Bancassurance

University of Mumbai

“BANCASSURANCE”

Bachelor of Comme rce

Banking & Insurance
Semeste r V

In Partial Fulfillment of the require ments for the
Award 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

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

CERTIFICATE

This is to certify that GAURAV CHAUHAN G. student of
T . 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 f
C 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 y
c 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 c
y 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 t
Jha.
CourseCo-ordinator
Principal
P r o j e ct G u i d e / I n t e r n a l E x a mi n e r

E x t e r n a l E x a mi n e r

DECLARATION

I , 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 e
c o mp l e t e d this project on BANCASSURANCE in the

2

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 s
t 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 : 05

This project bears the imprint of many people. I owe a considerable debt of
gratitude to the University of Mumbai as well as my college, Shri Chinai
College of Commerce & Economics for introducing the concept of
research work in the curriculum of Banking & Insurance Degree Course.

I want to acknowledge Miss. Jyoti madam, Professor of International
Banking (sem V) at my college who has been my project guide assisting my
work through out the completion of this project. I thank him for giving me
his 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 my
thinking and research procedure. I am appreciative of all I have learned from
their teaching contributions and their experience as professionals.

I also want to acknowledge our coordinator Mr.Nishikant Jha for his
extensive conduct of the I.T workshop in the academic year 2007-2008
with us. It was a learning activity and helped me widen my scope on the
subject of Reality Banking.

3

I continually benefit from the wisdom and support of my colleagues at
T.Y.B.B.I, Shri Chinai College of Commerce & Economics.

SR.NO CHAPTER PAGE NO.
1 INTRODUCTION 6
2 HISTORY AND DEFINITION 8
3 THE THREE DEVELOPMENT MODEL 10
ADVANTAGES FOR INSURANCE
4 11
COMPANY
5 ADVANTAGES FOR THE BANK 12
6 ADVANTAGES FOR THE CONSUMER 13
7 ADVANTAGES FOR THE LEGISLATOR 14
CASE STUDY: FRANCE: BNP PARIBAS
8 15
ASSURANCE
KEY FACTOR FOR THE SUCCESSFUL
9 SALE OF LIFE INSURANCE POLICY 16
THROUGH BANKING NETWORK
THE FEATURE OF THE INSURER’S
10 19
PRODUCT ARE ESSENTIAL
11 KEY SUCCESS FACTORS :- DIAGRAME 20
CUSTOMER SATISFACTION IS BASIC
12 21
RULES IN BANCASSURANCE
13 ESTABLISHING 22
14 RISK ASSESSMENT IN BANCASSURANCE 28
ONGOING DIVERSIFICATION:NEW
15 PRODUCT SOLD BY BANKING 32
NETWORK
16 BANCASSURANCE IN INDIA 35
17 SLOW GROWTH OF BANCASSURANCE 44
18 CONCLUSION 44
19 S.W.O.T 48
20 S.W.O.T ANALYSIS 50

4

BANCASSURANCE:- A WIN-WIN
21 55
SOLLUTION
BANCASSURANCE IN INDIA – A SWOT
19 55
ANALYSIS
20 CONCLUSION 62
21 BIBLOGRAPHY 64

5

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

6

enjoy the flexibility of incurring heavy distribution expenses and passing
them to the customer in the form of high prices.

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.

7

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.

History and definitions

The first countries to venture into the field were Spain and France.

In the early 70s, ACM (Assurances du Crédit Mutuel) 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

8

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.

● France: in 1971, Crédit Lyonnais acquired the Médicale de France Group
and in 1993 signed an agreement giving the Union des Assurances Fédérales
Group exclusive rights to sell life insurance through the Crédit Lyonnais
network;

● Spain: in 1981, the Banco de Bilbao Group acquired a majority interest in
EUROSEGUROS SA, an Insurance and Reinsurance company;

In the same year, they were joined in the first cross-border merger by AG
Group, thereby creating the Fortis Group.

Definition:
Bancassurance, known as Alfinanze 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

9

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.

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
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 with
Joint Venture one or more Transfer of Difficult in manage
insurance experience in long the term
companies

10

Full Creation of a Same corporate Substantial
Integration new subsidiary culture investment
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.

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;

11

● 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:

● 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;

12

● 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.

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 than
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

13

installments) and with easy access, since the branch network is usually
denser than the network of insurance outlets.

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 financial stability.

14

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.

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

16

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, and where there are no or few restrictions on the sale of
insurance products by banking networks, will enable bancassurance to
develop more easily and more quickly.

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

17

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.

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

18

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.

The 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

19

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

20

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:

✔ Providing a full range of financial products and services (banking and
insurance) through a single sales network;

✔ Offering high-quality advice through readiness to listen and accurate
information;

✔ 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;

✔ Providing know-how and follow-up (especially claims management) as
good as the best traditional insurance providers.

22

Establishing

• The sales network
• Training
• Motivating
• Remuneration

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 an insurance company

23

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.

24

However, here we propose to cover the main factors common to most
bancassurance operators:

● 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;

● 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;

● 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.

● 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.

25

● 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.

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 another. Variable remuneration does not seem to depend

26

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.

27

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.

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

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 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:

✔ Accidental death (or disability) cover attached, for example, to debit cards
or bank accounts: for these products, no medical selection is required;

29

✔ 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
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;

✔ 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.

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…

30

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 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.

31

… 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:

● “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;

● 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.

32

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

Update on some new products sold in bancassurance:

Long-Term Care Insurance:

33

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.

WHY IS BANCASSURANCE MORE SUITED TO LIFE
INSURANCE PRODUCTS?

34

Traditionally, much fewer non-life insurance products are distributed
through bancassurance than life insurance products. There are several
reasons for this:

✔ 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;

✔ 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;

✔ 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;

✔ 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;

✔ Some professionals also refer to the claims management aspect of
personal injury insurance, which could have a negative impact on brand

35

image. This would seem to explain why for a long time bancassurance
operators hesitated to offer these types of product.

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

36

banks, has emerged as a very important channel for distributing there
products with nearly third or more of their premiums.

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:

• 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

The Insurance Regulatory and Development Authority (IRDA) guidelines
for 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 of
Birla Sun Life Insurance
Muscat, Development Credit Bank, Deutsche
Co. Ltd.
Bank and Catholic Syrian Bank
Dabur CGU Life
Canara Bank, Lakshmi Vilas Bank, American
Insurance Company Pvt.
Express Bank and ABN AMRO Bank
Ltd
HDFC Standard Life
Union Bank of India
Insurance Co. Ltd.

38

Lord Krishna Bank, ICICI Bank, Bank of India,
ICICI Prudential Life Citibank, Allahabad Bank, Federal Bank, South
Insurance 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&K
Co. Ltd. Bank
SBI Life Insurance
State Bank of India
Company Ltd.
Bajaj Allianz General
Karur Vysya Bank and Lord Krishna Bank
Insurance Co. Ltd.
National Insurance Co.
City Union Bank
Ltd.
Royal Sundaram General Standard Chartered Bank, ABN AMRO Bank,
Insurance Company Citibank, Amex and Repco Bank.
United India Insurance Co.
South Indian Bank
Ltd.

Issues to be tackled

39

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.
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

40

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.

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

41

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 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

42

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.

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.

Potential for Bancassurance in India

43

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 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

44

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.

Conclusion

With huge untapped market, insurance sector is likely to witness a lot of
activity - be it product innovation or distribution channel mix.
Bancassurance, the emerging distribution channel for the insurers, will have
a large impact on Indian financial services industry. Traditional methods of
distributing financial services would be challenged and innovative,
customized products would emerge.

45

Banks will bring in customer database, leverage their name recognition and
reputation at both local and regional levels, make use of the personal contact
with their clients, which a new entrant cannot, as they are new to the
industry.

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 within
hands reach.

✔ To adapt, train and motivate the banking network to sell insurance
products;

✔ To redesign products, but also to do more to integrate them into existing
bank offerings and into the networks’ sales targets, to make them simpler;

✔ To develop a joint IT and management system between the bank and
insurance company, so that sales personnel have fast, easy access to
information and harmonized procedures;

✔ So far, banks have targeted the wealthy, a difficult market to reach, rather
than a mass market (working class); a change of target arkets would seem to
be essential;

✔ To limit the number of insurance companies the bank works with; in this
way, the two players could develop a genuine partnership and create more
links.

46

S. W. O. T.

What is a SWOT analysis?

Description

A SWOT analysis is a tool, used in management and strategy formulation. It
can help to identify the Strengths, Weaknesses, Opportunities and Threats of
a particular company.

Strengths and weaknesses are Internal factors that create value or destroy
value. They can include assets, skills, or resources that a company has at its
disposal, compared to its competitors. They can be measured using internal
assessments or external benchmarking.

Opportunities and threats are External factors that create value or destroy
value. A company cannot control them. But they emerge from either the
competitive dynamics of the industry/market or from demographic,
economic, political, technical, social, legal or cultural factors

48

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

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 Strengths
and Weaknesses, and for looking at the Opportunities and Threats you face.

50

Used in a business context, it helps you carve a sustainable niche in your
market. Used in a personal context, it helps you develop your career in a
way that takes best advantage of your talents, abilities and opportunities.

Business SWOT Analysis

What makes SWOT particularly powerful is that, with a little thought, it can
help you uncover opportunities that you are well placed to take advantage of.
And by understanding the weaknesses of your business, you can manage and
eliminate threats that would otherwise catch you unawares.

More than this, by looking at yourself and your competitors using the
SWOT framework, you can start to craft a strategy that helps you distinguish
yourself from your competitors, so that you can compete successfully in
your market.

How to use the tool:

To carry out a SWOT Analysis, print off our worksheet, and write down
answers 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

• What do people in your market see as your strengths?

Consider this from an internal perspective, and from the point of view of
your customers and people in your market. And be realistic: It's far too easy
to fall prey to "not invented here syndrome". Also, if you are having any
difficulty with this, try writing down a list of your characteristics. Some of
these 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 a
high quality production process is not a strength in the market, it is a
necessity.

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 people
seem to perceive weaknesses that you do not see? Are your competitors
doing any better than you? It is best to be realistic now, and face any
unpleasant 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

• 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 Events

A useful approach to looking at opportunities is to look at your strengths and
ask yourself whether these open up any opportunities. Alternatively, look at
your weaknesses and ask yourself whether you could open up opportunities
by 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 of
pointing out what needs to be done, and in putting problems into
perspective.

You can also apply SWOT Analysis to your competitors. As you do this,
you'll start to see how and where you should compete against them.

SWOT Analysis is a simple but powerful framework for analyzing your
company's Strengths and Weaknesses, and the Opportunities and Threats

53

you face. This helps you to focus on your strengths, minimize threats, and
take the greatest possible advantage of opportunities available to you.

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.

54

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 channel

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.

55

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).

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

56

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, 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:

57

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.

• 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.

58

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.

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

59

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

• 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.
• 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.

By simplifying bancassurance products each back office bank employee can
quintuple managing policies compared to traditional insurers.

Obstacles and success factors

60

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.

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.

61

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.

62

Websites:

 www.rbi.org.in
 www.domain-b.com
 www.myris.com
 www.iiml.ac.in
 www.indiainfoline.com
 www.rediff.com
 www.obcindia.com
 www.way2wealth.com
 www.indiatimes.com
 www.thehinduimages.com
 www.zeenews.com
 www.reachouthyderabad.com
 www.google.co.in
 www.nse-india.com
 www.businessworld.com

63

Bancassurance

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Bancassurance

Similar to Bancassurance (20)

Recently uploaded

Recently uploaded (20)

Bancassurance