FACTORS :- DIAGRAME CUSTOMER SATISFACTION IS BASIC RULES IN BANCASSURANCE ESTABLISHING RISK ASSESSMENT IN BANCASSURANCE ONGOING DIVERSIFICATION:NEW PRODUCT SOLD BY BANKING NETWORK BANCASSURANCE IN INDIA SLOW GROWTH OF BANCASSURANCE CONCLUSION S.W.O.T S.W.O.T ANALYSIS
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Introduction
Bancassurance" is a buzzword in todays financial markets. What is bancassurance? In simple terms it is the distribution of insurance products by banks. All the major markets of the world have moved towards this concept; some are well into it, others are gravitating towards it, yet others are still contemplating it.
With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. New entrants in the insurance sector had no difficulty in matching their products with the customers' needs and offering them at a price acceptable to the customer. But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Further insurable population of over 1 billion spread all over the country has made the traditional channels of the insurance companies costlier. Also due to heavy competition, insurers do not
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enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices.
What is Bancassurance?
Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, Bancassurance, tries to exploit synergies between both the insurance companies and banks.
initially only financial, since Spanish law prohibited banks from selling life insurance. This legal barrier was removed in 1991. Today, the top five Spanish bancassurance companies control one third of the market. From a purely historical point of view, the real pioneers were the British with the creation of Barclays Life in September 1965. This subsidiary was not a great success in the UK, and nor, for that matter, was the concept of bancassurance. France: in 1971, Crdit Lyonnais acquired the Mdicale de France Group and in 1993 signed an agreement giving the Union des Assurances Fdrales Group exclusive rights to sell life insurance through the Crdit Lyonnais network; Spain: in 1981, the Banco de Bilbao Group acquired a majority interest in EUROSEGUROS SA, an Insurance and Reinsurance company; In the same year, they were joined in the first cross-border merger by AG Group, thereby creating the Fortis Group.
Definition:
Bancassurance, known as Alfinanze and most popular in Europe is the simplest way of distribution of insurance products through a bank distribution channel. It is basically selling insurance products and services by leveraging the vast customer base of a bank and fulfills the banking and insurance needs of the customers at the same time. It takes the various forms depending upon the demography, economic and legislative climate of the
country, while demographic climate will determine the kinds of insurance products, economic climate will determine the trends in terms of turnover, market shares etc, legislative climate will decide the periphery within which bancassurance has to operate. The motive behind the bancassurance also differs. For banks it just acts as a means of product diversification and additional fee income; for insurance company it acts as a tool for increasing their market penetration and premium turnover and for customer it acts as a bonanza in terms of reduced price, high quality products and delivery to doorsteps. So every body is a winner here.
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Full Integration
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The insurance company often benefits from the trustworthy image and reliability that people are more likely to attribute to banks; The insurance company also benefits from the reduction in distribution costs relative to the costs inherent in traditional sales representatives, since the sales network is generally the same for banking products and insurance products. These cost savings have been recognized by many bancassurance operators around the world and are therefore carried over into the costs included in contracts. This means that products can be sold more cheaply; An insurance company can establish itself more quickly in a new market, using a local banks existing network.
The distribution costs can be seen as marginal since, in most cases, it is the banks existing employees who sell the insurance products. Amongst other things, the one-stop shop model optimizes the use of the network and increases the profitability of the existing branch network. Bancassurance if taken in right spirit and implemented properly can be winwin situation for the all the participants' viz., banks, insurers and the customer.
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installments) and with easy access, since the branch network is usually denser than the network of insurance outlets.
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Key factors for the successful sale of life insurance policies through a banking network
The reality of bancassurance is multifaceted. A clear success in many market but it is not so easy to understand why it fails to develop in the same way everywhere. Because the keys to success are numerous, variegated and sometimes surprising! It is also difficult to establish priorities and identify determining factors, because each countrys situation, history and culture contributes, and sometimes runs counter, to the studies devoted to this question. So, there appears to be no miracle recipe but a certain number of facts that we have been able to establish, after analyzing a number of cases of bancassurance around the world.
Market image
The way consumers perceive banking in a given market and the role it plays in society are two essential factors. This image can be a direct consequence of the way the banking network is organized and how many branches it has in a country. in many countries perception of the banks is good: customers have a special relationship of trust with their bank or banker. Banks also benefit from the impression, justified or not, that they are better than insurance companies at handling financial issues. This trusting relationship is directly proportional to the power of the brand power and its true reputation. Customers in the countries mentioned above believe in a face-toface relationship with their banker
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Benelux countries, bancassurance operators have managed to integrate their activities completely, since every insurance policy is automatically processed through banking network IT systems. In addition, this kind of integration gives the networks a comprehensive overview of their customers assets and requirements. The objective of joint management is also to pool information for all the banks sales channels (branches, telephone sales, etc), and to create a database that can be used both by account managers and for different purposes by other bank departments, such as marketing surveys or new product launches. The success of bancassurance lies in the quick sale, sometimes directly over the counter in the branch. For this, the sales forces need to have access to an effective IT and information retrieval system. Providing customers with realtime answers over the counter is a major asset in the selling process. Having fully integrated data processing systems within the banking network means that insurance premiums can be calculated on the spot and contracts issued immediately. This is an important advantage because it must be possible for the potential customer to receive a response, if not immediately at least within a few days. Banking networks are now seeking increasing decision-making autonomy from insurance company back offices, allowing them to respond instantly to potential customers. They seem to want to develop tools that enable sales personnel to handle the majority of situations and only to pass nonstandard cases or cases requiring special expertise on to the insurance company. A large number of expert bancassurance software applications
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have emerged, which increasingly make it possible to decentralize acceptance decisions to branches and thereby speed up decision-making while reducing contract processing costs.
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management methods. Aligning them on banking products makes it easier for the banking networks to sell life insurance products. However, because of the strong similarity between life insurance and savings products, care must be taken that these products do not replace bank products but genuinely complement the existing range. This is often a challenge both for banks and insurance companies. It is entirely possible to diversify the product range sold by bancassurance operators, but this phase must come when the banking networks are already familiar with the concept of life insurance and when the market is sufficiently mature to accommodate more complex
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products.
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Training Motivating
Remuneration
Bancassurance is a particular kind of selling method, which primarily succeeds because of the way its network functions and is managed.
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and a financial institution to join forces and each distribute its partners products.
Management
The question of team management also needs to be raised because activities in the branch network are subject to rapid change. Certain bancassurance operators, have reorganized many of their structures and created new professional activities in order to provide each outlet with local managers or supervisors to support them.
Training
Training is also an essential element in motivating a sales network whose background is in banking. The diversity of profiles, combined with the rise of bancassurance, have obviously necessitated a massive training programmed in the distribution networks to create an awareness of, and interest in, insurance, to build up expertise and thereby to reinforce the trust that customers feel for their bankers in their additional insurance role. These courses can take various forms and be organized differently by different bancassurance operators and under different legislative frameworks. Indeed, advisers sometimes need to hold a special qualification to be able to sell insurance policies.
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However, here we propose to cover the main factors common to most bancassurance operators: As a general, training is provided by product specialists chosen for their training and coaching skills. In addition, they may often have been involved in designing the new insurance product they are explaining; The programmers are either aimed at a small number of people trained at company or regional headquarters, who will then train the branch personnel, or targeted directly at the sales force in the field; As a rule, training focuses specifically on insurance products. Nevertheless, certain bancassurance operators prefer to integrate the training sessions with their partner banks total training programmed. In order to achieve better results when launching new products, courses are scheduled for the weeks before these products are made commercially available. Nevertheless, changes to the characteristics of existing products do not necessarily result in a new training programmed. However, it would be too reductive to restrict training plans to coincide with the launch of new products.
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In order to give the sales force additional support, certain bancassurance operators (e.g. BNP Paribas Assurance) have even developed e-learning systems, which can be accessed at any time by the local network and sometimes in foreign subsidiaries.
Remuneration
Distributing these life insurance policies, whether through a joint venture or distribution agreements, has a cost for insurance companies. It is essential to heighten the awareness of sales forces of the need to sell insurance policies. As we have seen, this is done partly through training, but also by a new commission policy. Whether in bancassurance or traditional networks, the products that are the easiest to sell and the most profitable for financial advisers, are the ones that have the most success. In order to motivate the teams to sell insurance products, it is therefore essential to offer them appropriate rewards. However, rewarding sales forces within the framework of a multi-channel distribution process is not necessarily easy. Who should get the commission: the network sales personnel, the telephone advisers, the points of sale? Who can sell what and how do you set targets? Insurer pays commission to the insurance advisor or agent and also adds a system of profit-sharing for insurance products (term insurance, disability/critical illness, health, etc.). But, as with the other products, the bank retains control over the motivation of its sales force. Each Caisse is free to redistribute this commission or not. The way sales personnel are rewarded can also vary from one product to another. Variable remuneration does not seem to depend
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on the number of products sold; that would be too simple. The amount of the insured sum also counts, as can the performance of the product.
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The products
When asked, several experienced bancassurance operators constantly raised the subject of products in bancassurance. And that, of course, is no accident. It is a central theme, because it is crucial to success with customers but also to success with the sales network. The products distributed must be completely suited to the banking network, i.e. synchronized with the banks sales procedures, which include standardized application forms, the simplest possible medical and financial selection and standardization of all transactions This often means relatively low sums insured to make selling easier, because lower protection levels mean smaller premiums, which customers are more likely to accept. Without this pursuit of simplicity, the networks would undoubtedly be very reluctant to offer their customers banking and/or insurance products indiscriminately.
The salesperson needs to feel comfortable and the selling process must be quick, In a banking environment, a customer who is not hooked first time round is lost.
The products sold by bancassurance operators need to be wellpositioned and integrated into the range of banking products. It is
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crucial to retain the complimentarily between life insurance and savings products.
You have to ensure that insurance products are perceived as complementing rather than competing with basic bank products
It is crucial that new products should be well integrated into the existing range in order to avoid a proportion of bank savings being diverted into insurance vehicles.
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Cover for death, disability or incapacity, whatever the cause, either compulsory or with a very high penetration rate: In this case, medical assessment is necessary but can be limited, since the anti selection risk is deemed to be very low. Assessment often consists of a simple medical questionnaire (if the sum insured is below a certain ceiling). However, if the answer to any of the questions is yes, additional evidence may be required. If the sum borrowed is very large, full medical evidence will also be required at the first stage. In the very specific case of small consumer credit loans, medical assessment can consist of a simple Statement of Health; Cover for death, disability or incapacity, whatever the cause, provided on individual insurance products (term insurance, long-term care insurance, etc.): the medical assessment required by bancassurance operators is generally the same as that demanded by the traditional insurance providers. However, in order to simplify procedures to a maximum, bancassurance operators offer lower insured sums than traditional providers. Other methods can also be used to limit selection: introduction or extension of waiting periods and/or more exclusions.
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Payment of a life annuity (possibly plus a lump sum) if the insured person loses his or her autonomy. This situation is defined as a total and permanent incapacity to carry out certain day-to-day activities (eating, washing, moving around, etc). The degree of dependence may be total or partial. This definition is the one used for products sold in France. Other products, also described as long-term care, take a totally different approach, since they reimburse medical costs following what may be a purely temporary inability to look after oneself.
Traditionally, much fewer non-life insurance products are distributed through bancassurance than life insurance products. There are several reasons for this: The main reason may be the complementary nature of life insurance and banking products: bank employees are already familiar with financial products and quickly adapt to selling insurance-based savings or pension products; On the other hand, the non-life market requires special management and selling skills, which are not necessarily prevalent in bancassurance. In addition, such competencies require significant investment in training and motivation, and therefore additional costs; Life insurance products are generally long-term products, which require customers to have complete confidence in the institution that invests their money. And we now know that, in many countries, banks have a better image and are more trusted than insurance companies; Bank advisers can use their knowledge of their customers finances to target their advice towards specific needs. This is a major advantage in life insurance and less important in personal injury insurance; Some professionals also refer to the claims management aspect of personal injury insurance, which could have a negative impact on brand
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image. This would seem to explain why for a long time bancassurance operators hesitated to offer these types of product.
Bancassurance in India
The global evolution of bancassurance in the last 3 decades has proved that it could assume many structures depending on the country of operation. Bancassurance, the result of insurance companies tying up with multiple
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banks, has emerged as a very important channel for distributing there products with nearly third or more of their premiums. Private life insurance companies have gained the most from the bancassurance companies tie-ups and bancassurance is all set to the play a significant role in the manner in which insurance is sold in India. Therefore it has become impressive to understand the emerging structures of bancassurance and the reasons thereof. Bancassurance in India is a very new concept, but is fast gaining ground. In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Highlights of the guidelines are reproduced below: RBI guideline for banks entering into insurance sector provides three options for banks. They are: Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation; For banks which are not eligible for this joint-venture option, an investment option of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is available;
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The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are: Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities. All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority. Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company. Banks cannot become insurance brokers. Some of the Bancassurance tie-ups in India are:
Insurance Company Birla Sun Life Insurance Co. Ltd. Dabur Ltd HDFC CGU Life
Bank Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank Canara Bank, Lakshmi Vilas Bank, American Express Bank and ABN AMRO Bank Union Bank of India
Citibank, Allahabad Bank, Federal Bank, South Insurance Co Ltd. Indian Bank, and Punjab and Maharashtra Cooperative Bank. Corporation Bank, Life Insurance Corporation of India Indian Overseas Bank,
Centurion Bank, Satara District Central Cooperative Bank, Janata Urban Co-operative Bank, Yeotmal Mahila Sahkari Bank, Vijaya Bank,
Oriental Bank of Commerce. Met Life India Insurance Karnataka Bank, Dhanalakshmi Bank and J&K Co. Ltd. SBI Life Company Ltd. Bajaj Allianz Bank Insurance General Co. State Bank of India Karur Vysya Bank and Lord Krishna Bank
City Union Bank Ltd. Royal Sundaram General Standard Chartered Bank, ABN AMRO Bank, Insurance Company Citibank, Amex and Repco Bank. United India Insurance Co. South Indian Bank Ltd.
Issues to be tackled
Given the roles and diverse skills brought by the banks and insurers to a Bancassurance tie up, it is expected that road to a successful alliance would not be an easy task. Some of the issues that are to be addressed are:
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The tie-ups need to develop innovative products and services rather than depend on the traditional methods. The kinds of products the banks would be allowed to sell are another major issue. For instance, a complex unitlinked life insurance product is better sold through brokers or agents, while a standard term product or simple products like auto insurance, home loan and accident insurance cover can be handled by bank branches There needs to be clarity on the operational activities of the bancassurance i.e., who will do the branding, will the insurance company prefer to place a person at the bank branch, or will the bank branch train and put up one of its own people, remuneration of these people. Even though the banks are in personal contact with their clients, a high degree of pro-active marketing and skill is required to sell the insurance products. This can be addressed through proper training. There are hazards of direct competition to conventional banking products. Bank personnel may become resistant to sell insurance products since they might think they would become redundant if savings were diverted from banks to their insurance subsidiaries. Factors that appear to be critical for the success of bancassurance are Strategies consistent with the bank's vision, knowledge of target customers' needs, defined sales process for introducing insurance services, simple yet complete product offerings, strong service delivery mechanism, quality administration, synchronized planning across all business lines and subsidiaries, complete integration of insurance with other bank products and services, extensive and high-quality training, sales management tracking
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system for reporting on agents' time and results of bank referrals and relevant and flexible database systems. Another point is the handling of customers. With customer awareness levels increasing, they are demanding greater convenience in financial services. The emergence of remote distribution channels, such as PC-banking and Internet-banking, would hamper the distribution of insurance products through banks.
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I]
Corporate Agency distributing the entire range of products of the insurer starting from elementary term assurance plans to complex pension plans on an as is where is basis, after training and licensing the employees a sort of non-integrated model ;
II]
Referral Model the insurer company officials / representatives are provided leads by bank employees to target specific customers; and
III]
around the banks savings and loan products a type of an integrated model. While the corporate agency and the wrapper models have been reasonably successful, the referral model has not met with much success. For the new insurance players who started during the post-reform period in India, bancassurance has come as blessing in disguise. Getting a readymade distribution network at one shot and that too at a fraction of the total cost to develop a distribution network of their own, enabled them to go aggressive on this channel. year 2004-05. Banks in India are increasingly giving a thrust to retail. Retail choices are getting increasingly complex with newer instruments. Banks also want to project themselves as financial supermarkets, offering the entire gamut of financial products under one roof. In tune with this approach, it becomes imperative to offer to the customer a wide range of products and bancassurance comprising insurance products, many of which have an investment element, is perceived as one more choice.
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reported over 65% of their businesses through bancassurance channel for the
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With only 27% of the insured population covered under insurance, there is immense potential for further coverage. Many rural pockets, especially, are yet to be trapped. The per capita premium of $13 is also believed to be among the lowest in the world. Thus, it is natural that insurance companies want to trap this vast uninsured population and that too at the earliest. Reaching out on their own, would involve heavy investments and also take time. Similarly, banks with their spreads thinning progressively under traditional business, are constantly on the look out for new avenues for generating income. With such a scenario prevailing in the financial markets of India, it is obvious that banks and insurers would try and become partners in this endeavor called bancassurance. India, a promising market given the size of its population, is in its life insurance infancy. However, bancassurance has grown very strongly since the signature of the IRDA Bill in 2000. Since 2002, two thirds of the twelve foreign insurance companies authorized to work in India have already developed strong partnerships with banks. The Association of Insurers of India has signed a bancassurance agreement with Corporation Bank. Other agreements have also been signed with South Indian Bank, Lord Krishna Bank, ICICI Bank, etc. For Bajaj Allianz, for example, a joint venture between Baja Auto Ltd, the countrys second largest motorcycle manufacturer, and the German insurance company Allianz AG, bancassurance represented some 27% of its total new insurance business at the end of October 2004, compared with 17-18% in 2002. This figure is
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likely to grow further, following the launch of specific products by Centurion Bank and its agreements with banks such as Standard Chartered Bank and Syndicate Bank. Aviva has signed a new bancassurance partnership with Punjab and Sind Bank in pursuit of its ambition to grow on the Indian market. In 2003, Aviva Life generated 73% of its new business through the banking network.
Conclusion
With huge untapped market, insurance sector is likely to witness a lot of activity - be it product innovation or distribution channel mix. Bancassurance, the emerging distribution channel for the insurers, will have a large impact on Indian financial services industry. Traditional methods of distributing financial services would be challenged and innovative, customized products would emerge. Banks will bring in customer database, leverage their name recognition and reputation at both local and regional levels, make use of the personal contact
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with their clients, which a new entrant cannot, as they are new to the industry. In customer point of view, a plethora of products would be available to him. More customized products would come into existence and that too all within hands reach.
To adapt, train and motivate the banking network to sell insurance products; To redesign products, but also to do more to integrate them into existing bank offerings and into the networks sales targets, to make them simpler; To develop a joint IT and management system between the bank and insurance company, so that sales personnel have fast, easy access to information and harmonized procedures; So far, banks have targeted the wealthy, a difficult market to reach, rather than a mass market (working class); a change of target arkets would seem to be essential; To limit the number of insurance companies the bank works with; in this way, the two players could develop a genuine partnership and create more links.
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S. W. O. T.
Description A SWOT analysis is a tool, used in management and strategy formulation. It can help to identify the Strengths, Weaknesses, Opportunities and Threats of a particular company. Strengths and weaknesses are Internal factors that create value or destroy value. They can include assets, skills, or resources that a company has at its disposal, compared to its competitors. They can be measured using internal assessments or external benchmarking. Opportunities and threats are External factors that create value or destroy value. A company cannot control them. But they emerge from either the competitive dynamics of the industry/market or from demographic, economic, political, technical, social, legal or cultural factors
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Strengths
Weaknesses Specialist marketing expertise Exclusive access to natural resources Patents New, innovative product or service
Lack of marketing expertise Undifferentiated products and service (i.e. in relation to your competitors) Location of your company Competitors have Superior access to distribution channels Poor quality of goods or services Damaged reputation
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Opportunities
Threats
Developing market Mergers, joint ventures or strategic alliances Moving into new attractive market segments
A new competitor in your own home market Price war Competitor has a new, innovative substitute product or service New regulations Increased trade barriers A potential new taxation On your product/ service
SWOT Analysis
SWOT Analysis is a powerful technique for understanding your Strengths and Weaknesses, and for looking at the Opportunities and Threats you face.
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Used in a business context, it helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your career in a way that takes best advantage of your talents, abilities and opportunities.
More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.
Strengths:
What advantages does your company have? What do you do better than anyone else? What unique or lowest-cost resources do you have access to?
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Consider this from an internal perspective, and from the point of view of your customers and people in your market. And be realistic: It's far too easy to fall prey to "not invented here syndrome". Also, if you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths! In looking at your strengths, think about them in relation to your competitors - for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity.
Weaknesses:
What could you improve? What should you avoid? What are people in your market likely to see as weaknesses?
Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.
Opportunities:
Where are the good opportunities facing you? What are the interesting trends you are aware of?
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Changes in technology and markets on both a broad and narrow scale Changes in government policy related to your field Changes in social patterns, population profiles, lifestyle changes, etc. Local Events
A useful approach to looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.
Threats:
What obstacles do you face? What is your competition doing? Are the required specifications for your job, products or services changing? Is changing technology threatening your position? Do you have bad debt or cash-flow problems? Could any of your weaknesses seriously threaten your business?
Carrying out this analysis will often be illuminating - both in terms of pointing out what needs to be done, and in putting problems into perspective. You can also apply SWOT Analysis to your competitors. As you do this, you'll start to see how and where you should compete against them.
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SWOT Analysis is a simple but powerful framework for analyzing your company's Strengths and Weaknesses, and the Opportunities and Threats you face. This helps you to focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you.
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they often lack local and regional name recognition and reputation; and they seldom possess access to or experience with the middle market.
Bank
Bancassurance in India - A SWOT Analysis:
Customer retention
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 also participate in the distribution of mortgage linked insurance products like
Satisfaction of more financial n fire, motor or cattle sametheir customers. insurance to roof Revenue diversification
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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 hitherto 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, an R & D 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.
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 preempt 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
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bancassurance venture. LIC and GIC both 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 4200 operating offices and LIC with 2048 branch offices are almost already omnipresent, which is so essential for the development of any bancassurance project.
Weaknesses:
The IT culture is unfortunately missing completely in all of the future collaborators i.e. banks, GIC & LIC. A late awakening seems to have dawned upon but it is a case of too late and too little. Elementary IT requirement like networking (LAN) is not in place even in the headquarters of these 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. The middle class population that we are eyeing at are 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, LIC schemes get IT exemptions but personal line products from GIC (mediclaim already has this benefit) like householder, travel, etc. also need to be given tax exemption to further the cause of insurance and to increase domestic revenue for the country. Another drawback is the inflexibility of the products i.e. it can not 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.
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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 dissected 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 IRA 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.
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 resented with vehemence.
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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 fierce competition in the market resulting in lower prices and the bancassurance venture may never break-even.
Looking Around
Hardly 20% of all US banks were selling insurance in 1998 against almost 70% to 90% in many W. European countries. Market penetration of bancassurance in new life businesses in Europe ranges between 30% in U.K. to nearly 70% in France. Almost 100% banks in France are selling insurance products. In 1991 Nationale Nederlanden of Netherlands merged with Post Bank, the banking subsidiary of the post office to create the ING Group - a new dimension to the bancassurance i.e. harnessing the databank of the post office as well. CNP, the largest independent insurance company in France has developed its product distribution through post offices. The merger of Winterthur, the largest Swiss insurance companies with Credit Suisse and
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Citibank with Travellers Group have resulted in some of the largest financial conglomerates in the world. Despite the phenomenal success of bancassurance in Europe, property and casualty products have not made much inroads. In Spain, Belgium, Germany and France where more than 50% of all new life premium is generated by bancassurance, only about 6% P & C business comes from banks in Spain, 5% in Belgium, 4% in France and Italy. A recent study by Boston Consulting Group and Bank Administration Institute in USA claims that if banks made a major commitment to insurance and a more narrowly targeted commitment to investors, within 5 years they could increase retail revenues by nearly 50%. It further states that
Banks could capture 10% to 15% of the total U.S. insurance and investment market by selling products to 20% of their existing customers. Banks' existing infrastructure enables them to operate at expense levels that are 30% to 50% lower than those of traditional insurers. Bancassurance's bank-branch based sales system sells 3 to 5 times as many insurance policies as a conventional as a conventional insurance sales and distribution force.
By simplifying bancassurance products each back office bank employee can quintuple managing policies compared to traditional insurers.
Even insurers and banks that seem ideally suited for a Bancassurance partnership can run into problems during implementation. The most common obstacles to success are poor manpower management, lack of a sales culture within the bank, no involvement by the branch manager, insufficient product promotions, failure to integrate marketing plans, marginal database expertise, poor sales channel linkages, inadequate incentives, resistance to change, negative attitudes toward insurance and unwieldy marketing strategy. Conversely, Bancassurance ventures that succeed tend to have certain things in common. Factors that appear to be critical to success include strategies consistent with the bank's vision, knowledge of target customers' needs, defined sales process for introducing insurance services, simple yet complete product offerings, strong service delivery mechanism, quality administration, synchronized planning across all business lines and subsidiaries, complete integration of insurance with other bank products and services, extensive and high-quality training, sales management tracking system for reporting on agents' time and results relevant and flexible database systems. of bank referrals and
Conclusion
The creation of Bancassurance operations has a material impact on the financial services industry at large. Banks, insurance companies and traditional fund management houses are converging towards a model of global retail financial institution offering a wide array of products. It leads to the creation of 'one-stop shop' where a customer can apply for mortgages, pensions, savings and insurance products.
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Discovery comes from looking at the same thing as everyone else but seeing something different. Banks' desire to increase fee income has them looking at insurance. Insurance carriers and banks can become part of the vision through strategic partnerships. Now is the time to position your company for the new millennium of insurance product distribution.
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Websites:
www.rbi.org.in www.domain-b.com www.myris.com www.iiml.ac.in www.indiainfoline.com www.rediff.com www.obcindia.com www.way2wealth.com www.indiatimes.com www.thehinduimages.com www.zeenews.com www.reachouthyderabad.com www.google.co.in www.nse-india.com www.businessworld.com
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