Bancassurance

Bancassurance is a French term referring to the selling of insurance through a bank's established distribution
channels. In other words, we can say Bancassurance is the provision of insurance (assurance) products by a
bank. The usage of the word picked up as banks and insurance companies merged and banks sought to provide
insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it
gives banks too great a control over the financial industry. In some countries, bancassurance is still largely
prohibited, but it was recently legalized in countries like USA when the Glass Steagall Act was repealed after
the passage of the Gramm Leach Bililey Act.
Bancassurance is the selling of insurance and banking products through the same channel, most commonly
through bank branches. Selling insurance.means distribution of insurance and other financial products through
Banks. Bancassurance concept originated in France and soon became a success story even in other countries of
Europe. In India a number of insurers have already tied up with banks and some banks have already flagged off
bancassurance through select products.
Bancassurance has become significant. Banks are now a major distribution channel for insurers, and insurance
sales a significant source of profits for banks. The latter partly being because banks can often sell insurance at
better prices (i.e., higher premiums) than many other channels, and they have low costs as they use the
infrastructure (branches and systems) that they use for banking.
Bancassurance primarily rests on the relationship the customer has developed over a period of time with the
bank. And pushing risk products through banks is a much more cost-effective affair for an insurance company
compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in
at a minimum cost is more than welcome.

Bancassurance in India

In India the banking and the insurance sectors are regulated by two different entities. While the banking sector
is governed by Reserve Bank of India, the insurance sector is regulated by the Insurance Regulatory
and Development Authority (IRDA). Since Bancassurance, is the combination of these two sectors, it comes
under the purview of both the RBI and IRDA regulations.
Advantages of Bancassurance to Banks and Insurance Companies

1. The insurance company will attract further business, both from existing and the new policyholders,
because it can offer a wider range of services than what they could before.
2. It gives the customers access to banking as well as insurance services. It also encourages customers of
banks to purchase insurance policies and further promotes a better relationship with the bank.
3. The economics of the Bancassurance operation allows the insurer to offer products which were not
feasible through the insurer’s existing channels previously. For example, if the sales cost incurred under
the existing channels force premium rates for a said product to render it uncompetitive, the product will
not be sold. On contrary, the costs via the Bancassurance channel may be low enough to make such
products feasible.
4. The insurance company may offer to carry out the administrative activities of the
bancassurer’s business, if for instance, the bancassurer is a separate company. Upon, combining the
bancassurer’s business with that of the insurer, they can produce economies of scale in the
administration costs including the capital expenditure.
 5. Combining of the business administration allows the insurer to improve profitability and also enables
them to price their future products with narrower margins. It helps to make the insurer’s products more
competitive in the market.
6. Both for the bank and the insurer there lies a great opportunity to learn and to make improvements
in their own operations. Since, each one gets exposure to the other’s distinctive management styles,
objectives, measures and the pressures. The benefit comes to either company which can implement the
innovations as a result of the learning process.

Benefits of Bancassurance to Customers

1. Bancassurance encourages customers of banks to purchase the insurance policies associated and further
helps in building a better relationship with the bank.
2. The people/customers who are unaware of or are not in the reach of insurance policies would benefit
through the widely distributed banking networks and better marketing channels available to the banks.
3. An increase in number of insurance providers means an increase in the competition and hence, people
can expect better premium rates and also better services from bancassurance when compared to the
traditional insurance companies.

Demerits of bancassurance:-
 Data management of an individual customer’s identity and contact details may result in the insurance company
utilizing the details to market their products, thus compromising on data security.
 There is a possibility of conflict of interest between the other products of bank and insurance policies (like
money back policy). This could confuse the customer regarding where he has to invest.
 Better approach and services provided by banks to customer is a hope rather than a fact. This is because many
banks in India are known for their bad customer service and this fact turns worse when they are responsible to
sell insurance products. Work nature to market insurance products require submissive attitude, which is a point
that has to be worked on by many banks in India
What is Bancassurance?

Types of bancassurance products:

Life insurance products:

 Term insurance plans( with accident and death benefits).
 Endowment plans
  ULIPs( Unit Linked Insurance Plans)

Non-life Insurance products:

 Health insurance
 Marine insurance( for cargo shipments)
 Property insurance( against natural calamities)
 Key Men insurance( Top executives of companies, partnership firms,etc)

Types of Bancassurance models in India:

1. Pure distributer Model:
In pure distributer, Model bank acts as a distributer of insurance schemes of Insurance company.
Example: Indian Overseas Bank acts as a distributer of Life Insurance Corporation of India

2. Strategic alliance Model:

In this model there would be an agreement between the bank and the insurance company to market banca
products, other insurance functions are not carried out by the bank.
Example: HDFC bank with HDFC life insurance company and HDFC ERGO general insurance
company.

3. Joint venture Model:

In a joint venture model a new joint venture company is established in which the bank(s) and the insurance
company will have shareholdings in agreed ratio.
Example: IndiaFirst Life insurance Co. Ltd is a Joint venture between Bank of Baroda (44%), Andhra
Bank (30%) and UK's financial and investment company ' Legal and General' (26%).
Need for bancassurance in India:-

Researches and present day statistics speak about the need of a well equipped financial structure for a country
that helps it to grow economically. The financial resources in the hands of people should be channelized in
effective manner so as to increase the returns from the basic financial structure of nation and also the quality of
living of people. Insurance policies are instruments/products that play major role in upholding the financial
structure of developed countries.
. With growth in number of middle class families in the country, RBI recognized the need of an effective
method to make insurance policies reach people of all economic classes in every corner of the nation.
Implementing bancassurance in India is one such development that took place towards the cause. The need and
subsequent development of bancassurance in India began for the following reasons:
 To improve the channels through which insurance policies are sold/marketed so as to make them reach the
hands of common man
 To widen the area of working of banking sector having a network that is spread widely in every part of the
nation
 To improve the services of insurance by creating a competitive atmosphere among private insurance companies
in the market