A PROJECT ON

BANCASUURANCE, (AN EMERGING CONCEPT IN INDIA).

Submitted by"
Dimple Rakhasia
T.Y. BBI Semester-VI
(2015-2016)

Project Guide
PROF. Arun Dubey

Affiliated to University of Mumbai

S.K.SOMAIYA COLLEGE OF ARTS, SCIENCE AND
COMMERCE
AURBINDO, VIDYANAGAR
VIDYAVIHAR [EAST]. MUMBAI-400077

Certificate

Acknowledgement
I would like to thank all the people who helped and supported me in completing this project with
such an ease. My deepest thanks to PROF. ARUN DUBEY - Guide of the project, for giving a
proper direction to get this project accomplished.
I would also like to thank DR. SANGITA KOHLI. The Principal of S.K. Somaiya College of
Arts, Science & Commerce for providing such opportunities. I would also thank Institution &
faculty members without whom this project would have been a distant reality. I also extend my
heartfelt thanks to my Family, Friends &well-wishers.

Thank You
DIMPLE RAKHASIA,

T.Y. Banking & Insurance

EXECUTIVE SUMMARY
The aim of this project is to introduce the reader to the topic
of THE BANCASSURANCE.Theis project deals with many banks and
insurance. The Banking and Insurance industries have changed rapidly in
the changing and challenging economic environment throughout t
h e world.In this competitive and liberalized environment everyone is trying to do
better than others and consequently survival of the fittest has come into effect.
I would like to present my project BANCASSURANCE (an
emerging concept in India).The project flashes some light on Bancassurance and
how it is perceived by people in India. It deals with the conceptual part of
Bancassurance as well as its practical application in India. The main focus of this
project is on benefits and importance of Bancassurance in India. The regulations
governing Bancassurance areal so dealt with in this project. SWOT analysis is also
done so as to identify the various opportunities and threats for Bancassurance in
India.

INDEX
4

SR.NO
1

TOPIC

PAGE NO
6-7

RESEARCH METHODOLOGY;
Objective
Limitations
About the project
CHAPTER 1: About bancassurance

CHAPTER 2: Utities of bancassurance

18-20

CHAPTER 3:Regulations for bancassurance in India

21-24

CHAPTER 4:benefits of bancassurance

25-27

CHAPTER 5:distribution channels

28-30

CHAPTER 6:SBI life insurance (profile)product offered

SBI life insurance (perspective).

29-38

CHAPTER 7: Various trends challenges

39-41

CHAPTER 8:Effective bancassurance strategy

42-48

10

CHAPTER 9: Swot analysis

49-53

11

54-59

12

CHAPTER 10:Some tie-ups

Success of bancassurance
CONCLUSION

13

bibliography

61

Objectives of Study
5

8-17

60

The main Objectives behind this study are as follows: To acquire more knowledge about Bancassurance.
To know the use & importance of bancassurance.
To know the emerging concept of bancassurance in Indian economy.

Limitations of Study

bancassurance is a huge subject anyone cannot easily study it & make themselves master in the
subject, it requires in depth knowledge, analytical skills, guidance & training from an expert of
subject.

There is limited source of information available publically on subjects like bancassurance, so it is

difficult to made project on such topics within limited span of time.

It includes in depth about bancassurance & its various functions of bancassurance which provide
wide range of services to the people in the society.

So, here in this project apart from all limitations of the study, Project cover all important & basic
aspects on which bancassurance works & how it works, the importance of the bancassurances as
well as yesterday, today & tomorrow of bancassurance.

ABOUT THE REPORT

1. TITLE OF THE STUDY:The present study is titled as, BANCASSURANCE, AN EMERGING CONCENPT IN
INDIA.
6

2. Objectives of the study:

To present Bancassurance & how does it works.

To present the services of the Bancassurance offered to the customer.
To show how the Bancassurance deals with customer complaints.
To explain the scope , success & powers of the Bancassurance .

3. Methodology: The reason for data collection is literature based as the research questions involved
sensitive subjects which would have been unsuitable for primary data collection.
The research is based on data collected from various published articles, books, journals,
and the relevant websites.
The college library was much useful. Teaching staff and the guide.

CHAPTER 1
ABOUT BANCASSURANCE

Introduction:
Bancassurance, i.e., banc + assurance, refers to banks selling the insurance products.
7

Official definition of Bancassurance: According to IRDA, Bancassurance refers to banks

acting as corporate agents for insurers to distribute insurance products. Insurance Products
include Life or Non-Life products
Bancassurance in India is defined as those banks which are dealing in insurance products
of both life and non-life type in any forms.
The term "bancassurance" was coined in the 1980"s in France. Bancassurance is defined
as the distribution of insurance products through banks. In addition to the branches of banks, this
medium of distribution also includes new distribution systems. Such as electric banking
operation, ATM's etc. Although the term bancassurance may also be used for distribution of
banking products through insurance companies, this is sometimes termed "assurbanking" in
some countries. Bancassurance has been most successful in Europe, mainly due to the regulatory
and tax environment.
In France alone, banks conduct more than 60% of the insurance business. In the rest of
Europe, business through bancassurance amounts to 45% of the total insurance business while, in
the US where bancassurance began only a decade back, it amounts 5% of the total insurance
transactions.
Both insurers as well as bankers view the cross selling relationship involved in
bancassurance as part of a long term strategy. Accordingly, they are adapting themselves
organizationally. So, as achieve the long term bancassurance goals in the best possible manner. In
some countries, banks have either acquired or set up their own insurance product manufacturing
capacity. In some cases, insurance companies have acquired smaller banks.
Bancassurance in its simplest form is the distribution of insurance products through a
banks distribution channels. It is the provision of insurance and services through a common
distribution channel or through a common base.
Banks with their geographical spreading penetration in terms of customer reach of all
segments, have emerged as viable sources for the distribution of insurance products, It takes
various forms in various countries depending upon the demography and economic and legislative
climate of that country. This concept gained importance in the growing global insurance industry
and its search for new channels of distribution.

Bancassurance a term coined by combining the two words Bank and Insurance (in French)
connotes distribution of insurance products through banking channels. Bancassurance
encompasses terms such as Allfinanz (in German), Integrated Financial Services and Assure
8

banking. This concept gained currency in the growing global insurance industry and its search
for new channels of distribution. Banks, with their geographical spread and penetration in terms
of customer reach of all segments, have emerged as viable sources for the distribution of
insurance products. Presently, theres more activity here than anywhere else. And everyone wants
to jump onto the bandwagon for a piece of the action cake.
Bancassurance is a long-standing dream of offering a seamless service of banking, life &non-life
products. India, being the one of the most populous country in the world with a huge potential
for insurance companies, has an envious chain of bank branches as the lifeline of its financial
system. Banks with over 65,000 branches & 65% of household investments are the backbone of
the Indian financial market. In India, there are 75 branches per million persons. Clearly, thats
something insurance companies both private and state-owned -would find nearly impossible to
achieve on their own. As a channel for insurance, it gives insurance an unlimited exposure to
Indian consumers. Banks have expertise on the financial needs, saving patterns and life stages of
the customers they serve. Banks also have much lower distribution costs than insurance
companies and thus are the fastest emerging distribution channel.

Meaning:
The Banking and Insurance industries have changed rapidly in the changing and challenging
economic environment throughout the world. In this competitive and liberalized environment
everyone is trying to do better than others and consequently survival of the fittesthas come into
effect

This has given rise to a new form of business wherein two big financial institution shave come
together and have integrated all their strength and efforts and have created a new means of
marketing and promoting their products and services. On one hand it is the Banking sector which
is very competitive and on the other hand is Insurance sector which has a lot of potential for
growth. When these two join together, it gives birth to BANCASSURANCE
Bancassurance is nothing but the collaboration between a bank and an insurance company
wherein the bank promises to sell insurance products to its customers in exchange of fees. It is a
mutual relationship between the banks and insurers. A relationship which amazingly
complements each others strengths and weakness
It is a new buzz word in India but it is taking roots slowly and gradually. It has been accepted by
banks, insurance companies as well as the customers. It is basically an international concept
which is spreading all around the world and is favored by all.
Taking all these things into consideration I would like to present my
projectBANCASSURANCE (an emerging concept in India). The project flashes some light on
Bancassurance and how it is perceived by people in India. It deals with the conceptual part
of Bancassurance as well as its practical applications in India
The bank insurance model (BIM), also sometimes known as bancassurance, is the partnership or
relationship between a bank and an insurance company whereby the insurance company uses the
bank sales channel in order to sell insurance products, an arrangement in which a bank and an
insurance company form a partnership so that the insurance company can sell its products to the
bank's client base.
BIM allows the insurance company to maintain smaller direct sales teams as their products are
sold through the bank to bank customers by bank staff and employees as well.
Bank staff and tellers, rather than an insurance salesperson, become the point of sale and point of
contact for the customer. Bank staff are advised and supported by the insurance company through
product information, marketing campaigns and sales training.
The bank and the insurance company share the commission. Insurance policies are processed and
administered by the insurance company.

Definition:
10

The bancassurance is the distribution of insurance products through the banks distributions
channels it is phenomenon where in insurance product are offered through the distribution
through the distribution channel of banking service along with the complete range of banking
and insurance product in the simple term we can say bancassurance tries to exploit synergies
between both the insurance companies and banks. In the simple term of insurance there are only
two parties,
1) The bank
2) The insurer&
3) The customer.

Birth of Bancassurance in India:

As per March 2008, the number of Insurance companies in India,
Life Insurance Companies
Non- life Insurance Companies

15 Private Insurance Companies

1 Public Insurance Company (LIC)
9 Private Insurance Companies
4 Public Insurance Company

As regarding the present size of the insurance market in India, it is stated that India accounts not
even one per cent of the global insurance market. However, studies have pointed out that
Indias insurance market is expected to grow rapidly in the next 10 years. Insurance industry in
India for fairly a longer period relied heavily on traditional agency (individual agents)
distribution network, Therefore, the zeal for discovering new channels of distribution and the
aggressive marketing strategies were totally absent and to an extent it was not felt necessary.
As the insurance sector is poised for a rapid growth, in terms of business as well as
number of new entrants tough competition has become inevitable. Consequently, addition of
new and number of distribution channels would become necessary.

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Origin:The banks taking over insurance is particularly well-documented with reference to the
experience in Europe. Across Europe in countries like Spain and UK, banks started the process
of selling life insurance decades ago and customers found the concept appealing for various
reasons. Germany took the lead and it was called ALLFINANZ. The system of bancassurance
was well received in Europe. France taking the lead, followed by Germany, UK, Spain etc. In
USA the practice was late to start (in 90s). It is also developing in Canada, Mexico, and
Australia. In India, the concept of Bancassurance is very new. With the liberalization and
deregulation of the insurance industry, bancassurance evolved in India around 2002.

Objectives:Banking and insurance have more commonality in the basic nature of their business.
Banking and insurance relay on pulling on resources to protect financial security (Banking) or to
protect against adverse events (Insurance), Banking and Insurance are often complimentary, as it
the case of mortgages, that require both finance and property insurance.
In Insurance, the initial expenses because of distribution costs are high and regulatory
disclosure requirements are applying additional pressure, on the insurers to reduce the costs.
Distribution expenses being a major of initial expense, insurers are focused to think on alternate
channels of distribution and banks have a lot of common practices to integrate to achieve
economies of scale,

12

2. Entering into bancassurance:

Ways of entering into bancassurance:
There is no single way of entering into bancassurance which is best for every
insurer and every bank. As in all business situations, a proper strategic plan drafted according to
the companys internal and external environmental analysis and the objectives of the
organization is necessary before any decision is taken.
There are many ways of entering into bancassurance. The main scenarios are the
following:
One partys distribution channels gain access to the client base of the other
Party. This is the simplest form of bancassurance, but can be a missed opportunity. If the two
parties do not work together to make the most of the deal, then there will be at best only
minimum results and low protability for both parties.
If, however, the bank and the insurance company enter into a distribution agreement,
according to which the bank automatically passes on to a friendly insurance company all warm
leads emanating from the banks client base, this can generate very protable income for both
partners. The insurance company sales force, in particular usually only the most competent
members of the sales force, sells its normal products to the banks clients. The cooperation has to
be close to have a chance of success. For the bank the costs involved besides those for basic
training of branch employees are relatively low.
A bank signs a distribution agreement with an insurance company, under which the bank will
act as their appointed representative. With proper implementation this arrangement can lead to
satisfactory results for both partners, while the nancial investment required by the bank is
relatively low. The products offered by the bank can be branded.
A bank and an insurance company agree to have cross shareholdings between them. A member
from each company might join the board of directors of the other company. The amount of
interest aroused at board level and senior management level in each organization can inuence
substantially the success of a bancassurance venture, especially under distribution agreements
using multi distribution channels.
A joint venture: this is the creation of a new insurance company by an existing bank and an
existing insurance company.

13

 A bank wholly or partially acquires an insurance company. This is a major undertaking. The
bank must carefully dene in detail the ideal prole of the targeted insurance company and make
sure that the added benet it seeks will materialize.
A bank starts from scratch by establishing a new insurance company wholly owned by the
bank. For a bank to create an insurance subsidiary from scratch is a major undertaking as it
involves a whole range of knowledge and skills which will need to be acquired. This approach
can however be very protable for the bank, if it makes underwriting prots.
A group owns a bank and an insurance company which agree to cooperate in a bancassurance
venture. A key ingredient of the success of the bancassurance operation here is that the group
management demonstrates strong commitment to achieving the benet.
The acquisition (establishment) of a bank that is wholly or partially owned by an insurance
company is also possible. In this case the main objective is usually to open the way for the
insurance company to use the banks retail banking branches and gain access to valuable client
information as well as to corporate clients, allowing the insurance company to tap into the
lucrative market for company pension plans. Finally, it offers the insurance companys sales
force bank product diversication (and vice versa). This form is used in many cases as a strategy
by insurance companies in their effort not to lose their market share to Bancassurers.
The best way of entering bancassurance depends on the strengths and weaknesses of the
organization and on the availability of a suitable partner if the organization decides to involve a
partner. Whatever the form of ownership, a very important factor for the success of a
bancassurance venture is the inuence that one partys management has on that of the other. An
empowered liaison between respective managements, with regular senior management contacts,
as well as sufficient authority to take operational and marketing decisions, is vital. Regular senior
management meetings are also a vital element for a successful operation. There must be a strong
commitment from the top management to achieving the aims in the business plan.

14

3. Bancassurance Models
I. Structural Classification:

a) Referral Model:
Banks intending not to take risk could adopt referral model wherein they
merely part with their client data base for business lead for commission. The actual transaction
with the prospective client in referral model is done by the staff of the insurance company either
at the premise of the bank or elsewhere. Referral model is nothing but a simple arrangement,
wherein the bank, while controlling access to the clients data base, parts with only the business
leads to the agents/ sales staff insurance company for a referral fee or commission for every
business lead that was passed on. In fact a number of banks in India have already resorted to this
strategy to begin with. This model would be suitable for almost all types of banks including the
RRBs /cooperative banks and even cooperative societies both in rural and urban. There is greater
scope in the medium term for this model. For, banks to begin with resorts to this model and then
move on to the other models.

b) Corporate Agency;
The other form of non-risk participatory distribution channel is that of
corporate agency, wherein the bank staff is trained to appraise and sell the products to the
customers. Here the bank as an institution acts as corporate agent for the insurance products for
a fee/ commission. This seems to be more viable and appropriate for most of the mid-sized banks
in India as also the rate of commission would be relatively higher than the referral arrangement.
This, 144 RESERVE BANK OF INDIA OCCASIONAL PAPERS however, is prone to
reputational risk of the marketing bank.
There are also practical difficulties in the form of professional knowledge about the
insurance products. Besides, resistance from staff to handle totally new service/product could not
be ruled out. This could, however, be overcome by intensive training to chosen staff packaged
with proper incentives in the banks coupled with selling of simple insurance products in the
initial stage. This model is best suited for majority of banks including some major urban

15

Cooperative banks because neither there is sharing of risk nor does it require huge
investment.

Bajaj Allianz stated to have established a growth of 325 per cent during April September 2004,
mainly due to bancassurance strategy and around 40% of its new premiums business (Economic
Times, October 8, 2004). Interestingly, even in a developed country like US, banks stated to have
preferred to focus on the distribution channel akin to corporate agency rather than underwriting
business. Several major US banks including Wells Fargo, Wachovia and BB &T built a large
distribution network by acquiring insurance brokerage business. This model of bancassurance
worked well in the US, because consumers generally prefer to purchase policies through broker
banks that offer a wider-angle of products from competing insurers (Sigma, 2006).

c) Insurance as Fully Integrated Financial Service/ Joint ventures:

Apart from the above two, the fully integrated financial service involves much
more comprehensive and intricate relationship between insurer and bank, where the bank
functions as fully universal in its operation and selling of insurance products is just one more
function within. Where banks will have a counter within sell/market the insurance products as an
internal part of its rest of the activities. This includes banks having a wholly owned insurance
subsidiary
With or without foreign participation. In Indian case, ICICI bank and HDFC banks
in private sector and State Bank of India in the public sector, have already taken a lead in
resorting to this type of bancassurance model and have acquired sizeable share in the insurance
market, also made a big stride within a short span of time.

II. Product-based Classification:

A) Stand-alone Insurance Products:
In this case bancassurance involves marketing of the insurance products
through either referral arrangement or corporate agency without mixing the insurance products
with any of the banks own products/ services. Insurance is sold as one more item in the menu of
products offered to the banks customer, however, the products of banks and insurance will have
16

their respective brands too, e.g., Karur Vysya Bank Ltd selling of life insurance products of Birla
Sun Insurance or non-life insurance products of Bajaj Allianz General Insurance Company.

B) Blend of Insurance with Bank Products:

With the financial integration both within the country and globally, insurance
is increasingly being viewed not just as a stand alone product but as an important item on a
menu of financial products that helps consumers to blend and create a portfolio of financial
assets, manage their financial risks and plan for their financial security and well being (Olson
2004). This strategy aims at blending of insurance products as a value addition while promoting
its own products. Thus, banks could sell the insurance products without any additional efforts. In
most times, giving insurance cover at a nominal premium/ fee or sometimes without explicit
premium does act as an added attraction to sell the banks own products, e.g., credit card,
housing loans, education loans, etc. Many banks in India, in recent years, has been aggressively
marketing credit and debit card business, whereas the cardholders get the insurance cover for a
nominal fee or (implicitly included in the annual fee) free from explicit charges/ premium.
Similarly the home loans / vehicle loans, etc., have also been packaged with the insurance cover
as an additional incentive.

III) Banks Referrals

There is also another method called 'Bank Referral'. Here the banks do not issue the
policies; they only give the database to the insurance companies. The companies issue the
policies and pay the commission to them. That is called referral basis. In this method also there is
a win-win situation everywhere as the banks get commission, the insurance companies get
databases of the customers and the customers get the benefits.
As already discussed, warm leads can provide a strong competitive advantage for a
bancassurance operation. An efficient system for managing referrals of warm leads is therefore
vital. This section describes a process for managing referrals

17

CHAPTER 2
UTILITIES OF BANCASSURANCE
FOR BANKS
I) As a source of fee income:
Banks traditional sources of fee income have been the fixed charges levied on loans
and advances, credit cards, merchant fee on point of sale transactions for debit and credit cards,
letter of credits and other operations. This kind of revenue stream has been more or less steady
over a period of time and growth has been fairly predictable. However shrinking interest rate,
growing competition and increased horizontal mobility of customers have forced bankers to look
elsewhere to compensate for the declining profit margins and Bancassurance has come in handy
for them. Fee income from the distribution of insurance products has opened new horizons for
the banks and they seem to love it.
From the banks point of view, opportunities and possibilities to earn fee income via
Bancassurance route are endless. Atypical commercial bank has the potential of maximizing fee
income from Bancassurance up to 50% of their total fee income from all sources combined. Fee
Income from Bancassurance also reduces the overall customer acquisition cost from the banks
point of view. At the end of the day, it is easy money for the banks as there are no risks and only
gains.

II) Product Diversification:

In terms of products, there are endless opportunities for the banks. Simple term life
insurance, endowment policies, annuities, education plans, depositors insurance and credit
shield are the policies conventionally sold through the Bancassurance channels. Medical
insurance, car insurance, home and contents insurance and travel insurance are also the products
which are being distributed by the banks. However, quite a lot of innovations have taken place in
the insurance market recently to provide more and more Bancassurance-centric products to
satisfy the increasing appetite of the banks for such products. Insurers who are generally accused

18

of being inflexible in the pricing and structuring of the products have been responding too well to
the challenges (say opportunities) thrown open by the spread of Bancassurance. They are ready
to innovate and experiment and have setup specialized Bancassurance units within their fold

Examples of some new and innovative Bancassurance products are income builder plan, critical
illness cover, return of premium and Takaful products which are doing well in the market. The
traditional products that the

III) Building close relations with the customers:

Increased competition also makes it difficult for banks to retain their customers.
Bancassurance comes as a help in this direction also. Providing multiple services at one place to
the customers means enhanced customer satisfaction. For example, through bancassurance
customer gets home loans along with insurance at one single place as combined product. Another
important advantage that bancassurance brings about in banks is development of sales culture in
their employees. Also, banking in India is mainly done in the 'brick and mortar' model, which
means that most of the customers still walk into the bank branches. This enables the bank staff to
have a personal contact with their customers. In a typical Bancassurance model, the consumer
will have access to a wider product mix - a rather comprehensive financial services package,
encompassing banking and insurance products.

FOR INSURANCE COMPANIES:

19

I) Stiff Competition:
At present there are 15 life insurance companies and 14general insurance
companies in India. Because of the Liberalization of the economy it became easy for the private
insurance companies to enter into the battle field which resulted in an urgent need to outwit one
another. Even the oldest public insurance companies started facing the tough competition. Hence
in order to compete with each other and to staya step ahead there was a need for a new strategy
in the form of Bancassurance. It would also benefit the customers in terms of wide product
diversification.

II) High cost of agents:

Insurers have been tuning into different modes of distribution because of the high
cost of the agencies services provided by the insurance companies. These costs became too much
of a burden for many insurers compared to the returns they generate from the business. Hence
there was a need felt for a Cost-Effective Distribution channel. This gave rise to Bancassurance
as a channel for distribution of the insurance products.

III) Rural Penetration:

Insurance industry has not been much successful in rural penetration of insurance
so far. People there are still unaware about the insurance as a tool to insure their life. However
this gap can be bridged with the help of Bancassurance. The branch network of banks can helps
make the rural people aware about insurance and there is also a wide scope of business for the
insurers. In order to fulfill all the needs bancassurance is needed.

IV) Multi channel Distribution:

Now a day the insurance companies are trying to exploit each and every way to
sell the insurance products. For this they are using various distribution channels. The insurance is
sold through agents, brokers through subsidiaries etc. In order to make the most out of Indias
large population base and reach out to a worthwhile number of customers there was a need for
Bancassurance as a distribution model.

CHAPTER 3
20

REGULATIONS FOR BANCASSURANCE IN INDIA

1. REGULATIONS FOR BANCASSURANCE IN INDIA:
-Into RBI Guidelines for the Banks to enter Insurance Business:
Following the issuance of Government of India Notification dated August 3,
2000, specifying Insurance as a permissible form of business that could be undertaken by banks
under Section 6(1) (o) of the Banking Regulation Act, 1949; RBI issued the guidelines on
Insurance business for banks.
1. Any scheduled commercial bank would be permitted to undertake insurance business as agent
of insurance companies on fee basis, without any risk participation. The subsidiaries of banks
will also be allowed to undertake distribution of insurance product on agency basis.
2. Banks which satisfy the eligibility criteria given below will be permitted to set up a joint
venture company for undertaking insurance business with risk participation, subject to
safeguards. The maximum equity contribution such a bank can hold in the joint venture company
will normally be 50 per cent of the paid up capital of the insurance company. On a selective basis
the Reserve Bank of India may permit a higher equity contribution by a promoter bank initially,
pending divestment of equity within the prescribed period (see Note 1 below).
The eligibility criteria for joint venture participant are as under:
i. The net worth of the bank should not be less than Rs.500 crore;
ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level of non-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if any, of the concerned bank should
be satisfactory.
3. In cases where a foreign partner contributes 26 per cent of the equity with the approval of
Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more
than one public sector bank or private sector bank may be allowed to participate in the equity of

21

the insurance joint venture. As such participants will also assume insurance risk, only those
banks which satisfy the criteria given in paragraph 2 above, would be eligible.
4. A subsidiary of a bank or of another bank will not normally be allowed to join the insurance
company on risk participation basis. Subsidiaries would include bank subsidiaries undertaking
merchant banking, securities, mutual fund, leasing finance, housing finance business, etc.
5. Banks which are not eligible for joint venture participant as above, can make investments up
to 10% of the net worth of the bank or Rs.50 crore, whichever is lower, in the insurance company
for providing infrastructure and services support. Such participation shall be treated as an
investment and should be without any contingent liability for the bank.
The eligibility criteria for these banks will be as under:
i. The CRAR of the bank should not be less than 10%;
ii. The level of NPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive years.
6. All banks entering into insurance business will be required to obtain prior approval of the
Reserve Bank. The Reserve Bank will give permission to banks on case to case basis keeping
in view all relevant factors including the position in regard to the level of non-performing assets
of the applicant bank so as to ensure that non-performing assets do not pose any future threat to
the bank in its present or the proposed line of activity, viz., insurance business. It should be
ensured that risks involved in insurance business do not get transferred to the bank and that the
banking business does not get contaminated by any risks which may arise from insurance
business. There should be arms length relationship between the bank and the insurance outfit.

22

Regulations under IRDA:

The Insurance Regulatory and Development Authority (IRDA) has rolled out a revised set of
draft regulations on bancassurance tie-ups that are expected to give more flexibility to banks as
well as insurers.
Banks, IRDA suggested, can sell insurance products by either becoming a broker or a
bancassurance partner, with those opting to be brokers having to withdraw from their existing
bancassurance partnership.
There are certain changes in the zonal tie ups specified in the earlier draft. The channel of
distribution for bancassurance may either be through the agency channel or the broking channel.
The conduct of bancassurance through a broking channel will be governed by the IRDA
(Insurance Broker) Regulations, 2002 and applicant desirous of conducting such business may
apply as per the procedure laid down in the said regulations. The conduct of business through the
agency channel will be as per the regulations herein contained
The IRDA has very recently drafted guidelines to promote open architecture in bancassurance.
Currently a bank has a tie-up with only one life insurer and one non-life insurer. But in the new
model the banks necessarily have to have multiple tie-ups. The country is divided into zones and
every bank has to choose multiple insurers within the zones. With this the customer will have a
wider range of insurance products offered by different insurers. It will also lead to a deeper
penetration in the selling of insurance products.
IRDA (Licensing of Bancassurance Entities) Regulations, 2012;
In exercise of the powers conferred by sub-section (2) of section 114A of the Insurance Act, 1938
read with sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999,
the Authority, in consultation with the Insurance Advisory Committee, hereby makes the
following regulations, namely Short title and commencement :
1) These regulations may be called the Insurance Regulatory and Development Authority
(Licensing of Bancassurance Entities) Regulations, 2012
2) They shall come into force on the date of their publication in the Official Gazette. However,
the banks and Non-Banking Financial Companies (NBFC) licensed under IRDA (Licensing of
Corporate Agents) Regulations, 2002 shall be governed by these regulations on expiry of the
license or on termination of the existing licens.

23

Issues for regulation:

Certain regulatory barriers have slowed the development of Bancassurance in India down which
have only recently been cleared with the passage of the Insurance (Amendment) Act 2002. Prior
it was clearly an impractical necessity and had held up the implementation of Bancassurance in
the country. As the current legislation places the:
1)
Training and examinations requirements: Upon the corporate insurance executive within
the corporate agency, this barrier has effectively been removed. Another regulatory change is
published in recent publication of IRDA regulation relating to the licensing of Corporate Agents
2)
Specified person to satisfy the training and examination: According to new regulation of
IRDA only the specific persons have to satisfy the training and examination requirement as
insurance agent.

24

CHAPTER 4
BENEFITS
OF
BANCASSURANCE
Benefits of Bancassurance:
The company is targeting around 10%of the business during its startup phase.
Bancassurance makes use of various distribution channels like salaried agents, bank employees,
and brokerage firms. Direct response, Interest etc. Insurance Companies have complementary
strengths. In their natural and traditional roles Bancassurance is of great benefit to the customer.
It leads to the creation of one- stop where a customer can apply for mortgages, pensions, savings
and insurance products. The customer gains from both sides as costs get reduced. Bancassurance
for the customer is abonanza in terms of reducing charges, a high quality product and delivery at
the doorstep.
Both insurance companies and banks have certain competitive advantages.

Banks enjoy the following advantages over insurance companies.

1) Most banks have strong brand name. The Bank's physical presence in the public areas is an
added reassurance to the people. In an old - fashioned way, people like to see that the insurer
remains within sight, over the years.
2) Their relationship with their customer is based on trust.
3) Banks have a wide network of branches which constitute an excellent distribution channel.
4) Banks own the financial transaction history of their customer. This allows them to build
detailed profiles of every single customer using data management techniques. They can then
devise individually tailored products to meet the specific needs of each customer, SBI Life, for
example, is planning to go in for bancassurance. It has access to same 117 million Term Deposit
holders, through 14,000 branches of the State Bank of India.
5) Banks are also known for proving a complete range of services. A research study conducted
among insurers revealed that around 33% of the respondents felt that retail customers were likely
25

to buy multiple financial service product from Banks compared to this, less than 20% of the
respondents felt that retail customer would approach insurers or brokers for purchasing such
products. Banks like Stan Chart have consolidated its retail services under a super Mail, which
takes care of personal service finance needs like mutual funds; demat services and loans against
shares. For the bank, offering insurance products would just be another way of extending the
relationship with the retail consumer.

Insurance Companies enjoy the following advantages over insurance

companies:
The benefits to the insurers are equally convincing. The ability to tap into banks
huge customer bases is a major incentive. The extensive customer base possessed by banks is
considered to be ideal for the distribution of mass-market products. On the other hand, insurers
can make use of the wide reach of bank customers to categories potential clients in detail
according to their needs and values. With increasing sophistication on bancassurance operations,
some insurers can focus on the high-net-worth segment, which offers greater potential for wealth
management business.
Apart from the ability to tap into new customers groups, escaping from the high
cost of captive agents is another reason prompting insurers to look into alternative channels. In
some cases, teaming up with a strong bank can help to fund new business development and
booster public confidence in the insurer.
In a nutshell, insurers are attracted to bancassurance because they can:
- Tap into a huge customer base of banks;
- Reduce their reliance on traditional agents by making use of the various channels owned by
banks;
- Share services with banks;
- Develop new financial products more efficiently in collaboration with their bank partners;
- Establish market presence rapidly without the need to build up a network of agents;
- Obtain additional capital from banks to improve their solvency and expand business.
There are different organizational structures under which banks can work together with
insurers, including distribution agreements, joint ventures ore some integrated operations. It is
then only logical to presume that different motivations will drive the choice of different
organizational models

26

Consumers:
Unlike with banks and insurers, where benefits of bancassurance will have to be weighted
against business risk, the positive impacts on consumers are unequivocal. Part of the lowering of
distribution costs will be passed on to clients in the form of lower premium rates. In addition, it
is likely that new products will be developed to better suit client needs, which otherwise may not
be available if banks and insurers worked independently. Examples are overdraft insurance,
depositors insurance and other insurance covers sold in conjunction with existing bank services.
The convenience offered by bancassurance should also increase customer satisfaction, for
instance, when it is possible to pay premium as well as to withdraw and repay
Cash loans backed by life insurance policies through banks ATM s. Just as important, is more
than often a strategic step of financial service providers to shift from being product-oriented and
to focus on distribution and customer relations.

Regulators:
Bancassurance poses major challenges to regulators. The ability of financial
institutions to diversify into others sectors should help to lower the level of latent systemic risk.
Banks will benefit from lower income volatility while insurers could potentially obtain additional
capital to bolster their solvency levels.

27

CHAPTER 5
DISTRIBUTION CHANNELS
Distribution Channels:

Traditionally, insurance products were promoted and sold principally through agency
systems only. The reliance of insurance industry was totally on the agents. Moreover with the
monopoly of public sector insurance companies there was very slow growth in the insurance
sector because of lack of competition. The need for innovative distribution channels was not felt
because all the companies relied only upon the agents and aggressive marketing of the products
was also not done. But with new developments in consumers behaviors, evolution of technology
and deregulation, new distribution channels have been developed successfully and rapidly in
recent years.

28

Recently Bancassurers have been making use of various distribution channels, they are:

1) Career Agents:
Career Agents are full-time commissioned sales personnel holding an agency
contract. They are generally considered to be independent contractors. Consequently an
insurance company can exercise control only over the activities of the agent which are specified
in the contract. Many Bancassurers, however avoid this channel, believing that agents might
oversell out of their interest in quantity and not quality. Such problems with career agents usually
arise, not due to the nature of this channel, but rather due to the use of improperly designed
remuneration and incentive packages.

2) Special Advisers:
Special Advisers are highly trained employees usually belonging to the insurance
partner, who distribute insurance products to the bank's corporate clients. The Clients mostly
include affluent population who require personalized and high quality service. Usually Special
advisors are paid on a salary basis and they receive incentive compensation based on their sales.

3) Salaried Agents:
Salaried Agents are an advantage for the Bancassurers because they is under the
control and supervision of Bancassurers. These agents share the mission and objectives of the
Bancassurers. These are similar to career agents, the only difference is in terms of their
remuneration is that they are paid on a salary basis and career agents receive incentive
compensation based on their sales.

4) Bank Employees / Platform Banking:

Platform Bankers are bank employees who spot the leads in the banks and gently
suggest the customer to walk over and speak with appropriate representative within the bank.
The platform banker may be a teller or a personal loan assistant. A restriction on
the effectiveness of bank employees in generating insurance business is that they have a limited
target market, i.e. those customers who actually visit the branch during the opening hours.

29

5) Corporate Agencies and Brokerage Firms:

There are a number of banks who cooperate with independent agencies or
brokerage firms while some other banks have found corporate agencies.
The advantage of such arrangements is the availability of specialists needed for
complex insurance matters and through these arrangements the customers get good quality of
services.

6) Direct Response:
In this channel no salesperson visits the customer to induce a sale and no faceto-face contact between consumer and seller occurs. The consumer purchases products directly
from the Bancassurers by responding to the company's advertisement, mailing or telephone
offers. This channel can be used for simple packaged products which can be easily understood by
the consumer without explanation

7) Internet:
Internet banking is already securely established as an effective and profitable
basis for conducting banking operations. Bancassurers canfeel confident that Internet banking
will also prove an efficient vehicle for cross selling of insurance savings and protection products.
Functions requiring user input (check ordering, what-if calculations, credit and account
applications) should be immediately added with links to the insurer. Such an arrangement can
also provide a vehicle for insurance sales, service and leads.

8) E-Brokerage:
Banks can open or acquire an e-Brokerage arm and sell insurance products from
multiple insurers. The changed legislative climate across the world should help migration of
bancassurance in this direction. The advantage of this medium is scale of operation, strong
brands, easy distribution and excellent synergy with the internet capabilities

CHAPTER 6
30

SBI Life Insurance (profile) Products offered

SBI Life Insurance (perspective)

State bank of India Life Insurance:

SBI Life Insurance is a joint venture between the State Bank of Indiaand Cardiff
SA of France. SBI Life Insurance is registered with an authorized capital of Rs 1000 crore and a
paid up capital of Rs 500crores. SBI owns 74% of the total capital and Cardiff the remaining
26%.
State Bank of India enjoys the largest banking franchise in India. Along with its 7
Associate Banks, SBI Group has the unrivalled strength of over 14,500 branches across the
country, arguably the largest in the world. Cardiff is a wholly owned subsidiary of BNP Paribas,
which is the Euro Zones leading Bank. BNP Paribas is one of the oldest foreign banks with a
presence in India dating back to 1860. Cardiff is ranked 2ndworldwide in creditors insurance
offering protection to over 35 million policyholders and net income in excess of Euro 1 billion.
Cardiff has also been a pioneer in the art of selling insurance products through commercial banks
in France and in 35 more countries.

31

SBI Life Insurances mission is to emerge as the leading company offering a

comprehensive range of Life Insurance and pension products at competitive prices, ensuring high
standards of customer service and world class operating efficiency.SBI Life has a unique multidistribution model encompassing Bancassurance, Agency and Group Corporate.
SBI Life extensively leverages the SBI Group as a platform for cross-selling
insurance products along with its numerous banking product packages such as housing loans and
personal loans. SBIs access to over 100 million accounts across the country provides a vibrant
base for insurance penetration across every region and economic strata in the country ensuring
true financial inclusion. Agency Channel, comprising of the most productive force of more than
25,000 Insurance Advisors, offers door to door insurance solutions to customers.

32

Products Offered by SBI

Individual Products:
A) Unit Linked products:
1) SBI Life - Horizon II :
SBI Life-Horizon II is a unique, non participating Unit Linked Insurance Plan in
Indian Insurance Industry, where you need to Bea financial market expert. This plan offers the
flexibility of Unit Linked Plan along with Automatic Asset Allocation which provides relatively
higher returns on your money where as increasing death benefits provide higher security to your
family

2) SBI Life - Unit Plus II :

This is a non participating individual unit linked product. It provides
unmatched flexibility to match the changing requirements. It provides choice of 5 investments
funds in a single policy

3) SBI life- unit plus child plan:

SBI LIFE understand you better and hence have developed SBI Life Unit Plus Child Plan to suit you and your needs best. This Plan is meant for parents in the age
group of 18-57 having a child between the age group of 0-15 years.

33

B. Pension Products:
SBI Life - Horizon II Pension:
A unique Unit Linked Pension Plan that will enable the customers to build a
kitty good enough to enable them to spend a peaceful and financially sound retired life.
SBI Life - Horizon II Pension is a safe and hassle free way to get high
returns. It comes with the unique feature of Automatic Asset Allocation by means of which you
truly, dont need to be an expert to grow your money.

1) SBI Life - Unit Plus II Pension:

SBI Life understands the basic needs for pension plan and give the customers
financial strength to maintain the life style even after the retirement.
This is a unit linked pension plan wherein the policyholder chooses an
investment period from 5 to 52 years for a vesting age between 50 to 70 years. They can choose
to pay either single premium or pay regular premium for the entire policy term. Their
contributions are invested into 4 fund options as per their choice.

2) SBI Life - Lifelong Pensions:

It is a pension plan wherein the policyholder gets the flexibility to meet the
post retirement financial needs. It also provides stax benefits. The policyholder also has the
option of withdrawing a lump sum amount up to particular limit.

3) SBI Life - Immediate Annuity:

SBI Life - Immediate Annuity Plan is introduced for Pension Policyholders. This
product provides annuity payments immediately from payment of purchase price. It has been
specially designed to cater to the annuity needs of existing policyholders (SBI Life - Lifelong
Pensions, SBI Life - Horizon II Pension, SBI Life -Unit plus II Pension) at the vesting age.

C) Pure Protection Products:

34

1) SBI Life Swadhan:

This is a Traditional Term Assurance Policy with guaranteed refund of basic
premium .Life cover is provided at no cost. Tax benefits also provided. There is also a rebate on
high sum assured. There is also flexible benefit premium paying mode.

2) SBI Life Shield:

It offers the customers with the life insurance cover at the lowest cost for a
selected term. Tax benefit is also provided. There is also rebate on modes of premium payment.

3) SBI Life Shield as a Keyman Insurance Policy:

A Keyman insurance policy is taken to protect the organization against the
reduction in profit resulting from the death of the Keyman. As per IRDA circular only Pure Term
Assurance Products may be used as a Keyman Insurance. The SBI Life Insurance provides SBI
Life Shield as a Keyman Insurance Policy.

D) Protection cum Savings Products:

1) SBI Life Sudarshan:

SBI Life - Sudarshan is an Endowment Policy designed to provide savings and
protection to the policyholder and their family. They can save regularly for the future. Thus at the
end of the plan, he will receive a substantial amount of savings along with the accumulated
bonuses declared. At the same time, his family will be protected for death risk for the full Sum
Assured.

35

2) SBI Life - Scholar II:

Twin benefit of saving for the child's education and securing a bright future
despite the uncertainties of life. Option to receive the installments in lump sum at the due date of
first installment of Survival benefit.

E) Money back scheme products:

1) SBI Life - Money Back :
It is a Traditional Saving Plan with added advantage of life cover and
guaranteed cash inflow at regular intervals. The plan has a number of money back options
specially suited to the customers needs. The cover is available at competitive premium rates.

2) SBI Life - Sanjeevan Supreme:

It is a Traditional Saving Plan which offers a life cover for the term of the
customers choice at the same time does not burden him with liability to pay premiums for the
entire term and also provides cash flows at regular intervals.

36

SBI Life Insurance Company (perspective)

SBI Life insurance, a joint venture between State Bank of India, the largest bank in
the country and bancassurance major Cardiff of France. SBIs stake in the venture is 74%
whereas Cardiff has 26% share. They have launched many products so far incorporating certain
features that are introduced for the first time in the country. SBI -Life is banking on the
bancassurance model on the strength of the SBI Groups 10000 plus bank branches and its vast
customer base. In addition it is also tapping other. Banks corporate agents and the traditional
agency route to penetrate the insurance market SBI Life is planning to introduce more novel and
user friendly products to cater to the requirements of the consumers in different segments.
SBI has the largest banking network in the county. The bank is looking for business
from every customer segment of the bank rural and urban segments, upper, middle and lower
income segments /groups and corporate segment. Besides their own channels they are planning
to distribute products through other interested banking channels also. It is expected that 2/3 rd of
the premium income in expected to come by way of bancassurance and the rest from the
traditional agency channel as well as ties up with corporate agents (Sundaram Finance). SBI has
also introduced group insurance to some well managed corporate staffs.
Technology is an integral part of this operation. Cardiff provided the technology
required. The project was initiated in April 2004,and the initial roll-out was completed by August
2004.SBI Life has implemented an Internet-centric IT system with browser-based front-office
and back-office systems, channel management, policy product details, online premium calculator
and facility for group insurance customers to view their individual savings status on the Web.
The organization has the facility to pay premiums through credit cards, Net banking, standing
instructions, etc. This is fully integrated with the core systems through industry standards such as
XML, EDI, etc. Even as it plans to scale up operations shortly, SBI Life Insurance Company Ltd
is looking at tripling its gross premium income in the new financial year. In 2007-08, SBI Life
earned a total premium income of Rs 5,622 crore, of which income from new policy sales was
Rs4,800 crore. For the current financial year, their target is to achieve a total premium income of
Rs 10,500 crore and a first year premium income of Rs 8,500 crore. The SBI Life ranks second
in terms of market share among private life insurers in the country.

37

SBI Life Insurance Company is the first among the 14 life insurance companies in the
private sector to post a net profit in 2005-06.There are life insurance players much more
aggressive than SBI and they have still not been able to break the record of SBI. Their success is

Largely on the channel strategy and product strategy. The aspect is their superior investment
performance. They have consistently, over the last two years, generated 11-12 per cent earnings
from the investments.SBI Life Insurance is uniquely placed as a pioneer to usher bancassurance
into India. The company hopes to extensively utilize the SBI Group as a platform for crossselling insurance products along with its numerous banking product packages such as housing
loans, personal loans and credit cards. SBIs access to over 100 million accounts provides a
vibrant base to build insurance selling across every regionandeconomic strata in the country.

CHAPTER 7
38

VARIOUS TRENDS CHALLENGES

TRENDS:
Though bancassurance has traditionally targeted the mass market, but
Bancassurers have begun to finely segment the market, which has resulted in tailor-made
products for each segment. Some Bancassurers are also beginning to focus exclusively on
distribution.
In some markets, face-to-face contact is preferred, which tends to favors
bancassurance development. Nevertheless, banks are starting to embrace direct marketing and
Internet banking as tools to distribute insurance products. New and emerging channels are
becoming increasingly competitive, due to the tangible cost benefits embedded in product
pricing or through the appeal of convenience and innovation.
Bancassurance proper is still evolving in Asia and this is still in infancy in
India and it is too early to assess the exact position. However, a quick survey revealed that a
large number of banks cutting across public and private and including foreign banks have made
use of the bancassurance channel in one form or the other in India.
Banks by and large are resorting to either referral models or Corporate
agency model to begin with. Banks even offer space in their own premises to accommodate the
insurance staff for selling the insurance products or giving access to their clients database for the
use of the insurance companies. As number of banks in India have begun to act as corporate
agents to one or the other insurance company, it is a common sight that banks canvassing and
marketing the insurance products across the counter.

39

40

CHALLENGES
Increasing sales of non-life products, to the extent those risks are retained by the banks,
require sophisticated products and risk management. The sale of non-life products should be
weighed against the higher cost of servicing those policies

1) Bank employees are traditionally low on motivation. Lack of sales culture itself is bigger
roadblock than the lack of sales skills in the employees. Banks are generally used to only product
packaged selling and hence selling insurance products do not seem to fit naturally in their
system.
2) Human Resource Management has experienced some difficulty due to such alliances in
financial industry. Poaching for employees, increased work-load, additional training, maintaining
the motivation level are some issues that has cropped up quite occasionally. So, before entering
into a bancassurance alliance, just like any merger, cultural due diligence should be done and
human resource issues should be adequately prioritized.
3) Private sector insurance firms are finding change management in the public sector, a major
challenge. State-owned banks get a new chairman, often from another bank, almost every two
years, resulting in the distribution strategy undergoing a complete change. So because of this
there is distinction created between public and private sector banks.
4) The banks also have fear that at some point of time the insurance partner may end up crossselling banking products to their policyholders. If the insurer is selling the products by agents as
well as banks, there is a possibility of conflict if both the banks and the agent target the same
customers.

41

CHAPTER: 8
Effective Bancassurance Strategy:
Persistent endeavor in scouting for new technology, new products/ services/ new
avenues, has become necessary for the growth as well as sustainability of banking system. It is in
this context possibly, bancassurance could well be an appropriate choice for banks to increase
their stable source of income with relatively lessinvestmentsin the form of new
infrastructure.Asfar as banking sectors infrastructure is concerned, only a few countries could
match with India for having largest banking network in terms of bank branches spreading almost
throughout the length and breadth of the country.
Above all, in India still vast majority of banking operations are conducted through
the manual operations at the banks branch level with relatively less automation such as ATMs,
tele- banking, internet banking, etc., unlike many developed countries. This stands out as an
added advantage for the banks to have direct interface with the customers, to understand their
needs/ tastes and preferences, etc., and accordingly customize insurance products. In fact there is
also greater scope for innovation of new insurance products in the process. Bancassurance would
therefore be uniquely suited to exploit the economies of scope for the banks in India.
Bancassurance also becomes a blessing in disguise from the point of view of CRAR.
Significantly, even customers stated to prefer for banks entering into insurance. For instance, a s
Capital to Risk (Weighted) Assets Ratio (CRAR) survey conducted by FICCI revealed that 93
per cent of the respondents have preferred banks selling insurance products.
Therefore bancassurance can be a feasible activity and viable source of additional
revenue for the banks.Thedifference in working style and culture of the banks and insurance
sector needs greater appreciation. Insurance is a business of solicitation unlike a typical
banking service; it requires great drive to sell/market the insurance products. It should, however,
be recognized that bancassurance is not simply about selling insurance but about changing the
mindset of a bank. Moreover, in India since the majority of the banking sector sin public sector
and which has been widely disparaged for the lethargic attitude and poor quality of customer
service, it needs to refurbish the blemished image. Else, bancassurance would be difficult to
succeed in these banks.

42

. The model also addresses the basic problem of bancassurance, i.e. failure in establishing a
relationship
The transactional sales person - illustrated on the left in the above pyramid - short changes
the sales interview during the fact-finding phase
. Consequently, the amount of time needed in the close phase is a great deal more than the
relationship based sales person.
The financial professional illustrated on the right in the above pyramid is a relationship-based
sales person who spends sufficient time in the fact-finding phase getting to know the clients
dreams, goals, and desires along with the financial position of the client.
This style sales process will almost always lead to a higher closing ratio, better persistency, an
easier time closing the sale, result in quality referrals and repeat or multiple product sales.

43

Direct Marketing Strategies in Developing Markets:

Direct Marketing Strategies There is three broad forms of direct marketing relevant to insurance
distribution: 1. Direct Response ATL (above the line) Marketing
Place press ad or TV ad (infomercial)
Inbound responses via call centre or email 2. Network Marketing
IFAs independent field advertisers (no-advice distributors)
IFAs sell policies to buyers in their network who may also then become IFAs on the next tier
(commission pyramid)
Sale often closed by call centre and policy issued by admin centre so IT and sales support
essential
Mobile phone support is a growing feature 3. Database Marketing
Profile and target customers on database
Tailor right offer/ product to right customer
Data selection mitigates the need for underwriting
Measurable results and ROI

44

Bancassurance Direct Marketing has delivered significant returns around the

world:
The four case studies in the table below show a sample of results achieved with
direct marketing in various countries.
The first two are SA cases. The first one is a personal accident marketing
programmed with one of the big 4 SA banks, and the other is a whole of life and
critical illness programmed with another big 4 SA bank. Worth highlighting here is
that response rates can vary widely with higher response rates of up to 25% on up
sell and cross-sell campaigns but anything from 2% up can give very good EV and
returns on investment. By the way RR is defined as the percentage of sales to total
customers targeted.
The third case study is with a large Korean credit card company, and the fourth with
a Singapore bank. Once again it can be seen that annualized premium generated is
quite significant and acquisition costs are relatively low at approx 20% to 35% of
API. Most importantly, EV to the insurer is healthy and significant. Bancassurance
direct marketing is already well established with many banks in many countries
around the world

45

Bancassurance Distribution Framework:

A simplified bancassurance distribution framework is set out below and starts by

mapping in the two most typical distribution models: in-branch and agency. The broker model
has not been separately mentioned because for purposes of this exercise it closely resembles the
agency model.
In-branch tends to be based on transaction-targeting, for example a car finance
transaction or a home loan transaction triggers the sale of a credit life or term life protection
product, often as a condition of the loan or bundled into the loan with insurance premiums
sometimes added to the financed amount. This model is typically driven primarily by the banks
need to mitigate credit risk, rather than the desire to add value to the customer relationship or to
generate underwriting profit.

46

Agency can often overlap with the in-branch model, but I will focus on its distinct
features. Referred to sometimes as the hunter model, agents are employed by the bank or
Bancassurers, incentivized with commission structures, given sales targets and provided with
access to bank customers. For obvious reasons, this model tends to result in the targeting of the
wealthier half of the customer base typically with complex combined life, health, investment
products and resulting in a higher premium sale. Direct can now be understood as taking its place
alongside these two models. Direct tends to target customers based on what is known about them
on the banks database, for example a term life offer is made only to home loan customers below
a certain age and monthly income, who do not have another similar protection product, and who
seem to be under-serviced by the agency or brokerage force. Products are simple, single-need
and lower premium. Whilst face-to-face sales skills are critical to success in the agency model, in
the direct model marketing skills and execution or project management skills can make the
difference between selling several thousand new policies or losing large sums of money.

Comparing Face to Face with Direct Distribution:

1. Face to Face Allows:

One to one interactions
Rapport building, needs analysis and advice
Gathering of personal information
Tailored solutions
Complex products
High premium sales

2. Direct Distribution Allows:

Penetration of lower/ middle income customer segments
Distribution of high volumes of lower premium products
High volume of customer contacts in a short amount of time
Significant premium generated at relatively low cost
Highly measurable performance and returns
47

 Scientific method to test and refine marketing strategy

Ownership of the customer relationship

48

Banks can enjoy important benefits from a direct marketing bancassurance strategy:
1. Diversify revenue streams by adding commission (non-interest income).
2. Generate significant additional levels of income for both bank (commission) and
Bancassurers (underwriting profit).
3. Increase customer satisfaction by meeting the personal financial protection needs of
customers.
4. Increase share of customer wallet.
5. Build brand value through new channels and broader financial offerings.
6. Update and enhance customer data and information.
7. Manage credit life risk by reducing bad debts eighth, deepen customer loyalty and retention

Bancassurance Segmentation

Banks need to match the right distribution strategy to the right customer segment
there are many ways to segment a market. Income levels tend to be one of the most useful ways
to segment the market, and banks are uniquely positioned to be able to know what their
customers earn. The diagram below presents three simplified segments and related strategy.
Lower income customers may be best suited for a micro-strategy using branches or
micro-agents selling products with monthly premiums of $1 to $3 up to a maximum of $5. Direct
is typically best suited for middle market customers and monthly premiums of between $4 and
$15. For wealthier customers and higher premiums the face-to-face channels and multi-channel
service strategies tend to be most effective

49

CHAPTER 9
SWOT ANALYSIS

Bancassurance in - 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. 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
Banking and Insurance are very different businesses. Banks have
less risk but the insurance has a greater risk. Even though, banks and insurance
companies in India are yet to exchange their relationships, Bancassurance as a
means of distribution of insurance products is already in force in some form or the
other. It is therefore essential to have a SWOT analysis done in the context of
bancassurance experiment in India. A SWOT analysis of Bancassurance is given
below:

1: strengths,
2: weakness,
3: opportunities,
50

4: threats.

51

INTERNAL FACTORS:
Strength
Bancassurance can be a of fire way to reach a wider customer base, provide it is made
use of sensibly. In India there is an extensive bank network established over the years. Insurance
companies will have to take advantage of the customer's longstanding trust and relationship with
banks. This is mutually beneficial situation as Banks can expand the range of their products on
offer to customers and earn more, while the insurance company profits from the exposure at the
bank branches, and the security of receiving timely payments.
There are several untapped potential waiting to be mined particularly for life insurance
products in rural areas. Banks with their network in rural areas help to fulfill rural and social
obligations as stipulated by the Insurance Regulatory and Development Authority.
There are several reasons why bank should seriously consider bancassurance. the most
important of which is increase Return on Assets(ROA).It offers fee-based non -interest income to
the banks without involving in any amount does not require any additional capital.

Weakness:
The bancassurance calls for a paradigm shift in the behavior of the banks, which have
to develop marketing skills. Most of the banks lack adequate marketing skills to perform these
additional responsibilities. At the same time, there is a need for banks to be sensitive to
customers of preferences.
Bancassurance could turn out be an example channel as it requires huge investments
in Wide Area Network (WAN) and Vast Area Network (VAN) to meet customer's needs on order
to finalize a sale. Another drawback is the inflexibility of the products that is it cannot be tailormade to the requirements of the customers. For bank assurance venture to success, it is extremely
essential to have in -built flexibility of the products that is it cannot tailor-made to the
Requirements of the customers. For a bank assurance venture to succeed, it is extremely essential
to have an in-built flexibility so as to make the product attractive to the customer.

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EXTERNAL FACTORS:
Opportunities:
Banks database is enormous and they have a wide branch network. Millions of
customer becomes accessible to insurance companies through bank branches. This database has
to be dissected variously and various homogeneous groups are to be churned in order to position
the bank assurance products.
New private sector insurance companies are yet to become popular. They are in
existence for less than five years. In a short period, to appoint agents all over the country and
effectively follow them would be an uphill task. They are in the process of building brand equity.
Tie up with Bank will help them to boost their image and provide great opportunity for insurance
as in as Bank, in this process is bank will also benefits.
Customers have more faith in Banks and they view those Banks as more
responsible than individual agents. Moreover, agents may not be available for further services,
but customers can approach the bank at any time and paying the premium is easier with Bank
because of standing instructions.

Threats:
Even insurance and Bank that seem ideally suited for a bank assurance
partnership can run into problems during implementation. Success of a bancassurance venture
requires change in approach, thinking and work culture on the part of everybody involved.
The most common obstacles to success are manpower management, lack of sales
culture within the bank, non-involvement by managers, insufficient product promotions, failure
to integrate marketing plans, marginal database expertise, inadequate incentives, a definite threat
of resistance to change, negative attitudes towards insurance and unwieldy marketing strategy.

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SWOT Analysis of Bancassurance in India:

On order to implement the bancassurance model in our country a lot of steps we have to taken.
(A) Top professionals will have to be hired.
(B) We have to study the Indians nature regarding insurance.
(C) Study about lower middle as well as upper class of society & how much they are eager to
adopt insurance.
(D) Favorable & easy policies for the people.
(E) High capital investment in infrastructure development particularly in Information
Technology & Telecommunication is required
(F) Creation of research & development cell is very important & adaptive task.
(G) We have to study about the SWOP analysis of world in the field of bancassurance & we can
take this study as base.

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CHAPTER 10
SOME TIE-UPS;
SUCCESS OF BANCASSURANCE.
Some important Tie- ups:1) Life Insurance Corporation of India with:Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central
Cooperative Bank, Janata Urban Co operative Bank, Yeoman Manila Sahkari Bank, Vijaya Bank,
Oriental Bank of Commerce.

2) Birla Sum Life Insurance Co Ltd With:

The Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit
Bank, Deutsche Bank and Catholic Syrian Bank.

3) Dabur CGU Life Insurance Company Private Ltd:Canara Bank Lashmi Vilas Bank, American Express Bank, and ABN Amro Bank.

4) HDFC standard Life Insurance Co. Ltd. With:Union Bank of India.

5) ICICI Prudential Life Insurance Co Ltd. With:-

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Lord Krishna Bank, ICICI Bank, Bank of India, Citibank, Allahabad Bank,
Federal Bank, South Indian Bank, and Punjab and Maharashtra Co-operative Bank.

6) Met Life India Co. Ltd. With:Karnataka Bank, the Dhanalakshmi Bank and Jammu & Kashmir Bank.

7) SBI Insurance Co. Ltd. With:State Bank of India and Associate Banks.

8) Bajaj Allianz General Insurance with:Krur Vysya Bank and Lord Krishna Bank

9) National Insurance Co Ltd With:City Union Bank,

10) Royal Sundaram General Insurance Company with:Standard Chartered Bank, ABN Amro Bank, Citibank Amex and Repco Bank.

11) United India insurance Co. Ltd. With:South Indian Bank.

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Issues to be keep in mind while tie-up:

The followings are certain issues that we have to keep in mind while tie-up with bank for
Bancassurance purpose:

1) Do not depend upon traditional Method:

The tie-up needs to develop innovative products and services rather than depends upon the
traditional tracks. The kind of products. The bank would be allowed to sell are another major
issue. For example: - a complex unit-linked life insurance product is better sold through brokers
& agents, while a standard term product or simple products like auto Insurance, home loan and
accident Insurance cover can be handled by bank branches.

2) Clarity on operational activities:

There is need to be clarify on the operational activities of Bancassurance that :(a) who will do branding?
(b) Will the Insurance Company prefer to place a person at the branch of the bank? Or
(c) Will the bank branch train and keep its own people?
(d) Who will pay remuneration of above-mentioned people bank or Insurance Company or both
in some ratio?

3) Required Good Training:

Even though the banks are in personal contact with its client, a high degree of active marketing
skill is required to sell the insurance products. These can be possible through proper training
only.

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Status of Bancassurance in India:

Reserve Bank of India (RBI) has recognized "bancassurance" wherein banks are
allowed to provide physical infrastructure within their select branch premises to insurance
companies for selling their insurance products to the banks customers with adequate disclosure
and transparency, and in turn earn referral fees on the basis of premia collected. This would
utilize the resources in the banking sector in a more profitable manner.
Bancassurance can be important source of revenue. With the increased competition and
squeezing of interest rates spreads profit of the are likely to be under pressure. Fee based income
can be increased through hawking of risk products like insurance.
There is enormous potential for insurance in India and recent experience has shown
massive growth pace. A combination of the socio-economic factors is likely to make the
insurance business the biggest and the fastest growing segment of the financial services industry
in India.
However, before taking the plunge in to this new field, banks as insurers need to work
hard on chalking out strategies to sell risk products especially in an emerging competitive
market. However, future is bright for bancassurance. Banks in India have all the right ingredients
to make Bancassurance a success story. They have large branch network, huge customer base,
enjoy customer confidence and have experience in selling non-banking products. If properly
implemented, India could take leadership position in bancassurance all over the world
Government of India Notification dated August 3, 2000, specified Insurance as a
permissible form of business that could be undertaken by banks under Section 6(1)(o) of the
Banking Regulation Act, 1949. Then onwards, banks are allowed to enter the insurance business
as per the guidelines and after obtaining prior approval of Reserve Bank of India.

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Success of Bancassurance
Banking and insurance have strong similarities that might have contributed to their
rapprochement, LIC and other insurance companies have developed a range of products, that
have direct conflict with traditional bank offering or products.
New companies in Life Insurance sector would be looking for cost effective channels
for distribution which provide long reach. Because of the existing extensive obviously emerged
as the preferred low cost distribution channel. This would also give the hold to, insurance
companies in the rural areas, thus providing an opportunity to tab the virgin market.
Banks have large client base and cross selling surely provides with an opportunity for
optimum utilization of their existing customer relationship thus effectively creating a win- win
situation company and the operational difficulties at ground level have to be managed and one of
the suggested ways is to re- structure the bank compensation structure on the lines of insurance
companies.
Last but not the least, the issue of consumer protection will have to be suitably
addressed by Regulators and consumers themselves. Consumers though have consumer
Protection Act to inhibit banks and insurance companies to show monopolistic properties or use
them as an arm twisting techniques. Though all said and done, Regulators both IRDA and RBI
should jointly formulate a policy and process not to avoid the conflict of interest.

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Measures to Improve Bancassurance in India:

1)Factors that are critical for success include strategies consistent with Banks vision, knowledge
of target customer's defined sales process for introducing insurance services, simplest yet
complete product offerings, strong service delivery mechanism, quality administration,
synchronized planning, all business lines and subsidiaries, complete integration of insurance with
other business products and services, expensive and high-quality training of sales personnel.

2) Another critical point to be tackled is customer service (CRM). Bank should implement
Customer Relationship Management (CRM) strategies to handle the customers tactfully.

3) Bank should act as financial adviser to the customers in the portfolio decisions and also assist
them in early claim settlement.

4) Bank and insurance company should work jointly towards a model global retail financial
institution offering a wide array of products which leads to creation of one-stop shop for
mortgages, pensions, and insurance products.

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CONCLUSION:

The life Insurance Industry in India has been progressing at a rapid growth since
opening up of the sector. The size of country, adverse set of people combined with problems of
connectivity in rural areas, makes insurance selling in India a very difficult task. Life Insurance
Companies require good distribution strength and tremendous man power to reach out such a
huge customer base. The concept of Bancassurance in India is still in its nascent stage, but the
tremendous growth and the potential reflects a very bright future for bancassurance in
India.
With the coming up of various products and services tailored as per the customers
needs there is every reason to be optimistic that bancassurance in India will play a
longinning.But the proper implementation of bancassurance is still facing so many hurdles
because of poor manpower management, lack of call centers, no personal contact with
customers, inadequate incentives to agents and unfullfilment of other essential requirements.
I have experienced a lot during the preparation of the project. I had just a simple
idea about Bancassurance. But after a detailed research in this topic, I have found how important
bancassurance can be for bankers, insurers as well as the customers. I am contented that all my
objectives have been met to its fullest. I have also experienced that though Bancassurance is not
being utilized to its fullest but it surely has a bright future ahead. India is at the threshold of a
significant change in the way insurance is perceived in the country. Bancassurance will definitely
play a defining role as alternative distribution channel and will change the way insurance is sold
in India. The bridge has been reached and many are beginning to walk those cautious steps
across it. Bancassurance in India has just taken a flying start. It has a long way to go ..
After all The SKY IS THE LIMIT!

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BIBLIOGRAPHY
THERE IS NO PRIMARY DATA IN THIS PROJECT FOLLOWING ARE THE
SOURCES OF SECONDARY DATA WHICH ARE THE NAME OF WEBSITES.

www.google.com
www.vipulprakashan.com
http://www.scribd.com
https://in.finance.yahoo.com

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