BANCASSURANCE

Bancassurance refers to an agreement between a bank and an insurance company. In

bancassurance, the insurance company can use the bank’s distribution channels to sell products.
Banks, in return, receive a certain fee from the insurance company.

Summary

 Bancassurance refers to an agreement between banks and insurance companies.

 In bancassurance, insurance companies sell their products through the bank’s outlet.
 It can benefit banks and insurance companies, as well as customers.

History of Bancassurance

Bancassurance as a term first appeared in France in the 1980s. At first, many countries believed
that the practice of bancassurance would give banks too much control over the financial products
in the market. As a result, it was restricted.

Today, many countries allow the practice, demonstrating notable growth around the world. It is
most successful in Europe.
In bancassurance, banks provide the distribution channel, and insurance companies remain
product developers. It allows two sectors to leverage the existing network that banks have.

For banks, they can earn extra income by providing its platform to insurance companies. They
can also get an opportunity to provide more products to customers. More-rounded services will
help banks to enhance customer loyalty. As a result, they can become the center of financial
products for the individual customer.

For insurance companies, they can achieve more sales through the distribution network of banks.
Insurance companies also have access to customers of partnered banks. This helps in developing
their products.

Customers’ financial needs can be satisfied through bancassurance. They can save time and
energy because they have access to two different financial services at once. Moreover, they are
more familiar with their financial advisors from the bank, smoothing the product reviewing and
selecting process. In bancassurance, the bank’s customer relationships play a vital role.

Bancassurance Meaning

Bancassurance is the combination of bank and Life Insurance Company. It is a partnership

between bank and Assurance Company to sell products like life assurance, and other insurance
products to a bank’s client, they also offer insurance benefits to the bank’s customers and by
doing this both companies earn a profit.

Explanation

Bancassurance is nothing but selling life insurance products via banks. Banks and life insurance
companies come together to do business in partnership. It is useful for both the banks and
insurance companies because here, the bank sells the product of insurance companies to their
clients, and the bank also offers bank products to those insurance clients.

Insurance company offers a policy to the client in which customers have to pay premium
payments every year, and insurance companies will give you a lump-sum payment, which is
known as a death benefit. It is one of the securities in which the owner buys this product as
security. If any accidental death happens in the future, then this product will help the owner’s
family because the family gets lump-sum cash.

Bancassurance Products

Banks, through bancassurance channels, typically focus on selling life insurance products
because they generally command a higher price than non-life insurance products.

Moreover, banks can find and promote the most suitable life insurance for customers based on
their credit and personal needs.
Challenges

Bancassurance requires both banks and insurance companies to work together; however, it is not
an easy task to integrate the business operations of two sectors.

In bancassurance, insurance companies lack direct control over the selling of their products. It
can be harder to manage marketing strategies. For example, it can be difficult for insurance
companies to target the right customers.

For banks, their employees need to learn about insurance products, which requires a larger
workload and training. In the case of multiple bancassurance agreements, bank advisors may
have conflict incentives. They may recommend one product over another out of self-interest. It is
also difficult to define who should take legal responsibility in case of customer disputes.

To solve the problems, banks and insurance companies need to align their objectives. Moreover,
insurance companies can provide sales training for bank employees. This helps to achieve mutual
goals and reduce miscommunication.

Going Digital

Digitalization is significantly impacting the bancassurance business model, and banks are slowly
moving their bancassurance business online.

The internet reduces the gap between the product developer and customers. In this sense, banks
can lose their network advantages in the bancassurance agreement. Moreover, insurance
companies can collect customer behaviors online to tailor products more personally suitable to
customers.

Digitalization challenges both banks and insurance companies to refine their bancassurance
agreement. They need to respond to the change together and transform the way they serve their
clients.

Importance

In bancassurance, banks can easily earn profits without doing any risky work. Banks just need to
sell insurance company products, and in return, the bank will get a commission. Banks will get
more benefits by offering life insurance products because they will get a chance to build good
relationships with customers. Life Insurance Company will organize specialized training for
bank employees, which is an added benefit for the bank.
Features

1. Bank cannot pay a premium on behalf of the customer.

2. It can use only two insurance companies in one bank.
3. All commissions are disclosed in the annual accounts report.
4. A bank always focuses on its banking business.
5. For an insurance company, the network of a bank is useful for the sale.
6. Do due to periodic assessment.
7. Bancassurance improves profitability.
8. It increases customer lifetime value.
9. It can offer all the financial facilities under one roof.

Types of Bancassurance

There are two types:

#1 – Life Insurance Products

1. Term insurance plans

2. Endowment plans
3. Unit linked insurance plans

#2 – Non-Life Insurance Products

1. Health insurance
2. Marine insurance
3. Property insurance
4. Key men insurance

Bancassurance Models

1. Pure Distributor Model – In this model, the bank offers a product of insurance
companies. They offer more than one company’s product. For that, insurance companies
pay commission to the bank like management fees, etc.
 2. Strategic Alliance Model – In this model, there is a linkup between the insurance
company and the bank. Bank will offer only those products which insurance company
wants to sell.
3. Joint Venture Model – In this model, the bank participates in product and distribution
design. There are joint decision-making and high system integration for infrastructure
utilization.
4. Financial Service Group – In this, all the facilities of financial activities are under one
roof.

Benefits

 Bancassurance provides a complete financial solution by considering all the needs of a

customer and by studying all the requirements they want.
 There no issue with trust because customers buy products from a bank, and they have
their existing relationship with the bank.
 It offers all the facilities like mutual funds, loans, accounting, etc. with insurance
products under one roof, so it is more convenient for the customer.
 Bank has the professional expertise to give proper advice to buy which product by
studying their background. Bancassurance requires less time for the process because the
bank already has access to their data and documentation.
 It offers both the service under one roof, so it is easy for a customer to access so it will
improve overall customer satisfaction so both insurance companies and the bank will get
profit along with customer satisfaction.
 Staff from both the companies will get more incentives thus will get motivation for their
work, and as a result, staff will give better service to the customer, and because of that,
new customers also come and join.
 It is useful in both ways like a bank gives clients to life insurance companies, so it is
profitable for life insurance companies. In return, it is beneficial for banks also because
they sell banks product to the insurance clients so that the bank also gets profit.
 It contains both bank and insurance company work so the requirements of employees will
get increased. It is more beneficial for insurance companies to work with banks because
 banks are available in some rural areas, also so the marketing of insurance products will
be easier.
 The main advantage for the customers is that a customized insurance product at a reduced
price because it cuts the operational cost, and experts are also available for guidance. It is
helpful for increased premium turnover also.

Drawbacks

 The initial investment for bancassurance is more, and it requires more employees as well.
 It is useful for selling a few products only.
 They need to arrange training for the people who will handle these processes because of a
lack of vision and awareness.

Conclusion

As we see all the advantages and disadvantages, we can say that it is a good idea to combine both
bank and Life Insurance companies as it is beneficial for both. It is also good for customers
because bancassurance offers all the facilities under one roof.

Staff from banks also gets more incentives and can become more productive. It is easy for life
insurance companies to get data of clients from a bank because of which time required for data
collection is reduced. It is a two-way business because a bank can sell products of the insurance
company and also offer bank products to the insurance clients.

For that level of insurance expertise, they will take training sessions so that all the bank
employees will get ideas or knowledge about it.