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  1. 1. University of Mumbai “BANCASSURANCE” Bachelor of Comme rce Banking & Insurance Semeste r VIn Partial Fulfillment of the require ments for theAward of Degree of Bachelor of Commerce -Banking& Insurance. Submitted By GAURAV CHAUHAN G. ROLL NO : 05 L AX M I C H A R I T A B L E T R U S T SHRI CHINAI COLLEGE OF COMMERCE & ECONOMICS ANDHERI (E),MUMBAI-400 069
  2. 2. L AX M I C H A R I T A B L E T R U S T SHRI CHINAI COLLEGE OF COMMERCE & ECONOMICS ANDHERI (E),MUMBAI-400 069 CERTIFICATEThis is to certify that GAURAV CHAUHAN G. student ofT . Y . B . C o m ( B a n ki 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 o fC o mme r c e & E c o n o mi c s ( S e me s t e r V ) h a s s u c c e s s f u l l yc o mp l e t e d p r o j e c t o n B A N C A S S U R A N C E i n t h e a c a d e mi cy ea r 2 0 0 9- 2 0 1 0 , u n d e r t h e g ui d a n c e o f P r o f . N i s h i ka n tJha.CourseCo-ordinatorPrincipalP r o j e ct G u i d e / I n t e r n a l E x a mi n e rE x t e r n a l E x a mi n e r DECLARATIONI , G A U R A V C H A U H A N G s t u d e nt O f T . Y . B . C o m ( B a n ki n g& Insurance) Shri Ch i n a i College of C o mme r c e &E c o n o mi c s ( S e me s t e r V ) h e r e by d e c l a r e t h at I h a v ec o mp l e t e d this project on BANCASSURANCE in the 2
  3. 3. a c a d e mi c y e a r 2 0 0 9- 2 0 1 0 . T h e i n f o r ma t i o n s u b mi t t e d i st r u e a n d o r i g i n al t o t h e b e s t of my kn o w l e d g e . S i g n at u r e of t h e St u d e n t (GAURAV CHAUHAN G) ROLL NO : 05This project bears the imprint of many people. I owe a considerable debt ofgratitude to the University of Mumbai as well as my college, Shri ChinaiCollege of Commerce & Economics for introducing the concept ofresearch work in the curriculum of Banking & Insurance Degree Course.I want to acknowledge Miss. Jyoti madam, Professor of InternationalBanking (sem V) at my college who has been my project guide assisting mywork through out the completion of this project. I thank him for giving mehis 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 mythinking and research procedure. I am appreciative of all I have learned fromtheir teaching contributions and their experience as professionals.I also want to acknowledge our coordinator Mr.Nishikant Jha for hisextensive conduct of the I.T workshop in the academic year 2007-2008with us. It was a learning activity and helped me widen my scope on thesubject of Reality Banking. 3
  6. 6. Introduction“Bancassurance" is a buzzword in today’s financial markets. What isbancassurance? In simple terms it is the distribution of insurance productsby banks. All the major markets of the world have moved towards thisconcept; some are well into it, others are gravitating towards it, yet othersare still contemplating it.With the opening up of the insurance sector and with so many playersentering the Indian insurance industry, it is required by the insurancecompanies to come up with innovative products, create more consumerawareness about their products and offer them at a competitive price. Newentrants in the insurance sector had no difficulty in matching their productswith the customers needs and offering them at a price acceptable to thecustomer.But, insurance not being an off the shelf product and one which requiringpersonal counseling and persuasion, distribution posed a major challenge forthe insurance companies. Further insurable population of over 1 billionspread all over the country has made the traditional channels of theinsurance companies costlier. Also due to heavy competition, insurers do not 6
  7. 7. enjoy the flexibility of incurring heavy distribution expenses and passingthem to the customer in the form of high prices.Bancassurance – current scenarioThe concept of bancassurance evolved in Europe. Retail banks earn theirincome from the difference between the rate they charge on their lendingand the interest they pay for deposits. Competition had thinned their profitmargins. Mergers and acquisitions emerged as the driving force for bankingsuccess during the last two decades. “Buy and Cut” were the prime concernfor shareholder value. However, as time passed, there was little that thebanks could offer their customers in terms of differentiated retail products.They were struggling to find ways to increase revenue. They had succeededin stabilizing costs, but their revenue growth had collapsed. The challenge tothe banks was to find ways and means to retain their customers, one by one.Banks had to identify what the customers needed, what they were worth andwhat it could do better to increase this worth. One way to resolve this issuewas to find a combination of products, all of them quite useful to thecustomers, price them suitably and embark on a mass distribution.Today, Europe leads the world in bancassurance. 30% of Europe’s lifeproducts are sold through banks, with Spain leading at 70%. In AsiaSingapore, Taiwan and Hong Kong have surged ahead in bancassurance,with India and China taking tentative steps towards it. In the Middle East,only Saudi Arabia made some feeble attempts which failed to take off. 7
  8. 8. What is Bancassurance?Bancassurance is the distribution of insurance products through the banksdistribution channel. It is a phenomenon wherein insurance products areoffered through the distribution channels of the banking services along witha complete range of banking and investment products and services. To put itsimply, Bancassurance, tries to exploit synergies between both the insurancecompanies and banks.History and definitionsThe first countries to venture into the field were Spain and France.In the early 70s, ACM (Assurances du Crédit Mutuel) Vie et IARD (life andgeneral insurance) were officially authorized to start operations, a watershedevent in the history of insurance. It was their idea to bypass the middlemanfor loan protection insurance and to insure their own banking customersthemselves. They thus became the precursors of what – 15 years later –would become “bancassurance”. For their part, the Spanish began theiradventure in the early 1980s, when the BANCO DE BILBAO Groupacquired a majority stake in EUROSEGUROS SA (originally LA VASCAASEGURADORA SA, incorporated in 1968). However, their control was 8
  9. 9. initially only financial, since Spanish law prohibited banks from selling lifeinsurance. This legal barrier was removed in 1991. Today, the top fiveSpanish bancassurance companies control one third of the market. From apurely historical point of view, the real pioneers were the British with thecreation of Barclays Life in September 1965. This subsidiary was not a greatsuccess in the UK, and nor, for that matter, was the concept ofbancassurance.● France: in 1971, Crédit Lyonnais acquired the Médicale de France Groupand in 1993 signed an agreement giving the Union des Assurances FédéralesGroup exclusive rights to sell life insurance through the Crédit Lyonnaisnetwork;● Spain: in 1981, the Banco de Bilbao Group acquired a majority interest inEUROSEGUROS SA, an Insurance and Reinsurance company;In the same year, they were joined in the first cross-border merger by AGGroup, thereby creating the Fortis Group.Definition:Bancassurance, known as Alfinanze and most popular in Europe is thesimplest way of distribution of insurance products through a bankdistribution channel. It is basically selling insurance products and servicesby leveraging the vast customer base of a bank and fulfills the banking andinsurance needs of the customers at the same time. It takes the various formsdepending upon the demography, economic and legislative climate of the 9
  10. 10. country, while demographic climate will determine the kinds of insuranceproducts, economic climate will determine the trends in terms of turnover,market shares etc, legislative climate will decide the periphery within whichbancassurance has to operate. The motive behind the bancassurance alsodiffers. For banks it just acts as a means of product diversification andadditional fee income; for insurance company it acts as a tool for increasingtheir market penetration and premium turnover and for customer it acts as abonanza in terms of reduced price, high quality products and delivery todoorsteps. So every body is a winner here.The Three Development ModelsBancassurance takes different forms that vary from one country to the next.There are different development models, which can be divided into 3 maincategories. Below, we sum up their main criteria and their advantages anddisadvantages. Description Advantages Disadvantages Bank acts as an Operation start Lack of flexibility to intermediary for quickly. No launch new products. Distribution an insurance capital Possibility of agreement company investment (less differences in costly) corporate culture Bank in partnership withJoint Venture one or more Transfer of Difficult in manage insurance experience in long the term companies 10
  11. 11. Full Creation of a Same corporate Substantial Integration new subsidiary culture investmentHow the participants benefit from the success of this modelWhy has bancassurance shown such strong growth in certain markets? It issurely no accident. This success can be seen as the effect of individualinterests feeding into a partnership, and eventually benefiting all parties.It must be to the advantage of each stakeholder in the model (bank,insurance company, consumer and legislator) for the bancassurance model todevelop successfully. Without these advantages, it is obvious that nocollaboration would be possible. The chosen model will then depend on eachparty’s situation, as well as the possibilities provided by the authorities ineach country.Advantages for the insurance company:● Through this new distribution network, the insurance companysignificantly extends its customer base and enjoys access to customers whowere previously difficult to reach. This is obviously a fundamentaladvantage, it is itself enough to convince an insurance company to ally itselfwith a bank;● The insurance company has the opportunity to vary its distributionmethods, in order to avoid excessive dependence on a single network.Diversification reduces risk; 11
  12. 12. ● The insurance company often benefits from the trustworthy image andreliability that people are more likely to attribute to banks;● The insurance company also benefits from the reduction in distributioncosts relative to the costs inherent in traditional sales representatives, sincethe sales network is generally the same for banking products and insuranceproducts.These cost savings have been recognized by many bancassurance operatorsaround the world and are therefore carried over into the costs included incontracts. This means that products can be sold more cheaply;● An insurance company can establish itself more quickly in a new market,using a local bank’s existing network.Advantages for the bank:● First of all, the bank sees bancassurance as a way of creating a newrevenue flow and diversifying its business activities. This advantage was allthe greater in the early 1990s, a period characterized by increasedcompetition between financial institutions and a reduction in the banks’profit margins and, therefore, the need to look for new business;● The bank becomes a sort of “supermarket”, a “one-stop shop” for financialservices, where all customers’ needs – whether financial or insurance-related– can be met. The broadening of its product range makes the bank moreattractive and can reinforce customer satisfaction and therefore customerloyalty; 12
  13. 13. ● The distribution costs can be seen as marginal since, in most cases, it is thebank’s existing employees who sell the insurance products. Amongst otherthings, the one-stop shop model optimizes the use of the network andincreases the profitability of the existing branch network.Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants viz., banks, insurers and thecustomer.Advantages for the consumer:● As mentioned among the advantages for the bank, the consumer enjoysgreater access to all financial services from a bank that offers both bankingand insurance products;● Since the distribution costs are lower than in a traditional distributionnetwork, the consumer can usually get cheaper insurance products thanthrough traditional channels. In addition, premium payment methods aresimplified, since premiums are collected directly from bank accounts;● The special relationship between the customer and the bank means thatthere is a better match between what the customer needs and the solutionsprovided by the bank. In summary, we would say that customers benefitfrom the opportunity to get simple, often inexpensive insurance productswith a premium payment system adapted to their needs (usually monthly 13
  14. 14. installments) and with easy access, since the branch network is usuallydenser than the network of insurance outlets.Advantages for the legislator:The role of the oversight authorities or of the government itself is to makelaws to ensure that the risks taken by their country’s financial institutions areactively managed and controlled in such a way as to maintain sound nationalfinances. However, events may occur that are outside the control ofindividual and national managers, which may impact upon the wholefinancial system. These risks go under the name of “systemic risk”. Forfinancial institutions, bancassurance can be a means of limiting suchsystemic risk because it diversifies the bank’s sources of revenue, making itsbusiness more stable and thereby safer for its customers too. On the otherhand, certain authorities think that deregulating financial systems to excesscan increase a country’s systemic risk. This is why, in many countries, banksare still unable to exercise activities outside their core business, in order toavoid additional sources of risk. In addition, certain governments havedecided to liberalize the financial system, but progressively, for a morecontrolled process of deregulation. In other words, supervisory authoritiesmay see bancassurance as an advantage or, on the contrary, as a potentialrisk to a country’s financial stability. 14
  15. 15. 15
  16. 16. Key factors for the successful sale of life insurance policiesthrough a banking networkThe reality of bancassurance is multifaceted. A clear success in many marketbut it is not so easy to understand why it fails to develop in the same wayeverywhere. Because the keys to success are numerous, variegated andsometimes surprising! It is also difficult to establish priorities and identifydetermining factors, because each country’s situation, history and culturecontributes, and sometimes runs counter, to the studies devoted to thisquestion. So, there appears to be no “miracle recipe” but a certain number offacts that we have been able to establish, after analyzing a number of casesof bancassurance around the world.Market imageThe way consumers perceive banking in a given market and the role it playsin society are two essential factors. This image can be a direct consequenceof the way the banking network is organized and how many branches it hasin a country. in many countries perception of the banks is good: customershave a special relationship of trust with their bank or banker. Banks alsobenefit from the impression, justified or not, that they are better thaninsurance companies at handling financial issues. This trusting relationshipis directly proportional to the power of the brand power and its truereputation. Customers in the countries mentioned above believe in a face-to-face relationship with their banker 16
  17. 17. The legal frameworkThe legal frameworks for bancassurance and the authorities’ attitude to itsdevelopment are clearly essential and have a real influence on the model’sconditions for success in a given country. Tax advantages can provide astrong incentive for consumers to invest in one life insurance or pensionproduct rather than another. Changes in the law providing such incentivescan have a positive, or negative, influence on the sales of a product.Sales of life insurance policies by banks have used largely as a result of taxbreaks. This factor is a real driving force in the launch of bancassurance, stilla relatively underused mechanism in most countries. As regards legislation,it is obvious that favorable laws, which do not restrict banks’ options toacquire stakes in insurance companies or to set up their own insurancecompanies, and where there are no or few restrictions on the sale ofinsurance products by banking networks, will enable bancassurance todevelop more easily and more quickly.Exploiting these keys to successAn Integrated Management Model:There is absolutely no doubt that this integrated model has enabledbancassurance to establish a crucial competitive advantage. Bancassurance isbased on a particularly efficient management model that is totally integratedwith the banking business. Thus, in certain parts of the world such as the 17
  18. 18. Benelux countries, bancassurance operators have managed to integrate theiractivities completely, since every insurance policy is automaticallyprocessed through banking network IT systems.In addition, this kind of integration gives the networks a comprehensiveoverview of their customers’ assets and requirements. The objective of jointmanagement is also to pool information for all the bank’s sales channels(branches, telephone sales, etc), and to create a database that can be usedboth by account managers and for different purposes by other bankdepartments, such as marketing surveys or new product launches.The success of bancassurance lies in the quick sale, sometimes directly overthe counter in the branch. For this, the sales forces need to have access to aneffective IT and information retrieval system. Providing customers with real-time answers over the counter is a major asset in the selling process. Havingfully integrated data processing systems within the banking network meansthat insurance premiums can be calculated on the spot and contracts issuedimmediately. This is an important advantage because it must be possible forthe potential customer to receive a response, if not immediately at leastwithin a few days.Banking networks are now seeking increasing decision-making autonomyfrom insurance company back offices, allowing them to respond instantly topotential customers. They seem to want to develop tools that enable salespersonnel to handle the majority of situations and only to pass“nonstandard” cases or cases requiring special expertise on to the insurancecompany. A large number of expert bancassurance software applications 18
  19. 19. have emerged, which increasingly make it possible to decentralizeacceptance decisions to branches and thereby speed up decision-makingwhile reducing contract processing costs.Key factors in motivating the sales network!These factors, developed at greater length in another section, seemfundamental, not to say crucial, to the successful development ofbancassurance. The approach to the management of the network must beglobal, so that everyone knows their role in the organization and is fullyaware of their responsibilities and objectives. These objectives must also beset in a joint “business plan” for both banking and insurance products. Thenetwork is originally made up of bank employees whose primary role is toprovide financial services and products. In order to develop their interest anddesire to offer their customers insurance products, it is absolutely essential toset up appropriate training and to motivate the sales force, mainly throughfinancial incentives. Training and remuneration policy tend to be specific toeach bancassurance operator and correspond to each company’s ownparticular corporate culture and history.The features of the insurer’s products are essentialFeature of the Bancassurance products play a very important role.Bancassurance operator usually starts by distributing simple, standardizedproducts, which are sometimes even “packaged” with bank products. Theseproducts have to be integrated into the bank’s sales procedures and into its 19
  20. 20. management methods. Aligning them on banking products makes it easierfor the banking networks to sell life insurance products. However, becauseof the strong similarity between life insurance and savings products, caremust be taken that these products do not replace bank products but genuinelycomplement the existing range. This is often a challenge both for banks andinsurance companies. It is entirely possible to diversify the product rangesold by bancassurance operators, but this phase must come when thebanking networks are already familiar with the concept of life insurance andwhen the market is sufficiently mature to accommodate more complex 20
  21. 21. products. 21
  22. 22. CUSTOMER SATISFACTION IS THE BASIC RULE INBANCASSURANCE!Bancassurance operators have put the customer at the very heart of theirthinking and development strategies. This means:✔ Providing a full range of financial products and services (banking andinsurance) through a single sales network;✔ Offering high-quality advice through readiness to listen and accurateinformation;✔ Quickly meeting customer needs by a branch-based IT system but alsoeasy access to the service, sometimes 24/7, with telephone support centres orInternet platforms;✔ Providing know-how and follow-up (especially claims management) asgood as the best traditional insurance providers. 22
  23. 23. Establishing • The sales network • Training • Motivating • RemunerationBancassurance is a particular kind of selling method, which primarilysucceeds because of the way its network functions and is managed.The sales networkIt is because banks often enjoy a very strong position in their respectivemarkets (branch networks, independent sales representatives, Internet,telephone services, not forgetting customer databases) that it is easier forthem to extend their range of services to include life insurance, than for lifeinsurance companies to offer banking services.If we take Spain as an example, in mid-2003 the country’s Central Banklisted some 34,000 branches for a population of 40 million. With one branchper 1,156 people, Spain is one of the countries with the highest bank densityin Europe. Of course, it is not out of the question for an insurance company 23
  24. 24. and a financial institution to join forces and each distribute its partner’sproducts.ManagementThe question of team management also needs to be raised because activitiesin the branch network are subject to rapid change. Certain bancassuranceoperators, have reorganized many of their structures and created newprofessional activities in order to provide each outlet with local managers orsupervisors to support them.TrainingTraining is also an essential element in motivating a sales network whosebackground is in banking. The diversity of profiles, combined with the riseof bancassurance, have obviously necessitated a massive trainingprogrammed in the distribution networks to create an awareness of, andinterest in, insurance, to build up expertise and thereby to reinforce the trustthat customers feel for their bankers in their additional insurance role. Thesecourses can take various forms and be organized differently by differentbancassurance operators and under different legislative frameworks. Indeed,advisers sometimes need to hold a special qualification to be able to sellinsurance policies. 24
  25. 25. However, here we propose to cover the main factors common to mostbancassurance operators:● As a general, training is provided by product specialists chosen for theirtraining and coaching skills. In addition, they may often have been involvedin designing the new insurance product they are explaining;● The programmers are either aimed at a small number of people trained atcompany 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 trainingsessions with their partner bank’s total training programmed.● In order to achieve better results when launching new products, coursesare scheduled for the weeks before these products are made commerciallyavailable. Nevertheless, changes to the characteristics of existing productsdo not necessarily result in a new training programmed. However, it wouldbe too reductive to restrict training plans to coincide with the launch of newproducts. 25
  26. 26. ● In order to give the sales force additional support, certain bancassuranceoperators (e.g. BNP Paribas Assurance) have even developed e-learningsystems, which can be accessed at any time by the local network andsometimes in foreign subsidiaries.RemunerationDistributing these life insurance policies, whether through a joint venture ordistribution agreements, has a cost for insurance companies. It is essential toheighten 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 newcommission policy. Whether in bancassurance or traditional networks, theproducts that are the easiest to sell and the most profitable for financialadvisers, are the ones that have the most success. In order to motivate theteams to sell insurance products, it is therefore essential to offer themappropriate rewards. However, rewarding sales forces within the frameworkof a multi-channel distribution process is not necessarily easy. Who shouldget the commission: the network sales personnel, the telephone advisers, thepoints of sale? Who can sell what and how do you set targets? Insurer payscommission to the insurance advisor or agent and also adds a system ofprofit-sharing for insurance products (term insurance, disability/criticalillness, health, etc.). But, as with the other products, the bank retains controlover the motivation of its sales force. Each Caisse is free to redistribute thiscommission or not. The way sales personnel are rewarded can also varyfrom one product to another. Variable remuneration does not seem to depend 26
  27. 27. on the number of products sold; that would be too simple. The amount of theinsured sum also counts, as can the performance of the product. 27
  28. 28. The productsWhen asked, several experienced bancassurance operators constantly raisedthe subject of “products” in bancassurance. And that, of course, is noaccident. It is a central theme, because it is crucial to success with customersbut also to success with the sales network.The products distributed must be completely suited to the banking network,i.e. synchronized with the bank’s sales procedures, which includestandardized application forms, the simplest possible medical and financialselection and standardization of all transactions This often means relativelylow sums insured to make selling easier, because lower protection levelsmean smaller premiums, which customers are more likely to accept. Withoutthis pursuit of simplicity, the networks would undoubtedly be very reluctantto offer their customers banking and/or insurance products indiscriminately.Main characteristics of bancassurance products • 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 well- positioned and integrated into the range of banking products. It is 28
  29. 29. 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.RISK ASSESSMENT IN BANCASSURANCEWhen we asked several bancassurance operators “Do you think thatmedical risk assessment is a hindrance to the growth of bancassurance?”we invariably got the same answer:“Yes, without any doubt, since assessment significantly increases the timeit takes to sell a product.” And one of the secrets of success inbancassurance is undoubtedly the fast sale. It is nevertheless true that, whilethis selection process is seen as a significant difficulty, it is alsoindispensable for all protection products and can only rarely be completelybypassed. Here are three categories of insurance products with differentassessment methods:✔ Accidental death (or disability) cover attached, for example, to debit cardsor bank accounts: for these products, no medical selection is required; 29
  30. 30. ✔ Cover for death, disability or incapacity, whatever the cause, eithercompulsory or with a very high penetration rate: In this case, medicalassessment is necessary but can be limited, since the anti selection risk isdeemed to be very low. Assessment often consists of a simple medicalquestionnaire (if the sum insured is below a certain ceiling). However, if theanswer to any of the questions is yes, additional evidence may be required.If the sum borrowed is very large, full medical evidence will also berequired at the first stage. In the very specific case of small consumer creditloans, medical assessment can consist of a simple Statement of Health;✔ Cover for death, disability or incapacity, whatever the cause, provided onindividual insurance products (term insurance, long-term care insurance,etc.): the medical assessment required by bancassurance operators isgenerally the same as that demanded by the traditional insurance providers.However, in order to simplify procedures to a maximum, bancassuranceoperators offer lower insured sums than traditional providers. Other methodscan also be used to limit selection: introduction or extension of waitingperiods and/or more exclusions.Which life insurance products are sold by bancassurancespecialists?This is a question often asked by new bancassurance operators, especially incountries where this is an emerging model. In short, there is only oneanswer: bancassurance operators supply the same products as so-called“traditional” providers or brokers, with a few small exceptions… 30
  31. 31. Products similar to the traditional networks…It should be emphasized that for a long time life bancassurance focused onbank customers, i.e. individuals. This customer segment currently constitutesa large majority compared with professional or business customers (e.g. inFrance, individuals represent between 85% and 100% of life bancassurancebusiness). However, the need to diversify is now gradually movingbancassurance operators towards other target groups. Most of the productssold in bancassurance are not specific to the banking network: only thefeatures referred to above (simplicity, limited cover and guarantees, etc) setthem apart, and in fact the trend is for these differences to disappear on moremature bancassurance markets. However, it is true that, because they areclose to the banks’ core business activities, certain life insurance productshave been extensively captured by the banks and can now easily be equatedwith bancassurance. This is undoubtedly the case with Unit Linked andIndex Linked products. The large majority of bancassurance operators begantheir business with ‘insurance if you live’ policies and/or capitalizationbonds, and these products have sold fairly well. The same is true of loanprotection insurance: contrary to popular opinion, this is not a productspecific to bancassurance, nor the core business in bancassurance, but thebanks nevertheless tend to be the first institutions approached by borrowerslooking for life insurance. These products often represent the first step tosuccess, especially if they enjoy tax advantages. 31
  32. 32. … and a few products specifically developed for the bankingnetworksThis class of products is the most standardized and the easiest for banks tosell. These products usually form an integral part of bank offerings and notreally seen by the customer as insurance products but more as an additionalbanking service. They include, for example, the insurance attached to bankaccounts or credit cards. In general, they are automatically activated with theopening of a new bank account or issue of a credit card, they are oftenintegrated into the costs and the insurance premium is sometimes paid by thebank itself. This is more a marketing tool to encourage customers to openaccounts or to apply for credit cards. The risks covered are often accidentaldeath or Permanent and Total Incapacity following an accident and the suminsured can be calculated in different ways:● “X times” the amount on the bank account at the time of the insuredperson’s death or incapacity;● The average amount charged to the credit card over the last 3 or 6 months;● Simply an amount fixed when the insurance was taken out. Generally, noassessment is required for this type of product since it provides protectionagainst accident only. 32
  33. 33. Ongoing diversification: New products sold by the bankingnetworksThe banks and insurance companies know that they need a full range ofproducts to generate customer satisfaction and loyalty. Bancassuranceoperators are well aware that extending their offering will increase theirmarket share, which means extra premium income without additionaldistribution costs. The bancassurance operators, who began their charmoffensive with the one-stop shop, have had to take the concept to its logicalconclusion and are now really beginning to diversify. First of all, it shouldbe noted that this process of diversification often occurs when bancassurancereaches maturity in a country. The banking networks and sales personnelmust be sufficiently prepared and experienced to deal with products thathave even less connection with the primary banking business. Thus, after‘insurance if you live’ products, loan protection insurance and accidentcover attached to banking services, life bancassurance is now focusing itsgrowth plans on individual protection. This may begin with the gradualUpdate on some new products sold in bancassurance:Long-Term Care Insurance: 33
  34. 34. Payment of a life annuity (possibly plus a lump sum) if the insured personloses his or her autonomy. This situation is defined as a total and permanentincapacity to carry out certain day-to-day activities (eating, washing, movingaround, etc). The degree of dependence may be total or partial. Thisdefinition is the one used for products sold in France. Other products, alsodescribed as “long-term care”, take a totally different approach, since theyreimburse medical costs following what may be a purely temporary inabilityto look after oneself.Property products: Automobile, comprehensive householdinsurance.Bancassurance so far has only a small share in the property insurancemarket, but its market share is growing by an average of 0.7% per year inthis segment. Here again, it is because insurance is genuinely integrated intobanking and through a constant search for innovation, that bancassurance isstill growing at a modest but steady rate. Bancassurance is developing whatmight be called a “global offering”, which combines finance and propertyinsurance, especially for cars and accommodation that also aimed at real-estate investors, includes finance, insurance on rental arrears, comprehensivehousehold insurance for buy-to-rent landlords, and loan protectioninsurance.WHY IS BANCASSURANCE MORE SUITED TO LIFEINSURANCE PRODUCTS? 34
  35. 35. Traditionally, much fewer non-life insurance products are distributedthrough bancassurance than life insurance products. There are severalreasons for this:✔ The main reason may be the complementary nature of life insurance andbanking products: bank employees are already familiar with financialproducts and quickly adapt to selling insurance-based savings or pensionproducts;✔ On the other hand, the non-life market requires special management andselling skills, which are not necessarily prevalent in bancassurance. Inaddition, such competencies require significant investment in training andmotivation, and therefore additional costs;✔ Life insurance products are generally long-term products, which requirecustomers to have complete confidence in the institution that invests theirmoney. And we now know that, in many countries, banks have a betterimage and are more trusted than insurance companies;✔ Bank advisers can use their knowledge of their customers’ finances totarget their advice towards specific needs. This is a major advantage in lifeinsurance and less important in personal injury insurance;✔ Some professionals also refer to the claims management aspect ofpersonal injury insurance, which could have a negative impact on brand 35
  36. 36. image. This would seem to explain why for a long time bancassuranceoperators hesitated to offer these types of product.TYPICAL PROFILE OF THE “BANCASSURANCECONSUMER”?In India, there are two types of customer profile, divided between lifeinsurance and property and casualty insurance. The “life bancassurancecustomer” is generally over 50, with a high proportion of people over 70(15% as compared with 11% in the other distribution networks). They arebetter off than the national average with income between Rs 197,000 and Rs246,000 per year. In addition, they are twice as likely to have savings ofbetween 150,000 and Rs 850,000. On average, they save between 80,000and 130,500 per year, have a detached house, and are determined to “pass onassets to their children”. In property and casualty, the average“bancassurance customer” is aged under 29. He or she lives in rentedaccommodation and is financially less stable than the life customer: becauseof existing debt, he or she has less money available for savings.Bancassurance in IndiaThe global evolution of bancassurance in the last 3 decades has proved thatit could assume many structures depending on the country of operation.Bancassurance, the result of insurance companies tying up with multiple 36
  37. 37. banks, has emerged as a very important channel for distributing thereproducts with nearly third or more of their premiums.Private life insurance companies have gained the most from thebancassurance companies tie-ups and bancassurance is all set to the play asignificant role in the manner in which insurance is sold in India. Thereforeit has become impressive to understand the emerging structures ofbancassurance and the reasons thereof.Bancassurance in India is a very new concept, but is fast gaining ground. InIndia, the banking and insurance sectors are regulated by two differententities (banking by RBI and insurance by IRDA) and bancassurance beingthe combinations of two sectors comes under the purview of both theregulators. Each of the regulators has given out detailed guidelines for banksgetting into insurance sector. Highlights of the guidelines are reproducedbelow:RBI guideline for banks entering into insurance sector provides three optionsfor 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; 37
  38. 38. The Insurance Regulatory and Development Authority (IRDA) guidelinesfor 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 Bank Bank of Rajasthan, Andhra Bank, Bank ofBirla Sun Life Insurance Muscat, Development Credit Bank, DeutscheCo. Ltd. Bank and Catholic Syrian BankDabur CGU Life Canara Bank, Lakshmi Vilas Bank, AmericanInsurance Company Pvt. Express Bank and ABN AMRO BankLtdHDFC Standard Life Union Bank of IndiaInsurance Co. Ltd. 38
  39. 39. Lord Krishna Bank, ICICI Bank, Bank of India,ICICI Prudential Life Citibank, Allahabad Bank, Federal Bank, SouthInsurance Co Ltd. Indian Bank, and Punjab and Maharashtra Co- operative Bank. Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central Co-Life Insurance operative Bank, Janata Urban Co-operative Bank,Corporation of India Yeotmal Mahila Sahkari Bank, Vijaya Bank, Oriental Bank of Commerce.Met Life India Insurance Karnataka Bank, Dhanalakshmi Bank and J&KCo. Ltd. BankSBI Life Insurance State Bank of IndiaCompany Ltd.Bajaj Allianz General Karur Vysya Bank and Lord Krishna BankInsurance Co. Ltd.National Insurance Co. City Union BankLtd.Royal Sundaram General Standard Chartered Bank, ABN AMRO Bank,Insurance Company Citibank, Amex and Repco Bank.United India Insurance Co. South Indian BankLtd.Issues to be tackled 39
  40. 40. Given the roles and diverse skills brought by the banks and insurers to aBancassurance tie up, it is expected that road to a successful alliance wouldnot be an easy task. Some of the issues that are to be addressed are:The tie-ups need to develop innovative products and services rather thandepend on the traditional methods. The kinds of products the banks wouldbe allowed to sell are another major issue. For instance, a complex unit-linked life insurance product is better sold through brokers or agents, while astandard term product or simple products like auto insurance, home loan andaccident insurance cover can be handled by bank branchesThere needs to be clarity on the operational activities of the bancassurancei.e., who will do the branding, will the insurance company prefer to place aperson at the bank branch, or will the bank branch train and put up one of itsown people, remuneration of these people.Even though the banks are in personal contact with their clients, a highdegree of pro-active marketing and skill is required to sell the insuranceproducts. 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 theymight think they would become redundant if savings were diverted frombanks to their insurance subsidiaries.Factors that appear to be critical for the success of bancassurance areStrategies consistent with the banks vision, knowledge of target customersneeds, defined sales process for introducing insurance services, simple yet 40
  41. 41. complete product offerings, strong service delivery mechanism, qualityadministration, synchronized planning across all business lines andsubsidiaries, complete integration of insurance with other bank products andservices, extensive and high-quality training, sales management trackingsystem for reporting on agents time and results of bank referrals andrelevant and flexible database systems.Another point is the handling of customers. With customer awareness levelsincreasing, they are demanding greater convenience in financial services.The emergence of remote distribution channels, such as PC-banking andInternet-banking, would hamper the distribution of insurance productsthrough banks.Bancassurance – The Indian Experience So FarIn India, there was a lot of excitement regarding this concept right from2000 onwards, as the country was in a position to learn and imbibe theglobally successful concept. The regulator, Insurance RegulatoryDevelopment Authority, finally permitted Indian banks to distributeinsurance products in late 2002. Till this period, insurance companiesmainly operated through a large tied agency force. What followed was aseries of distribution tie-ups between banks and insurance companies.Globally, bancassurance has displayed the tendency to evolve models basedon the country’s overall financial culture. Models that emerged were both 41
  42. 42. on the integrated and non-integrated side. In India, it was more a case ofdistribution and arrangements and the tie-ups were mainly asI] 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; andIII] Wrapper Products – distribution of insurance products wrappedaround the bank’s savings and loan products – a type of an integrated model.While the corporate agency and the wrapper models have been reasonablysuccessful, the referral model has not met with much success.For the new insurance players who started during the post-reform period inIndia, bancassurance has come as blessing in disguise. Getting a ready-made distribution network at one shot and that too at a fraction of the totalcost to develop a distribution network of their own, enabled them to goaggressive on this channel. Companies like SBI Life and Aviva havereported over 65% of their businesses through bancassurance channel for theyear 2004-05.Banks in India are increasingly giving a thrust to retail. Retail choices aregetting increasingly complex with newer instruments. Banks also want toproject themselves as financial supermarkets, offering the entire gamut offinancial products under one roof. In tune with this approach, it becomes 42
  43. 43. imperative to offer to the customer a wide range of products andbancassurance comprising insurance products, many of which have aninvestment element, is perceived as one more choice.Bancassurance – Success Factors and Problem AreasHowever, for this concept to succeed, it is also necessary to tackle thecultural and mindset issues involved in making bank employees sellinsurance products. Bankers for years have been primarily engaged in thecounter-based selling. Insurance requires much more than that in view ofthe extensive financial and medical underwriting issues involved. Anotherarea that needs affirmative action is the tendency to view insurance products(because of the investment and saving components embedded in manyplans) as products that compete with the traditional saving products offeredby banks. Similarly, there is a need for integration in the InformationTechnology systems. As of now, in India, insurers and banks hardly haveany IT integration, and both work on a stand-alone basis with the result thatthere is not much of an efficient leveraging of the customers’ database.Another challenge that insurers need to look at is balancing the requirementsof their traditional agency force and those of the banks. Banks in view oftheir distribution muscle could indicate to the insurers the need forcustomized products at very low premiums or even ask for a special rate forstandardized products which could annoy the agency force.Potential for Bancassurance in India 43
  44. 44. In a county with a population of over a 100 crores, the insurable populationhas been estimated to be over 30 crores. The population covered with someform of insurance has been estimated only at 8 crores.With only 27% of the insured population covered under insurance, there isimmense potential for further coverage. Many rural pockets, especially, areyet to be trapped. The per capita premium of $13 is also believed to beamong the lowest in the world.Thus, it is natural that insurance companies want to trap this vast uninsuredpopulation and that too at the earliest. Reaching out on their own, wouldinvolve heavy investments and also take time. Similarly, banks with theirspreads thinning progressively under traditional business, are constantly onthe look out for new avenues for generating income. With such a scenarioprevailing in the financial markets of India, it is obvious that banks andinsurers would try and become partners in this endeavor calledbancassurance.India, a promising market given the size of its population, is in its lifeinsurance infancy. However, bancassurance has grown very strongly sincethe signature of the “IRDA Bill” in 2000. Since 2002, two thirds of thetwelve foreign insurance companies authorized to work in India havealready developed strong partnerships with banks. The Association ofInsurers of India has signed a “bancassurance” agreement with CorporationBank. Other agreements have also been signed with South Indian Bank,Lord Krishna Bank, ICICI Bank, etc. For Bajaj Allianz, for example, a jointventure between Baja Auto Ltd, the country’s second largest motorcycle 44
  45. 45. manufacturer, and the German insurance company Allianz AG,bancassurance represented some 27% of its total new insurance business atthe end of October 2004, compared with 17-18% in 2002. This figure islikely to grow further, following the launch of specific products byCenturion Bank and its agreements with banks such as Standard CharteredBank and Syndicate Bank. Aviva has signed a new bancassurancepartnership with Punjab and Sind Bank in pursuit of its ambition to grow onthe Indian market. In 2003, Aviva Life generated 73% of its new businessthrough the banking network.SLOW GROWTH OF BANCASSURANCENumerous debates and an extensive literature have grown up around thissubject; recent analyses have sought to identify the reasons for the delay ingrowth: for example, in 2003 the American Council of Life Insurers (ACLI)conducted a study on this topic.ConclusionWith huge untapped market, insurance sector is likely to witness a lot ofactivity - be it product innovation or distribution channel mix.Bancassurance, the emerging distribution channel for the insurers, will havea large impact on Indian financial services industry. Traditional methods ofdistributing financial services would be challenged and innovative,customized products would emerge. 45
  46. 46. Banks will bring in customer database, leverage their name recognition andreputation at both local and regional levels, make use of the personal contactwith their clients, which a new entrant cannot, as they are new to theindustry.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 withinhands reach.✔ To adapt, train and motivate the banking network to sell insuranceproducts;✔ To redesign products, but also to do more to integrate them into existingbank offerings and into the networks’ sales targets, to make them simpler;✔ To develop a joint IT and management system between the bank andinsurance company, so that sales personnel have fast, easy access toinformation and harmonized procedures;✔ So far, banks have targeted the wealthy, a difficult market to reach, ratherthan a mass market (working class); a change of target arkets would seem tobe essential;✔ To limit the number of insurance companies the bank works with; in thisway, the two players could develop a genuine partnership and create morelinks. 46
  47. 47. 47
  48. 48. S. W. O. T.What is a SWOT analysis?DescriptionA SWOT analysis is a tool, used in management and strategy formulation. Itcan help to identify the Strengths, Weaknesses, Opportunities and Threats ofa particular company.Strengths and weaknesses are Internal factors that create value or destroyvalue. They can include assets, skills, or resources that a company has at itsdisposal, compared to its competitors. They can be measured using internalassessments or external benchmarking.Opportunities and threats are External factors that create value or destroyvalue. A company cannot control them. But they emerge from either thecompetitive dynamics of the industry/market or from demographic,economic, political, technical, social, legal or cultural factors 48
  49. 49. Strengths Weaknesses • Specialist marketing • Lack of marketing expertise expertise • Exclusive access to • Undifferentiated natural resources products and • Patents service (i.e. in relation • New, innovative to your competitors) product or service • Location of your • Location of your company business • Competitors have • Cost advantage through Superior access to proprietary know-how distribution channels • Quality processes and • Poor quality of goods or Procedures. services • Damaged reputation 49
  50. 50. Opportunities Threats • Developing market • A new competitor in (China, the Internet) your own home market • Mergers, joint ventures • Price war or strategic alliances • Competitor has a new, • Moving into new innovative substitute attractive market product or service segments • New regulations • A new international • Increased trade barriers market Loosening of • A potential new taxation regulations On your product/ • Removal of service international trade Barriers. SWOT Analysis Discover new opportunities. Manage and eliminate threats.SWOT Analysis is a powerful technique for understanding your Strengthsand Weaknesses, and for looking at the Opportunities and Threats you face. 50
  51. 51. Used in a business context, it helps you carve a sustainable niche in yourmarket. Used in a personal context, it helps you develop your career in away that takes best advantage of your talents, abilities and opportunities.Business SWOT AnalysisWhat makes SWOT particularly powerful is that, with a little thought, it canhelp you uncover opportunities that you are well placed to take advantage of.And by understanding the weaknesses of your business, you can manage andeliminate threats that would otherwise catch you unawares.More than this, by looking at yourself and your competitors using theSWOT framework, you can start to craft a strategy that helps you distinguishyourself from your competitors, so that you can compete successfully inyour market.How to use the tool:To carry out a SWOT Analysis, print off our worksheet, and write downanswers to the following questions: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? 51
  52. 52. • What do people in your market see as your strengths?Consider this from an internal perspective, and from the point of view ofyour customers and people in your market. And be realistic: Its far too easyto fall prey to "not invented here syndrome". Also, if you are having anydifficulty with this, try writing down a list of your characteristics. Some ofthese 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 ahigh quality production process is not a strength in the market, it is anecessity.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 peopleseem to perceive weaknesses that you do not see? Are your competitorsdoing any better than you? It is best to be realistic now, and face anyunpleasant truths as soon as possible.Opportunities: • Where are the good opportunities facing you? • What are the interesting trends you are aware of?Useful opportunities can come from such things as: 52
  53. 53. • 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 EventsA useful approach to looking at opportunities is to look at your strengths andask yourself whether these open up any opportunities. Alternatively, look atyour weaknesses and ask yourself whether you could open up opportunitiesby 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 ofpointing out what needs to be done, and in putting problems intoperspective.You can also apply SWOT Analysis to your competitors. As you do this,youll start to see how and where you should compete against them.SWOT Analysis is a simple but powerful framework for analyzing yourcompanys Strengths and Weaknesses, and the Opportunities and Threats 53
  54. 54. you face. This helps you to focus on your strengths, minimize threats, andtake the greatest possible advantage of opportunities available to you.Collaboration is the keyIn their natural and traditional roles and with their current skills, neitherbanks nor insurance companies could effectively mount a bancassurancestart-up alone. Collaboration is the key to making this new channel work.Banks bring a variety of capabilities to the table. Most obviously, they ownproprietary databases that can be tapped for middle-market warm leads. Inaddition, they can leverage their name recognition and reputation at bothlocal and regional levels. Strong players also excel at managing multipledistribution channels, cross-selling banking products, and using direct mail.However, most banks lack experience in several areas critical to successfulbancassurance strategies: in particular, developing insurance products,selling through face-to-face "push" channels underwriting, and managinglong-tail insurance products.Where banks usually fall short, a strong insurer will excel. Most havesubstantial product and underwriting experience, strong "push" - channelcapabilities, and investment management expertise. On the other hand, theytend to lack experience or ability in the areas where banks prevail. Theyhave little or no background in managing low-cost distribution channels;they often lack local and regional name recognition and reputation; and theyseldom possess access to or experience with the middle market. 54
  55. 55. Bancassurance- A win-win solution Bank Insurance Company  Customer retention  Revenue and channel diversification  Satisfaction of more financial needs under the  Quality customer access same roof  Revenue diversification  Quicker geographical reach  More profitable resource utilisation  Creation of brand equity  Enriched work environment  Leverage service synergies with Bank  Establish sales orientated culture  Establish a low cost acquisition channelBancassurance in India - A SWOT Analysis:Bancassurance as a means of distribution of insurance products is already inforce. Banks are selling Personal Accident and Baggage Insurance directlyto their Credit Card members as a value addition to their products. Banksalso participate in the distribution of mortgage linked insurance products likefire, motor or cattle insurance to their customers.Banks can straightaway leverage their existing capabilities in terms ofdatabase and face to face contact to market insurance products to generatesome income for themselves, which hitherto was not thought of. 55
  56. 56. Huge capital investment will be required to create infrastructure particularlyin IT and telecommunications, a call center will have to be created, topprofessionals of both industries will have to be hired, an R & D cell willneed to be created to generate new ideas and products. It is thereforeessential to have a SWOT analysis done in the context of bancassuranceexperiment in India. • Strengths:In a country of 1 Billion people, sky is the limit for personal lines insuranceproducts. There is a vast untapped potential waiting to be mined particularlyfor life insurance products. There are more than 900 Million lives waiting tobe given a life cover (total number of individual life policies sold in 1998-99was just 91.73 Million).There are about 200 Million households waiting to be approached for ahouseholders insurance policy. Millions of people traveling in and out ofIndia can be tapped for Overseas Mediclaim and Travel Insurance policies.After discounting the population below poverty line the middle marketsegment is the second largest in the world after China. The insurancecompanies worldwide are eyeing on this, why not we preempt this move bydoing it ourselves?Our other strength lies in a huge pool of skilled professionals whether it isbanks or insurance companies who may be easily relocated for anybancassurance venture. LIC and GIC both have a good range of personal lineproducts already lined up; therefore R & D efforts to create new productswill be minimal in the beginning. Additionally, GIC with 4200 operating 56
  57. 57. 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 futurecollaborators i.e. banks, GIC & LIC. A late awakening seems to havedawned upon but it is a case of too late and too little. Elementary ITrequirement like networking (LAN) is not in place even in the headquartersof these institutions, when the need today is of Wide Area Network (WAN)and Vast Area Network (VAN). Internet connection is not available even tothe 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 getIT exemptions but personal line products from GIC (mediclaim already hasthis benefit) like householder, travel, etc. also need to be given taxexemption to further the cause of insurance and to increase domestic revenuefor the country.Another drawback is the inflexibility of the products i.e. it can not be tailormade to the requirements of the customer. For a bancassurance venture tosucceed it is extremely essential to have in-built flexibility so as to make theproduct attractive to the customer. • Opportunities: 57
  58. 58. Banks database is enormous even though the goodwill may not be the sameas in case of their European counterparts. This database has to be dissectedvariously and various homogeneous groups are to be churned out in order toposition the bancassurance products. With a good IT infrastructure, this canreally do wonders.Other developing economies like Malaysia, Thailand and Singapore havealready taken a leap in this direction and they are not doing badly. There isalready an atmosphere created in the country for liberalization and thereappears to be a political consensus also on the subject. Therefore, RBI orIRA should have no hesitation in allowing the marriage of the two to takeplace. This can take the form of merger or acquisition or setting up a jointventure or creating a subsidiary by either party or just the workingcollaboration between banks and insurance companies. • Threats:Success of a bancassurance venture requires change in approach, thinkingand work culture on the part of everybody involved. Our work force at everylevel are so well entrenched in their classical way of working that there is adefinite threat of resistance to any change that bancassurance may set in.Any relocation to a new company or subsidiary or change from one work toa different kind of work will be resented with vehemence. 58
  59. 59. Another possible threat may come from non-response from the targetcustomers. This happened in USA in 1980s after the enactment of Garn - StGermaine Act. A rush of joint ventures took place between banks andinsurance companies and all these failed due to the non-response from thetarget customers. US banks have now again (since late 1990s) turned theirattention to insurance mainly life insurance.The investors in the capital may turn their face off in case the rate of returnon capital falls short of the existing rate of return on capital. Since banks andinsurance companies have major portion of their income coming from theinvestments, the return from bancassurance must at least match thosereturns. Also if the unholy alliances are allowed to take place there will befierce competition in the market resulting in lower prices and thebancassurance venture may never break-even.Looking AroundHardly 20% of all US banks were selling insurance in 1998 against almost70% to 90% in many W. European countries. Market penetration ofbancassurance in new life businesses in Europe ranges between 30% in nearly 70% in France. Almost 100% banks in France are selling insuranceproducts. In 1991 Nationale Nederlanden of Netherlands merged with PostBank, the banking subsidiary of the post office to create the ING Group - anew dimension to the bancassurance i.e. harnessing the databank of the postoffice as well. CNP, the largest independent insurance company in Francehas developed its product distribution through post offices. The merger ofWinterthur, the largest Swiss insurance companies with Credit Suisse and 59
  60. 60. Citibank with Travellers Group have resulted in some of the largest financialconglomerates in the world.Despite the phenomenal success of bancassurance in Europe, property andcasualty products have not made much inroads. In Spain, Belgium, Germanyand France where more than 50% of all new life premium is generated bybancassurance, 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 AdministrationInstitute in USA claims that if banks made a major commitment to insuranceand a more narrowly targeted commitment to investors, within 5 years theycould 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. • Bancassurances 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 canquintuple managing policies compared to traditional insurers.Obstacles and success factors 60
  61. 61. Even insurers and banks that seem ideally suited for a Bancassurancepartnership can run into problems during implementation. The mostcommon obstacles to success are poor manpower management, lack of asales 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, inadequateincentives, resistance to change, negative attitudes toward insurance andunwieldy marketing strategy.Conversely, Bancassurance ventures that succeed tend to have certain thingsin common. Factors that appear to be critical to success include strategiesconsistent with the banks vision, knowledge of target customers needs,defined sales process for introducing insurance services, simple yet completeproduct offerings, strong service delivery mechanism, qualityadministration, synchronized planning across all business lines andsubsidiaries, complete integration of insurance with other bank products andservices, extensive and high-quality training, sales management trackingsystem for reporting on agents time and results of bank referrals andrelevant and flexible database systems.ConclusionThe creation of Bancassurance operations has a material impact on thefinancial services industry at large. Banks, insurance companies andtraditional fund management houses are converging towards a model ofglobal retail financial institution offering a wide array of products. It leads tothe creation of one-stop shop where a customer can apply for mortgages,pensions, savings and insurance products. 61
  62. 62. Discovery comes from looking at the same thing as everyone else but seeingsomething different. Banks desire to increase fee income has them lookingat insurance. Insurance carriers and banks can become part of the visionthrough strategic partnerships. Now is the time to position your company forthe new millennium of insurance product distribution. 62
  63. 63. Websites:                63