• Bancassurance

    Bancassurance is defined as the insurance distribution model where insurance products are sold through bank branch network. The presence of several banking groups as promoters of insurance companies is of great significance to this model.

    In simple words, this is the partnership between banks and insurance company whereby the later uses the banks’ channel in order to sell insurance products. However, in its broad sense, it can also mean a bank performing these actions with its own insurance subsidiary / allied company.

    The concept of Bancassurance originated in France. This is dominant model in many European countries. It gave outstanding results for European Banks as a new avenue for enhancing non-interest income streams. This is also referred as Bank Insurance model (BIM).

    Banks can leverage their network and high-tech electronic delivery channels to offer bancassurance products through

    • Branches
    • ATM network
    • Internet Banking
    • Call Center
    • Sales persons and Relationship Managers

    Why banks go for this business model?

    • Distribution of insurance products helps bank to reduce dependency on interest based income i.e.  Increase the fee-based earnings of banks.
    • Bancassurance helps Insurers to understand and analyze spending habits, investment pattern and saving of customer through banks’ database, which helps them to manufacture customize insurance product.
    • Banks have huge customer base which will help them to market the insurance products easily.
    • Through bancassurance banks can meet or exceed their customers’ expectations by giving them value added services like insurance.
    • To diversify the bank’s products and services portfolio

    Types of Bancasssurance models followed by banks

    Only Distribution:

    Here the banks take care of only distribution of insurance products to their retail and commercial banking customer. Except marketing of the Insurance products, no other insurance operations are performed by the banks. Insurance products are sourced from a third party insurance company and banks earn commission payment or profit share for the marketing. Here banks do not take any risk of selling insurance.

    Joint Venture:

    Here, banks form joint ventures with one or more insurance companies and float an Independent insurance company for doing bancassurance business. The percentage of ownership of joint venture varies from case to case. For Foreign insurance companies, the FDI limit in the insurance sector is applicable. The insurance products are sold by banks’ own branch network and internet banking services. Bank and insurer take their proportionate share of revenue and profit and loss. Banks are responsible for distribution of insurance products.

    Hence banks take sales regulatory risk and the insurance related risks as well depending on their share in the joint venture. ICICI bank and UK Insurance giant Prudential has formed a joint venture called “ICICI Prudential” in order to sell different insurance products.

    Fully owned insurance subsidiary:

    Here, Banks float fully owned insurance subsidiary. The insurance products developed by this insurance subsidiary are sold by the Bank. In some cases banks float subsidiary which is involved in reinsurance business. Here banks have to bear all the risks associated with insurance business.

    Bancassurance in India:

    In India the banking & insurance sectors are governed by RBI and IRDA respectively. So Bancassurance is also governed by both the entities.   A bank in one state can market the insurance product of only one life insurance Company and one general insurance company in that state. If the insurance company does not have health insurance product, then bank is allowed to tie up with one general insurance company dealing in only health insurance products in that state.

    Some Examples are

    • LIC has tied up with multiple PSU banks in order to sell their insurance products.
    • Birla Sun life Insurance has tied up with some banks to sell their products.
    • New India Assurance has tied up with PSU bank Central Bank of India for the same purpose

    Advantages to Banks

    • A “One Shop” service offering complete range of banking and insurance products and services – resulting in higher customer retention levels which in turn Increase in customer loyalty.
    • Enhancement in the utilization of manpower, branch network
    • Increase in Return on asset (RoA) without increasing Asset- Improved income streams – new avenues for generating fee income – leads to increase in return on assets
    • Improvement in profitability/productivity

    Advantages to Insurance Companies

    • Access to the wide network of branches of banks hence lower cost of customer acquisition.
    • Penetration into untapped segments like rural population.
    • Volume and profit of Insurance Company will go up because it is easier for banks to sell insurance products.
    • It is easier for Insurance company to analyze the customer’s spending habits, purchase capability, saving’s using bank’s customer database. Hence Insurance Company can customize the insurance product accordingly.

    Advantages to customer

    • Customers can have access to all financial services under one roof.
    • Customers have to pay less for the same insurance product as the distribution cost involved in it is reduced.
    • Customized insurance products are available to customers.
    • Customers frequently visit the bank for one or other reason and hence it will be easier for them to access claims.
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