BANCASSURANCE – THE INDIAN SCENARIO - Juhi Tiwari and Manas Pandey
THE MEANING OF BANCASSURANCE BANCASSURANCE - A TERM COINED BYCOMBINING THE TWO WORDS BANK AND INSURANCE (IN FRENCH) - CONNOTESDISTRIBUTION OF INSURANCE PRODUCTS THROUGH BANKING CHANNELS.
A FEW EXAMPLES OF SUCH TIE-UPS IN INDIA ARE AS FOLLOWS:•LIC: The insurance company LIC of India has tie-up with the following bank forBancassurance-•Corporation Bank•Indian Overseas Bank•Centurion Bank•Sahara District Central Co-operative Bank•Janta Urban Co-operative Bank•Yeotmal Mahila Sahakari Bank•Vijaya Bank, and•Oriental Bank of Commerce•SBI-Life Insurance Co.: The SBI life Insurance Co. Ltd. is starting and running its Insurance businesswith the help of SBI.•Bajaj Allianz general Insurance Co. Ltd.: In the field of general Insurance the Bajaj Allianz GeneralInsurance Co. Ltd., has tie-up with Karur Vysya and Lord Krishna Bank.•Birla Sun Life Insurance Co. Ltd.: The Birla Sun Life Insurance Company has a tie-up with thefollowing bank for the insurance purpose:•Bank of Rajasthan•Andhra Bank•Development Credit Bank•Bank of Muscat•Dutch Bank, and•Catholic Syrian Bank.
STRENGTH•Banks have the integrity established with their constituents because of a variety of services andschemes provided by them. They also enjoy good will among the masses because of their prolongedpresence and persistent image.•Bankers are well acquainted with the psychology of the customers because of the daily interactionwith them and therefore they can guess the diverse needs and demands of the customers hencecontributing to the sale of personal line insurance products•The Bank Network is spread in the remotest of the areas which helps in taking up and executinglarge scale tasks easily all around the country.•The other major strength that both the Insurance as well as the Banking sector enjoys is the large no.of skilled professionals involved in these sectors who can easily be relocated to any Bancassuranceventure. 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 4200operating offices and LIC with 2048 branch offices are almost already omnipresent, which is soessential for the development of any Bancassurance project.
WEAKNESS• Elementary IT requirement like networking (LAN) is not in place even in the headquarters of these institutions, whenthe need today is of Wide Area Network (WAN) and Vast Area Network (VAN). Internet connection is not available even tothe managers of operating offices.•There is lack of personalized services because the traditional insurance agent is considered a member of the family andhence is able to render a personalized service during and after the sales process. However that may not be the case inregard to a bank employee.•Banks are traditionally “Demand driven” organizations, with a reactive selling philosophy, the Insurance Companies are“Need driven” institutions, having an aggressive selling philosophy.•The middle class population that the banks have an eye on is today overburdened, first by inflationary pressures on theirpockets and then by the tax net. There is no money left to think of insurance. Fortunately, LIC schemes get IT exemptions butpersonal line products from GIC (medi-claim already has this benefit) like householder, travel, etc. also need to be given taxexemption to further the cause of insurance and to increase domestic revenue for the country.•The practical problem that may arise is that the customers visit the banks to have simple transactions-money deposit orwithdrawal. They do not have time to have a discussion on long term durable purchases of insurance products overthe counter. Also, the facilities like ATMs and E-banking have further restricted the visits to the urban or metro branches.• To indulge into the sale of insurance products the bank employees have to undergo a certain kind of training for aspecific period of time followed up by a test to get them licensed. In the recent past the standard of the test hasbeen raised and hence it has become difficult to clear thereby becoming a major weakness of the Bancassurance concept.
OPPORTUNITIES•The scope of the life insurance sector is vast an needs to be mined carefully. There are more than Nine hundredmillion lives waiting to be given a life cover (total number of individual life policies sold in 1998-99 was just 91.73million).•The numbers of people who are still unaware about the risks covered by the life insurance sector in India are many and theyare still waiting for someone to come and inform them about it.•The scope to market the property related insurances like fire insurances, medi-claim insurances can be enhanced by crossselling them with the bank’s core products and selling them as value added products with credit cards, debit cards, etc.•Banks’ database is enormous even though the goodwill may not be the same. This database has to be dissected andvarious homogeneous groups are to be churned out in order to position the Bancassurance products. With a good ITinfrastructure, this can really do wonders.•Another area that could be of interest to bankers is to exploit the corporate customers and tie-up for insuranceof the employees of corporate clients, which would be an avenue with easy access. In most cases Banks provide salarydisbursement and loan facilities but here they can provide insurance cover as well.
THREATS•Insurance in India is perceived more as a saving option than providing risk cover, so this may create an adverse feeling inthe minds of the bankers that such products may lessen the sales of regular bank saving products like investment and goodreturn products (e.g., Fixed Deposit).•There would be a problem of “Reputational Contagion”, i.e. loss of market confidence towards one in a venture leading toloss of confidence on the other because of identical brand recognition, similar management and consolidated financialreporting, etc.•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 returnon capital. Since banks and insurance companies have major portion of their income coming from the investments, the returnfrom Bancassurance must at least match those returns. Also if the unholy alliances are allowed to take place there will befierce competition in the market resulting in lower prices and the Bancassurance venture may never break-even.•The most common obstacles to success of Bancassurance are poor manpower management, lack of a sales culture within abank, no involvement by the Branch Manager, insufficient product promotions, failure to integrate marketing plans, marginaldatabase expertise, poor sales channel linkages, inadequate incentives, resistance to change, negative attitudes towardinsurance and unwieldy marketing strategy.•Another possible threat may come from non-response from the target customers as happened in USA in 1980s after theenactment of Garn - St Germaine Act. A rush of joint ventures took place between banks and insurance companies and allthese failed due to the non-response from the target customers.
LEGISLATIONS FOR BANCASSURANCE Guidelines given by RBI:The Reserve Bank of India has given certain guidelines for banks entering into the insurance sector. They are as follows:•Any commercial bank will be allowed to undertake insurance business as the agent of insurance companies and this will beon fee basis with no-risk participation.•The second guideline given by the RBI is that the joint ventures will be allowed for financial strong banks wishing toundertake insurance business with risk participation.•The third guideline is for banks which are not eligible for this joint venture option, an investment option of a)Up to 10% of the net worth of the bank or b)Rs. 50 crores. Whichever is lower is available.The bank that wants to enter in participates in the insurance industry they have to follow the above guidelines given by theReserve Bank of India.
Guidelines given by IRDA:The Insurance Regulatory and Development Authority have given certainguidelines for the Bancassurance which are as follows:•Chief Insurance Executive: Each bank that sells insurance must have a chief InsuranceExecutive to handle all the insurance matters and activities.•Mandatory Training: All the people involved in selling the insurance should undergomandatory training at an institute determined (authorized) by IRDA and pass theexamination conducted by the authority.•Corporate Agents: Commercial banks, including co-operative banks and RRBs may becomecorporate agents for one insurance company.•Banks cannot become insurance brokers.