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  1. 1. Bancassurance Bancassurance  Introduction “Bancassurance" is a buzzword in today’s 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 enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices. T.Y.BBI1
  2. 2. Bancassurance  Bancassurance – current scenario The concept of bancassurance evolved in Europe. Retail banks earn their income from the difference between the rate they charge on their lending and the interest they pay for deposits. Competition had thinned their profit margins. Mergers and acquisitions emerged as the driving force for banking success during the last two decades. “Buy and Cut” were the prime concern for shareholder value. However, as time passed, there was little that the banks could offer their customers in terms of differentiated retail products. They were struggling to find ways to increase revenue. They had succeeded in stabilizing costs, but their revenue growth had collapsed. The challenge to the 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 and what it could do better to increase this worth. One way to resolve this issue was to find a combination of products, all of them quite useful to the customers, price them suitably and embark on a mass distribution. Today, Europe leads the world in bancassurance. 30% of Europe’s life products are sold through banks, with Spain leading at 70%. In Asia Singapore, 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. T.Y.BBI2
  3. 3. Bancassurance  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.  Definition Bancassurance, known as Alliance 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. T.Y.BBI3
  4. 4. Bancassurance  History The first countries to venture into the field were Spain and France. In the early 70s, ACM (Assurances due Credit Mutual) Vie et IARD (life and general insurance) were officially authorized to start operations, a watershed event in the history of insurance. It was their idea to bypass the middleman for loan protection insurance and to insure their own banking customers themselves. They thus became the precursors of what – 15 years later – would become “bancassurance”. For their part, the Spanish began their adventure in the early 1980s, when the BANCO DE BILBAO Group acquired a majority stake in EUROSEGUROS SA (originally LA VASCA ASEGURADORA SA, incorporated in 1968). However, their control was 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. T.Y.BBI4
  5. 5. Bancassurance  The Three Development Models Bancassurance takes different forms that vary from one country to the next. There are different development models, which can be divided into 3 main categories. Below, we sum up their main criteria and their advantages and disadvantages. Description Advantages Disadvantages Distribution agreement Bank acts as an intermediary for an insurance company Operation start quickly. No capital investment (less costly) Lack of flexibility to launch new products. Possibility of differences in corporate culture Joint Venture Bank in partnership with one or more insurance companies Transfer of experience Difficult in manage in long the term Full Integration Creation of a new subsidiary Same corporate culture Substantial investment T.Y.BBI5
  6. 6. Bancassurance  How the participants benefit from the success of this model Why has bancassurance shown such strong growth in certain markets? It is surely no accident. This success can be seen as the effect of individual interests 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 to develop successfully. Without these advantages, it is obvious that no collaboration would be possible. The chosen model will then depend on each party’s situation, as well as the possibilities provided by the authorities in each country. T.Y.BBI6
  7. 7. Bancassurance  Advantages of Bancassurance:  Advantages for the insurance company Through this new distribution network, the insurance company significantly extends its customer base and enjoys access to customers who were previously difficult to reach. This is obviously a fundamental advantage, it is itself enough to convince an insurance company to ally itself with a bank. The insurance company has the opportunity to vary its distribution methods, in order to avoid excessive dependence on a single network. Diversification reduces risk. 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 bank’s existing network.  Advantages for the bank T.Y.BBI7
  8. 8. Bancassurance First of all, the bank sees bancassurance as a way of creating a new revenue flow and diversifying its business activities. This advantage was all the greater in the early 1990s, a period characterized by increased competition 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 financial services, where all customers’ needs – whether financial or insurance-related – can be met. The broadening of its product range makes the bank more attractive and can reinforce customer satisfaction and therefore customer loyalty; The distribution costs can be seen as marginal since, in most cases, it is the bank’s 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 win-win situation for the all the participants' viz., banks, insurers and the customer. T.Y.BBI8
  9. 9. Bancassurance  Advantages for the consumer As mentioned among the advantages for the bank, the consumer enjoys greater access to all financial services from a bank that offers both banking and insurance products. Since the distribution costs are lower than in a traditional distribution network, the consumer can usually get cheaper insurance products that through traditional channels. In addition, premium payment methods are simplified, since premiums are collected directly from bank accounts. The special relationship between the customer and the bank means that there is a better match between what the customer needs and the solutions provided by the bank. In summary, we would say that customers benefit from the opportunity to get simple, often inexpensive insurance products with a premium payment system adapted to their needs (usually monthly installments) and with easy access, since the branch network is usually denser than the network of insurance outlets. T.Y.BBI9
  10. 10. Bancassurance  Advantages for the legislator The role of the oversight authorities or of the government itself is to make laws to ensure that the risks taken by their country’s financial institutions are actively managed and controlled in such a way as to maintain sound national finances. However, events may occur that are outside the control of individual and national managers, which may impact upon the whole financial system. These risks go under the name of “systemic risk”. For financial institutions, bancassurance can be a means of limiting such systemic risk because it diversifies the bank’s sources of revenue, making its business more stable and thereby safer for its customers too. On the other hand, certain authorities think that deregulating financial systems to excess can increase a country’s systemic risk. This is why, in many countries, banks are still unable to exercise activities outside their core business, in order to avoid additional sources of risk. In addition, certain governments have decided to liberalize the financial system, but progressively, for a more controlled process of deregulation. In other words, supervisory authorities may see bancassurance as an advantage or, on the contrary, as a potential risk to a country’s financia T.Y.BBI10
  11. 11. Bancassurance Case Study France- BNP PARIBAS ASSURANCE BNP Paribas Assurance encompasses three BNP Paribas Insurance Companies: CARDIF, NATIO VIE and NATIO ASSURANCE. Created in 1973, Cardif began in France by selling Life Insurance via a cetelem network, a company specialising in consumer credit for the Compagnie Bancaire Group, a founding shareholder of Cardif. Distribution agreements were very quickly signed with the order companies in the Compagnie Bancaire Group, then with Paribas and Credit Du Nord. In 1983, Cardif decided to work with insurance providers, thereby diversifying its product process. Unlike Cardif, whose “bancassurance colour” comes essentially from its original shareholders. Natio Vie owes its very specific status to two factors: its distribution network, initially BNP then BNP Paribas, and its sharehol;ders, still 100% BNP. Today, BNP Paribas Assurance designs and sells savings, protection and personal injury products under two brands: BNP Paribas for products soldthrough the BNP Paribas branch network in Drance, and Cardif for other networks in France (partners, brokers, independent financiaal advisors) and abroad. T.Y.BBI11
  12. 12. Bancassurance  Key 2004 figures for BNP Paribas Assurance o Euro11,4 billion in premium income. o Euro75,9 billion in funds under management o Euro297,3 million net income o Presence in 30 countries including two sales offices. o 29 million people insured around the world. o France’s 4th largest life insurance company (8.1% market share in 2004) o The 3rd largest player in loan protection insurance. o 4500 employees.  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 country’s 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. T.Y.BBI12
  13. 13. Bancassurance  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-to-face relationship with their banker  The legal framework The legal frameworks for bancassurance and the authorities’ attitude to its development are clearly essential and have a real influence on the model’s conditions for success in a given country. Tax advantages can provide a strong incentive for consumers to invest in one life insurance or pension product rather than another. Changes in the law providing such incentives can 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 tax breaks. This factor is a real driving force in the launch of bancassurance, still a relatively underused mechanism in most countries. As regards legislation, it is obvious that favorable laws, which do not restrict banks’ options to acquire stakes in insurance companies or to set up their own insurance companies. T.Y.BBI13
  14. 14. Bancassurance  Exploiting these keys to success • An Integrated Management Model: There is absolutely no doubt that this integrated model has enabled bancassurance to establish a crucial competitive advantage. Bancassurance is based on a particularly efficient management model that is totally integrated with the banking business. Thus, in certain parts of the world such as the 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 bank’s 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 real-time 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. T.Y.BBI14
  15. 15. Bancassurance 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 have emerged, which increasingly make it possible to decentralize acceptance decisions to branches and thereby speed up decision-making while reducing contract processing costs.  Key factors in motivating the sales network These factors, developed at greater length in another section, seem fundamental, not to say crucial, to the successful development of bancassurance. The approach to the management of the network must be global, so that everyone knows their role in the organization and is fully aware of their responsibilities and objectives. These objectives must also be set in a joint “business plan” for both banking and insurance products. The network is originally made up of bank employees whose primary role is to provide financial services and products. In order to develop their interest and desire to offer their customers insurance products, it is absolutely essential to set up appropriate training and to motivate the sales force, mainly through financial incentives. Training and remuneration policy tend to be specific to each bancassurance operator and correspond to each company’s own particular corporate culture and history. T.Y.BBI15
  16. 16. Bancassurance  Features of the insurer’s products are essential Feature of the Bancassurance products play a very important role. Bancassurance operator usually starts by distributing simple, standardized products, which are sometimes even “packaged” with bank products. These products have to be integrated into the bank’s sales procedures and into its 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 product. T.Y.BBI16
  17. 17. Bancassurance . T.Y.BBI17
  18. 18. Bancassurance  “CUSTOMER SATISFACTION IS THE BASIC RULE IN BANCASSURANCE” Bancassurance operators have put the customer at the very heart of their thinking and development strategies. This means: o Providing a full range of financial products and services (banking and insurance) through a single sales network; o Offering high-quality advice through readiness to listen and accurate information; o Quickly meeting customer needs by a branch-based IT system but also easy access to the service, sometimes 24/7, with telephone support centres or Internet platforms; o Providing know-how and follow-up (especially claims management) as good as the best traditional insurance providers. T.Y.BBI18
  19. 19. Bancassurance  Establishing,  The sales network  Training  Motivating  Remuneration  Product Bancassurance is a particular kind of selling method, which primarily succeeds because of the way its network functions and is managed.  The sales network It is because banks often enjoy a very strong position in their respective markets (branch networks, independent sales representatives, Internet, telephone services, not forgetting customer databases) that it is easier for them to extend their range of services to include life insurance, than for life insurance companies to offer banking services. If we take Spain as an example, in mid-2003 the country’s Central Bank listed some 34,000 branches for a population of 40 million. With one branch per 1,156 people, Spain is one of the countries with the highest bank density in Europe. Of course, it is not out of the question for T.Y.BBI19
  20. 20. Bancassurance an insurance company and a financial institution to join forces and each distribute its partner’s 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. T.Y.BBI20
  21. 21. Bancassurance However, here we propose to cover the main factors common to most bancassurance operators: o 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; o 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; o As a rule, training focuses specifically on insurance products. Nevertheless, certain bancassurance operators prefer to integrate the training sessions with their partner bank’s total training programmed. o 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. o 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. T.Y.BBI21
  22. 22. Bancassurance  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 T.Y.BBI22
  23. 23. Bancassurance another. Variable remuneration does not seem to depend 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.  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 bank’s 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. T.Y.BBI23
  24. 24. Bancassurance  Main characteristics of bancassurance products o 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. o The products sold by bancassurance operators need to be well-positioned and integrated into the range of banking products. It is crucial to retain the complimentarily between life insurance and savings products. o You have to ensure that insurance products are perceived as complementing rather than competing with basic bank products o 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. T.Y.BBI24
  25. 25. Bancassurance  RISK ASSESSMENT IN BANCASSURANCE When we asked several bancassurance operators “Do you think that medical 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 time it takes to sell a product.” And one of the secrets of success in bancassurance is undoubtedly the fast sale. It is nevertheless true that, while this selection process is seen as a significant difficulty, it is also indispensable for all protection products and can only rarely be completely bypassed. Here are three categories of insurance products with different assessment methods: o 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 T.Y.BBI25
  26. 26. Bancassurance 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; o 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. o Accidental death (or disability) cover attached, for example, to debit cards or bank accounts: for these products, no medical selection is required; T.Y.BBI26
  27. 27. Bancassurance  Which life insurance products are sold by bancassurance specialists? This is a question often asked by new bancassurance operators, especially in countries where this is an emerging model. In short, there is only one answer: bancassurance operators supply the same products as so-called “traditional” providers or brokers, with a few small exceptions… Products similar to the traditional networks. . . It should be emphasized that for a long time life bancassurance focused on bank customers, i.e. individuals. This customer segment currently constitutes a large majority compared with professional or business customers (e.g. in France, individuals represent between 85% and 100% of life bancassurance business). However, the need to diversify is now gradually moving bancassurance operators towards other target groups. Most of the products sold in bancassurance are not specific to the banking network: only the features referred to above (simplicity, limited cover and guarantees, etc) set them apart, and in fact the trend is for these differences to disappear on more mature bancassurance markets. However, it is true that, because they are close to the banks’ core business activities, certain life insurance products have been extensively captured T.Y.BBI27
  28. 28. Bancassurance by the banks and can now easily be equated with bancassurance. This is undoubtedly the case with Unit Linked and Index Linked products. The large majority of bancassurance operators began their business with ‘insurance if you live’ policies and/or capitalization bonds, and these products have sold fairly well. The same is true of loan protection insurance: contrary to popular opinion, this is not a product specific to bancassurance, nor the core business in bancassurance, but the banks nevertheless tend to be the first institutions approached by borrowers looking for life insurance. These products often represent the first step to success, especially if they enjoy tax advantages. … and a few products specifically developed for the banking networks This class of products is the most standardized and the easiest for banks to sell. These products usually form an integral part of bank offerings and not really seen by the customer as insurance products but more as an additional banking service. They include, for example, the insurance attached to bank accounts or credit cards. In general, they are automatically activated with the opening of a new bank account or issue of a credit card, they are often integrated into the costs and the insurance premium is sometimes paid by the bank itself. This is more a marketing tool to encourage customers to open accounts or to apply for credit cards. The risks covered are often accidental death or Permanent and Total Incapacity following an accident and the sum insured can be calculated in different ways: o “X times” the amount on the bank account at the time of the insured person’s death or incapacity; The average amount charged to the credit card over the last 3 or 6 months; T.Y.BBI28
  29. 29. Bancassurance o Simply an amount fixed when the insurance was taken out. Generally, no assessment is required for this type of product since it provides protection against accident only.  Ongoing diversification: New products sold by the banking networks The banks and insurance companies know that they need a full range of products to generate customer satisfaction and loyalty. Bancassurance operators are well aware that extending their offering will increase their market share, which means extra premium income without additional distribution costs. The bancassurance operators, who began their charm offensive with the one-stop shop, have had to take the concept to its logical conclusion and are now really beginning to diversify. First of all, it should be noted that this process of diversification often occurs when bancassurance reaches maturity in a country. The banking networks and sales personnel must be sufficiently prepared and experienced to deal with products that have even less connection with the primary banking business. Thus, after ‘insurance if you live’ products, loan protection insurance and accident cover attached to banking services, life bancassurance is now focusing its growth plans on individual protection. This may begin with the gradual T.Y.BBI29
  30. 30. Bancassurance  Update on some new products sold in bancassurance: Long-Term Care Insurance: 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.  Property products: Automobile, comprehensive household insurance. Bancassurance so far has only a small share in the property insurance market, but its market share is growing by an average of 0.7% per year in this segment. Here again, it is because insurance is genuinely integrated into banking and through a constant search for innovation, that bancassurance is still growing at a modest but steady rate. Bancassurance is developing what might be called a “global offering”, which combines finance and property insurance, T.Y.BBI30
  31. 31. Bancassurance  Update on some new products sold in bancassurance: Long-Term Care Insurance: 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.  Property products: Automobile, comprehensive household insurance. Bancassurance so far has only a small share in the property insurance market, but its market share is growing by an average of 0.7% per year in this segment. Here again, it is because insurance is genuinely integrated into banking and through a constant search for innovation, that bancassurance is still growing at a modest but steady rate. Bancassurance is developing what might be called a “global offering”, which combines finance and property insurance, especially for cars and accommodation that also aimed at real- estate investors, includes finance, insurance on rental arrears, comprehensive household insurance for buy-to-rent landlords, and loan protection insurance. T.Y.BBI31
  32. 32. Bancassurance  WHY IS BANCASSURANCE MORE SUITED TO LIFE INSURANCE PRODUCTS? Traditionally, much fewer non-life insurance products are distributed through bancassurance than life insurance products. There are several reasons for this: o 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; o 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; o 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; o 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; o Some professionals also refer to the claims management aspect of personal injury insurance, which could have a negative impact on brand image. This would seem to explain why for a long time bancassurance operators hesitated to offer these types of product. T.Y.BBI32
  33. 33. Bancassurance  Typical profile of the “BANCASSURANCE CONSUMER” In India, there are two types of customer profile, divided between life insurance and property and casualty insurance. The “life bancassurance customer” is generally over 50, with a high proportion of people over 70 (15% as compared with 11% in the other distribution networks). They are better off than the national average with income between Rs 197,000 and Rs 246,000 per year. In addition, they are twice as likely to have savings of between 150,000 and Rs 850,000. On average, they save between 80,000 and 130,500 per year, have a detached house, and are determined to “pass on assets to their children”. In property and casualty, the average “bancassurance customer” is aged under 29. He or she lives in rented accommodation and is financially less stable than the life customer: because of existing debt, he or she has less money available for savings.  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 banks, has emerged as a very important channel for distributing there products with nearly third or more of their premiums. T.Y.BBI33
  34. 34. Bancassurance 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: o Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation; o 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; T.Y.BBI34
  35. 35. Bancassurance  The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are: o Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities. o 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. o Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company. o Banks cannot become insurance brokers. T.Y.BBI35
  36. 36. Bancassurance  Some of the Bancassurance tie-ups in India are: Insurance Company Bank Birla Sun Life Insurance Co. Ltd. Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank Dabur CGU Life Insurance Company Pvt. Ltd Canara Bank, Lakshmi Vilas Bank, American Express Bank and ABN AMRO Bank HDFC Standard Life Insurance Co. Ltd. Union Bank of India ICICI Prudential Life Insurance Co Ltd. Lord Krishna Bank, ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, and Punjab and Maharashtra Co- operative Bank. Life Insurance Corporation of India Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central Co- operative Bank, Janata Urban Co-operative Bank, Yeotmal Mahila Sahkari Bank, Vijaya Bank, Oriental Bank of Commerce. Met Life India Insurance Co. Ltd. Karnataka Bank, Dhanalakshmi Bank and J&K Bank SBI Life Insurance Company Ltd. State Bank of India Bajaj Allianz General Insurance Co. Ltd. Karur Vysya Bank and Lord Krishna Bank National Insurance Co. Ltd. City Union Bank T.Y.BBI36
  37. 37. Bancassurance Royal Sundaram General Insurance Company Standard Chartered Bank, ABN AMRO Bank, Citibank, Amex and Repco Bank. United India Insurance Co. Ltd. South Indian Bank  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: 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 unit-linked 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. T.Y.BBI37
  38. 38. Bancassurance 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 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. T.Y.BBI38
  39. 39. Bancassurance  Bancassurance – The Indian Experience So Far In India, there was a lot of excitement regarding this concept right from 2000 onwards, as the country was in a position to learn and imbibe the globally successful concept. The regulator, Insurance Regulatory Development Authority, finally permitted Indian banks to distribute insurance products in late 2002. Till this period, insurance companies mainly operated through a large tied agency force. What followed was a series of distribution tie-ups between banks and insurance companies. Globally, bancassurance has displayed the tendency to evolve models based on the country’s overall financial culture. Models that emerged were both on the integrated and non-integrated side. In India, it was more a case of distribution and arrangements and the tie-ups were mainly as 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] Wrapper Products – distribution of insurance products wrapped around the bank’s savings and loan products – a type of an integrated T.Y.BBI39
  40. 40. Bancassurance 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 ready-made 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. Companies like SBI Life and Aviva have reported over 65% of their businesses through bancassurance channel for the 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. T.Y.BBI40
  41. 41. Bancassurance  Bancassurance – Success Factors and Problem Areas However, for this concept to succeed, it is also necessary to tackle the cultural and mindset issues involved in making bank employees sell insurance products. Bankers for years have been primarily engaged in the counter-based selling. Insurance requires much more than that in view of the extensive financial and medical underwriting issues involved. Another area that needs affirmative action is the tendency to view insurance products (because of the investment and saving components embedded in many plans) as products that compete with the traditional saving products offered by banks. Similarly, there is a need for integration in the Information Technology systems. As of now, in India, insurers and banks hardly have any IT integration, and both work on a stand-alone basis with the result that there is not much of an efficient leveraging of the customers’ database. Another challenge that insurers need to look at is balancing the requirements of their traditional agency force and those of the banks. Banks in view of their distribution muscle could indicate to the insurers the need for customized products at very low premiums or even ask for a special rate for standardized products which could annoy the agency force. T.Y.BBI41
  42. 42. Bancassurance  Potential for Bancassurance in India In a county with a population of over a 100 crores, the insurable population has been estimated to be over 30 crores. The population covered with some form of insurance has been estimated only at 8 crores. 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 T.Y.BBI42
  43. 43. Bancassurance Indian Bank, Lord Krishna Bank, ICICI Bank, etc. For Bajaj Allianz, for example, a joint venture between Baja Auto Ltd, the country’s 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 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.  SLOW GROWTH OF BANCASSURANCE Numerous debates and an extensive literature have grown up around this subject; recent analyses have sought to identify the reasons for the delay in growth: for example, in 2003 the American Council of Life Insurers (ACLI) conducted a study on this topic. T.Y.BBI43
  44. 44. Bancassurance  Collaboration is the key !!! In their natural and traditional roles and with their current skills, neither banks nor insurance companies could effectively mount a bancassurance start-up alone. Collaboration is the key to making this new channel work. Banks bring a variety of capabilities to the table. Most obviously, they own proprietary databases that can be tapped for middle-market warm leads. In addition, they can leverage their name recognition and reputation at both local and regional levels. Strong players also excel at managing multiple distribution channels, cross-selling banking products, and using direct mail. However, most banks lack experience in several areas critical to successful bancassurance strategies: in particular, developing insurance products, selling through face-to-face "push" channels underwriting, and managing long-tail insurance products. Where banks usually fall short, a strong insurer will excel. Most have substantial product and underwriting experience, strong "push" - channel capabilities, and investment management expertise. On the other hand, they tend to lack experience or ability in the areas where banks prevail. They have little or no background in managing low-cost distribution channels; they often lack local and regional name recognition and reputation; and they seldom possess access to or experience with the middle market. T.Y.BBI44
  45. 45. Bancassurance  Bancassurance in India - A SWOT Analysis: 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 fire, motor or cattle insurance to their customers. 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). T.Y.BBI45
  46. 46. Bancassurance 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 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, T.Y.BBI46
  47. 47. Bancassurance 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.  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. T.Y.BBI47
  48. 48. Bancassurance  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. 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. T.Y.BBI48
  49. 49. Bancassurance  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 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 T.Y.BBI49
  50. 50. Bancassurance o Banks could capture 10% to 15% of the total U.S. insurance and investment market by selling products to 20% of their existing customers. o Banks' existing infrastructure enables them to operate at expense levels that are 30% to 50% lower than those of traditional insurers. o 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. o By simplifying bancassurance products each back office bank employee can quintuple managing policies compared to traditional insurers. T.Y.BBI50
  51. 51. Bancassurance  Obstacles and success factors 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 of bank referrals and relevant and flexible database systems. T.Y.BBI51
  52. 52. Bancassurance  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. 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. T.Y.BBI52
  53. 53. Bancassurance SHRI CHINAI COLLEGE OF COMMERCE & ECONOMICS Survey for project on Bancassurance NAME: ___________________________________________ AGE: _____________________________________________ DESIGNATION: ___________________________________ SIGNATURE: _____________________________________ CONTACT NO: ____________________________________ 1) Are you aware of Bancassurance? Yes No 2) Do you know who provides Bancassurance? Bank Insurance company Financial institution 3) Why do you think insurance companies prefer to sell insurance product through bank? Cost Effective Distribution channel of banks Others 4) How is Bancassurance beneficial to a customer? Service under one roof Cheaper insurance product 5) From whom would you prefer to buy an insurance product? Insurance company Bank Comments: Project Guide: Prof. Nishikant Jha Signature: Survey Conducted By Kunal Shah T.Y.BBI Roll No: 44 T.Y.BBI53
  54. 54. Bancassurance  CONSUMER SURVEY REPORT ON BANCASSURANCE 1) Are you aware of Bancassurance? 0% 50% 100% Series1 96% 4% YES NO V 2) Do you know who provides Bancassurance? 0 50 100 Series1 85 11 4 BANK INSURANC FINANCIAL T.Y.BBI54
  55. 55. Bancassurance 3) Why do you think insurance companies prefer to sell insurance products through banks? 0 10 20 30 40 50 60 Series1 37 59 4 COST EFFECTIV DISTRIBUT ION OTHERS 4) How is Bancassurance beneficial to a customer? 0 20 40 60 80 100 Series1 83 17 SERVICE UNDER ONE CHEAPER INSURANCE 5) From whom would you prefer to buy an insurance product? T.Y.BBI55
  56. 56. Bancassurance 46 47 48 49 50 51 52 Series1 52 48 INSURANCE COMPANY BANKS  Analysis of the survey T.Y.BBI56
  57. 57. Bancassurance Analysis of the project Banc assurance to know that people have knowledge about the Banc assurance or not. In other words it means which bank provides which insurance companies product. And what does banc assurance means to people? For this a consumer survey has been made in which different people have been asked different types of questions. In a survey of a simple question “do u know what is bancassurrance ?” in which 96% of the people said yes whereas the rest 4% of the people said no to the same question. BIBLOGRAPHY T.Y.BBI57
  58. 58. Bancassurance Websites Book Vipul prakashan T.Y.BBI58