bancassuranceindian mba

7/28/2019 Bancassuranceindian MBA

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Bancassurance: A Perspective

*Dr. G Bharathi Kamath, Professor, Srinivas School of Business, Mangalore

In the ever increasing competition and changing economic scenario across the

globe, both banks and insurance sector has changed rapidly to adapt to the

environment. In the process a new business concept called bancassurance has

developed in which the banks through their wide network of branches sell the

insurance product of a specific company. It establishes a mutual relationship

between the banks and insurers for collaborative advantage. Though this concept is

not new across globe, its origin in India has been recent.

This article takes a look at the meaning and growth of bancassurance in India. The

various forms it can take. It provides a perspective on the opportunities it presents to

the insurers, banks and the customers.

Meaning and Growth:

The insurance sector has seen substantial changes in the policy in the last decade,

the most important being breaking the monopoly of public sector both in the life and

non-life segments. With increasing competition, changing needs and requirements ofthe customer and development of technology more and more need for constant

innovations in marketing mix i.e. development of new products, competitive prices,

new distribution channels, appealing promotional strategy was increasingly felt by

insurance companies. The similar developments in banking sector lead to almost a

similar requirement felt by the banking companies.

Bancassurance is the distribution of insurance products through the bank's

distribution channel. The banks continue to operate and function with its initial

products and services and in addition offer to sell insurance products of a specific

company with which it has an agreement. If we look at it from a positive perspective,

it allows banks, insurance company and the customers to gain substantially for this

collaborative effort.

The concept of banks selling insurance products was well received in many parts of

the world like, Canada, UK, Spain etc, however the conceptper se in India of recent

origin. The main reason for insurance and banks adopting this new strategy was to


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fight the new competitive pressures that were introduced after conscious policy of

privatization and liberalization in both these sectors.

Bancassurance can be practised on a very vast canvas ranging from mere selling of

insurance products, giving the referrals of customers to the insurance companies, to

integrating the products of insurance with the banks product. On the structural side,

the banks can work out a joint venture in the concerned area or just act as an agent

to market the insurance products. Whatever may be the form in effect the services of

the two different nature merge to the ultimate advantage of the customer.

Benefits of Bancassurance to Banks, Insurers and Customers: An Analysis

The concept of bancassurance if implemented in its real form is a win-win situation

for all the parties involved. Let us look at the benefits accrued to each of parties

involved.

For the 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. Thebanks have been having a regular stream of income through its traditional sources of

loans and other investments. However, with the competitive pressure, there is

always a uncertainty involved in the flow of this source. By product diversification into

insurance, the banks get an additional source of income. 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. This will also

stand in good stead in the long run in improving the customer satisfaction.

For the insurance companies, 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.


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Besides this, there was an urgent need for looking for fresh channels of distribution

due to increasing cost on agents. Insurance companies found an alternative in the

form of banks as a channel member. This also provided the much need multi-

channel distribution of products to the insurance companies. The increasing

competition in the insurance market due to liberalization, also acted as a catalyst in

finding better ways of reaching the customer and product diversification. The product

can be customized as per the needs of the customers.

For the customers, the Bancassurance model assists in 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 counselling at single point.

The banks have to adhere to the guidelines of Reserve Bank of India (RBI) if it

intends to enter into the insurance business. The banks are required to satisfy

certain conditions as stipulated by RBI for same. Similarly, Insurance Regulatory and

Development Authority (IRDA) has laid down specific guidelines for insurancecompanies which wish to distribute its products through banks. These guidelines are

mainly related to the specific position of insurance in a banks organizational structure

and also the mandatory training of the personnel that would be handling the

insurance products.

The banks were initially targeting only customers through their branches to the mass

customers, however, now the trend is towards tailor made customised products to

cater to the specific needs of the niche customers. The banks have started looking at

the option of using internet banking, giving in-branch desk to accommodate

insurance experts.

The task of bancassurance is not without any challenges, the most important is the

conflict of interest faced by customers if they are targeted by both banks and

insurance companies. There is an imminent risk of untrained bankers handling

insurance products and resultant inefficiency. Many bank employees are poorly

motivated to do additional work by additionally promoting a insurance product


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besides doing their routine work. Moreover, they may not be completely trained in

selling process and closing sales.

SWOT of Bancassurance:

Strengths:

Huge pool of skilled professionals

Established credibility of the banks

Wide network of branches, even in

the remotest areas

Understanding about the attitude

and behaviour of the consumers

Market expansion for insurance

companies

Trained staff, brand name and

reliability

High untapped market potential

Weaknesses:

Rural branches not under CBS,

and under-staffed

No ready availability of trained

staff

Lack of personalized service

Differences in approaches

between banks and insurance

companies

Customers constrained by time

Inflexibility of the products

Opportunities:

Huge untapped market

Requirements of urban customers

can be tapped

Database can be used to find

homogenous group

Cross-selling of insurance

products for banking products

Corporate and salaried customers

can be targeted for specific

products claiming convenience

and ease of access

Threats:

Changes in work culture and

attitude difficult among bank

employees

Non-response from targeted

customers

May affect the portfolio of banks if

insurance is perceived as a

substitute for bank savings

There may be loss of business

confidence

Competition between existing

players

Unsuitable marketing strategy and

personnel may result in more

harm than benefit


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Conclusion

Though bancassurance has traditionally targeted the mass market, bancassurers

have begun to finely segment the market, which has resulted in tailor-made products

for each segment. This widens the scope of the product in the years to come. Banks

have been accepted as a source of insurance products, the initial success of the

concept proves the above fact. In the years to come, there may be phenomenal

growth of this new product and bancassurance would turn out to be a norm rather

than an exception.

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