a study on role of bank assurance in indian life insurance business

1. SELP Journal of Social Science April- June 2014
Vol . V : Issue. 20 ISSN:0975-9999 (Print) 2349-1655 (Online)
7
A STUDY ON ROLE OF BANCASSURANCE IN INDIAN LIFE
INSURANCE BUSINESS
Dr. C Paramasivan
Assistant Professor of Commerce
Periyar EVR College , Tiruchirappalli
C. Kalpana Naidu
Research Scholar, Bharathiar University, Coimbatore
Assistant Professor,Women’s Christian College, Chennai
ABSTRACT
The banking and insurance industry have changed rapidly in the changing economic
environment throughout the world. Together Banking and Insurance Industry contributes about
seven percent GDP of our economy. The increased pace of market competition due to liberalization
and privatization forced life insurers to be competitive by cutting cost and serving in a better
way to the customers. In view to reach huge untapped market, the concept of Bancassurance was
introduced by the IRDA. Banc assurance is a new and an emerging model of channel of distribution
adopted by almost all the life insurance players to increase the market share and insurance
penetration. .The present empirical based study was conducted with an objective to understand
the role of banc assurance in Indian life Insurance Industry and to measure customer awareness,
satisfaction and perception towards buying life insurance products from banks.
Key words: bancassurance, life Insurance market, customer awareness, untapped market
Introduction
A sound financial sector is the backbone
of healthy economy. The Insurance Industry
as a financial service is considered as one of
the important segments in an economy for its
growth and development. Life Insurance
Corporation of India has a complete
monopoly over the life Insurance business for
a very long period i.e. from 1956 to 1999, a
period prior to the liberalization. In 1999, the
Insurance sector was opened up for private
participation to increase insurance
penetration. The winds of liberalization and
privatization have bought phenomenal
changes in the financial sectors, particularly
in life Insurance. Huge untapped population
provides unlimited scope to life insurance
companies for market expansion and
premium growth. The success of life
Insurance companies largely depends on the
effectiveness of distribution channel. The
appropriate selection of channel of
distribution helps to increase the volume of
sales, brand promotion and brand building
by providing quality services to the
customers. In spite of presence of multiple
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SELP Journal of Social Science
ISSN : 0975-9999 (Print) 2349-1655 (Online)
Vol V : Issue. 20
April - June 2014

2. SELP Journal of Social Science April- June 2014
Vol . V : Issue. 20 ISSN:0975-9999 (Print) 2349-1655 (Online)
8
distribution channels and wide range of new
products; the performance of life Insurance
companies is unsatisfactory. Hence to
improve insurance growth and market
penetration of life Insurance business a new
concept called “ Banc assurance “ were
introduced by IRDA in late 2002 where
insurance companies have tie –ups with
different bank through joint-venture for
selling Insurance products. The concept of
banc assurance is based on win-win situation
where both banks and insurers get benefited
with the business partnership.
Concept & Meaning of Bancassurance
It originated in India in the year 2000 when
the Government issued notification under
Banking Regulation Act which allowed Indian
Banks to do insurance distribution. It started
picking up after Insurance Regulatory and
Development Authority (IRDA) passed a
notification in October 2002 on ‘Corporate
Agency’ regulations. Banc assurance
accounts for a share of almost 35-40% of the
premium income amongst the private players
in India. It is a phenomenon where insurance
products are offered through the distribution
channels of the banking services along with
a complete range of banking and investment
products and services. Banc assurance tries
to exploit synergies between both the
insurance companies and banks. Some of the
examples of Bancassurance are given below:
Birla Sun Life Insurance Bank of
Rajasthan, Andhra Bank, Bank of Muscat,
Development Credit Bank, Deutsche Bank
and Catholic Syrian Bank
Aviva Life Insurance Canara Bank,
Lakshmi Vilas Bank, American Express Bank
and ABN AMRO Bank
HDFC Standard Life Insurance Union
Bank Of India
ICICI Prudential ICICI Bank, Bank
of India, Citibank, Allahabad Bank,
Federal Bank, South Indian Bank, and
Punjab and Maharashtra Cooperative bank
LIC Corporation Bank, Overseas Bank
of India, Vijaya Bank, Bank of Commerce.
SBI Life SBI, BNP Paribas
Tata AIG HSBC, United Bank of India.
Bajaj Allianz Syndicate Bank,
Centurion Bank and Standard Charted
bank.
Banc assurance is a type of agreement
or partnership between bank and insurance
company where banks get a fixed
percentage or proportion of profit
incentives depending on the volume of
business. Most of the insurance company
found banc assurance as a low cost
attractive distribution channel as
comparison to other channels.
Reasons for Entering Into Bancassurance
Insurance is an ideal option as banks
feel they fulfill the three major
requirements for a successful Insurance
business that is asset management,
investment skills and capital adequacy.
Banks would also like to fulfill all the
financial needs of their customers. For the
following reasons banks are entering into
Insurance business such as:
1. Wide network of branches- Banks can
prove to be a vital distribution channel
due to their existing wide network of
branches all over.
2. Customer database- Banks can utilize
their existing clientele, which includes
corporate as well as retail clients to
market insurance products.

3. SELP Journal of Social Science April- June 2014
Vol . V : Issue. 20 ISSN:0975-9999 (Print) 2349-1655 (Online)
9
3. Cross-selling products- In the current
scenario banks can cross sell their
products along with the insurance
products. For example SBI Bank selling
SBI life products along with their own
core financial products.
4. Fee based service- Insurance products can
be sold as a fee based service. It means
by selling insurance products banks earn
risk free fixed income which will be an
additional source of revenue for the
banks.
5. Rural Penetration- The existing wide
network of banks in rural areas can be
utilized for selling insurance products. It
is easier for banks to tap rural market as
the rural people have more awareness and
faith over banks as compared to Insurance
companies.
BancAssurance in India - ASWOTAnalysis
Strength
1. Huge untapped population of India.
2. Product development & Innovation by
insurance companies.
3. Large middle class households and trust
on banks.
4. Cheaper mode of distribution channel.
Weakness
1. Low consumer awareness
2. Inflexibility of products.
3. Heavy premiums.
4. Considered as an Investment not protection
tool.
Opportunity
1. More than 70% population is uninsured.
2. People faith on banks which help in selling
of insurance products.
3. Rising demand for new insurance products
like ULIPS, Pension and Health plans.
4. Introduction of new technology and
speedy customer services.
5. Help in expansion of banking sector with
additional revenue from insurance
business.
Threat
1. Difficult to sell insurance products.
2. Not suitable for complex products.
3. Increased work pressure on bank
employees.
4. Availability of multiple Investment
options.
Benefits of Bancassurance to Banks,
Insurers and Customers: AnAnalysis
For banks :
The first and the foremost benefit is that
the banks get an additional product in their
basket to reduce their risk of regular income.
Secondly, by selling the insurance products,
they tend to gain additional income in the
form of fees. Thirdly, the banks will get to
retain the customers with wider relationship
with them by providing them a
comprehensive service of banking and
insurance at a single window.
For insurance company :
Selling their products through banks
gave them access to the wide rural market.
Many public sector banks have branches in
the remote rural areas, these acts as a ready
untapped market for the insurance
companies at a nominal cost. The insurance
companies could reach out to the highly
endowed and growing middle class section
of the society through the banks distribution
network.
For customers:
The Banc assurance model assists in

4. SELP Journal of Social Science April- June 2014
Vol . V : Issue. 20 ISSN:0975-9999 (Print) 2349-1655 (Online)
10
terms of reduction price, diversified product
quality in time, all services under one-roof
and service at their doorstep service by
banks. Innovative and better product ranges
and products designed as per the needs of
customers. Customers could also get a share
in the cost savings in the form of reduced
premium rate because of economies of scope,
besides getting better financial counseling at
single point.
Suggestions to Overcome Problems and
Challenges of Bancassurance
1. High emphasis need to laid on
performance appraisal and sales training
of bank managers which will help to
actively promote the insurance products
in banc assurance.
2. Insurance companies need to come up
with simple IT solutions to enable the
bank staff to record sales details at the
branch itself.
3. Attractive incentives and proper
motivation should be given to the
marketing personnel of the bank in order
to sell insurance products in a bigger way.
4. Insurance companies should come out
with more customized products for banc
assurance.
5. Banks should improve the quality of
services and need to be more aggressive
in selling the insurance products.
6. To offer best product to the customers in
a low cost effective way.
7. Banks should also do the settlement of
claims which will increase the trust and
reliability of the customers on the banks.
8. Need to spread awareness among the
customers about banc assurance and its
benefits.
Future Prospects of Bancassurance in India
Insurance is basically a customer-
focused concept selling business where a
policy is being sold to the customer through
appropriate channel of distribution. In the
present days, agents and banks are the two
widely and important source of distribution
to sell Insurance products. The shape of
the Insurance Industry is being changed
by developments in distribution. It is the
distributor who makes the differences in
terms of product quality, customer services
in terms of after-sale and claim settlement.
Multi-channel distribution and marketing of
insurance products will be the smart strategy
for the Indian market. Alternative channels
like corporate agents, brokers and banks will
play a greater role in insurance distribution.
Bancassurance is one such distribution
channel that offers huge source of untapped
opportunities. Bancassurance is a cost-
effective and more customer-friendly than
other sources of distribution. In Insurance,
nearly 35-40% premium income is generated
through bancassurance and second most
important channel after agents. In India
around more than 67,000 branches are there
for PSU banks alone and if all branches sell
insurance products than the reach of
insurance can be significantly increased at
the lowest possible cost. Huge uninsured
Indian market offers abundance future scope
for the growth and expansion of
bancassurance.
Conclusion
Insurance is basically a customer-focused
concept selling business where a policy is
being sold to the customer through
appropriate channel of distribution. In the
present days, agents and banks are the two

5. SELP Journal of Social Science April- June 2014
Vol . V : Issue. 20 ISSN:0975-9999 (Print) 2349-1655 (Online)
11
widely and important source of distribution
to sell Insurance products. Bancassurance was
a completely unknown insurance distribution
channel in India when the insurance sector
opened up a decade ago. Today, it is expected
to generate 40 per cent of private insurers
premium income , which is significantly a
higher percentage. The shape of the Insurance
Industry is being changed by developments in
distribution. It is the distributor who makes
the differences in terms of product quality,
customer services in terms of after-sale and
claim settlement. Multi-channel distribution
and marketing of insurance products will be
the smart strategy for the Indian market. The
size of the country, a diverse set of people
combined with problems of connectivity in
rural areas, makes insurance selling in India a
very difficult proposition. Life insurance
companies require immense distribution
strength and tremendous manpower to reach
out to such a huge customer base. Huge
uninsured Indian market offers abundance
future scope for the growth and expansion
of bancassurance.
References
1. Andhra Business Bureau (April 2010),
“Bancassurance to touch 40 percent of
premium income by 2012”, Hyderabad
28th April 2010.
2. Pandey.N (2008),” Bancassurance as a
strategic management tool”, Dissertation
SMS Management College Varanasi,
Page no.51-62
3. Kumar, R (2006) “Bancassurance-
Opportunities and Challenges in India”,
Bancassurance: Trends and
Opportunities, First Edition, Hyderabad,
ICFAI publication, 2006, pp-176-178.
4. Anuja Banerjee (April 2009),
“Bancassurance: a major para-banking
activity”, ICFAI Insurance chronicle
magazine.
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