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CHAPTER 1

 History of Banking in India.

1. Definition
2. History

 History of Insurance in India

1. Definition
2. History

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 INTRODUCTION TO BANKING

Banking as per the Banking Regulation Act, Banking is defined as:

“Accepting for the purpose of lending of deposits of money from
the public for the purpose of lending or investment, repayable on demand
through cheques, drafts or order.”
A sound and effective banking system is necessary for a healthy
economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any
other external and internal factors. Many new things have come up in the
banking sector in the recent years. Banks have adopted the new technology
because banking has not remained up to accepting and lending but now it is
all about satisfying the needs of the customers.
The development of the Indian banking sector has been accompanied
by the introduction of new norms. New services are the order of the day, in
order to stay ahead in the rat race. Banks are now foraying into net banking,
securities, and consumer finance, housing finance, treasury market,
merchant banking etc.They are trying to provide every kind of service which
can satisfy or rather we should say that it can delight the customers.
Entry of private and foreign banks in the segment has provided
healthy competition and is likely to bring more operational efficiency into
the sector. Banks are also coping and adapting with time and are trying to
become one-stop financial supermarkets. The market focus is shifting from
mass banking products to class banking with the introduction of value added
and customized products.

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 With years, banks are also adding services to their customers. The
Indian banking industry is passing through a phase of customers market. The
customers have more choices in choosing their banks.
A competition has been established within the banks operating in
India. With stiff competition and advancement of technology, the services
provided by banks have become more easy and convenient. The past days
are witness to an hour wait before withdrawing cash from accounts or a
cheque from north of the country being cleared in one month in the south.
This section of banking deals with the latest discovery in the banking
instruments along with the polished version of their old systems.

A competition has been established within the banks operating in

India. With stiff competition and advancement of technology, the services
provided by banks have become more easy and convenient. The past days
are witness to an hour wait before withdrawing cash from accounts or a
cheque from north of the country being cleared in one month in the south.
This section of banking deals with the latest discovery in the banking
instruments along with the polished version of their old systems.

Today banks provided many services other that accepting deposits and
lending money. In this globalize world banks providing quick services to
their customer for transfer of fund and many more for that bank provide
services like Internet banking, mobile banking, NEFT, RTGS and many
more.

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 In India there are different types of banks playing different role. There
are different types of banks are present like Nationalized bank, commercial
Bank, Co-operative bank, Industrial Development Bank and many more.
Each bank has different role and policy.

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 NATURE AND SCOPE OF BANKING ACTIVITIES

Banking activities are considered to be the life blood of the national

economy. Without banking services, trading and business activities cannot
be carried on smoothly. Banks are the distributors and protectors of liquid
capital which is of vital significance to a developing country.
Efficient administration of the banking system helps in the economic growth
of the nation. Banking is useful to trade and commerce. Banking activities
are useful to trade and industry in the following ways.

• Money deposited in a bank remains safe. Precious articles too can be

kept in the safe custody of banks in lockers.
• Banks provide credit facilities to their customers. Customers with
bank accounts also enjoy better credit in the business world.
• Banks encourage the habit of saving and thrift among people.
• They mobilize savings and invest them in productive activities.
• Thus, they help in increasing the rate of savings and investment in the
country.
• Banks provide a convenient and safe means of transferring money
from one place to another and facilitate business dealings/
Transactions.
• Banks collect and realize bills, cheques, interest and dividend
warrants etc. on behalf of their customers.
• Foreign trade is facilitated considerably with the help of banks which
receive and make payments, provide credit and deal in foreign
exchange. They protect importers from the risk of loss on account of
exchange rate fluctuations. They issue letter of credit and provide

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 information on the credit worthiness of importers. They also act as
referees of their customers.
• Banks meet the financial needs of small-scale business units which are
located in economically backward areas.
• Farmers and artisans in rural areas can also avail of bank credit for
financing their activities.
• Commercial banks provide many other services to the general public
which includes locker facility, issue of traveller’s cheques and gift
cheques, payment of insurance premium, etc.

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 SERVICE ACTIVITIES OF BANKS

Service activities of banks may be categorized as follows:

i) Agency services
ii) General services

Agency services:
Banks undertake/various agency services for their customers. These are
outlined below:-
• Collection of cheques, drafts, and bills of exchange on behalf of
customers.
• Collection of dividend and interest warrants of customers.
• Collection of pension of government employees.
• Purchase and sale of securities on the instructions of customers.
• Executing standing orders for payment of rent, electricity bill,
insurance premium etc.
• Acting as correspondent or representative of customers in dealing
with other banks.
• Acting as trustee or executor when so nominated.

General Services:
A bank also performs the following services of general utility to
the public:-
• Issue of letters of credit, traveller’s cheques and circular
notes.
• Safe custody of valuables like gold, jewellery and important
documents in safe deposit vaults (lockers) available on hire.

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• Supply of trade information.
• Acting as a referee as regards financial status of customers.
• Acceptance of bills of exchange on behalf of customers.
• Underwriting loans floated by government and public bodies.

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 INTRODUCTION TO INSURANCE SECTOR

Insurance may be defined as: -

“It is a contract between two parties where by one party undertakes to
compensate another party for the loss arising due to an uncertain events for
which the party agrees to pay a certain amount regularly.”
In India, insurance has a deep-rooted history. Insurance in India has
evolved over time heavily drawing from other countries, England in
particular. The insurance sector in India has come a full circle from being an
open competitive market to nationalization and back to a liberalized market
again. The business of life insurance in India in its existing form started in
India in the year 1818 with the establishment of the Oriental Life Insurance
Company in Calcutta.
The Insurance Act, 1938 was the first legislation governing all forms
of insurance to provide strict state control over insurance business.Today
there are 14 general insurance companies and 14 life insurance companies
operating in the country. But today also the insurance companies are trying
to capture Indian markets as not many people are aware of it.
The insurance sector is a colossal one and is growing at a speedy
rate of 15-20%. Together with banking services, insurance services add
about 7% to the country’s GDP. A well-developed and evolved insurance
sector is a boon for economic development as it provides long- term funds
for infrastructure development at the same time strengthening the risk taking
ability of the country.

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 NATURE AND CHARACTERISTICS OF INSURANCE

The characteristics of insurance are as under.

• A co-operative device:-
“All for one and one for all” is at basis for a co-operative
device. The insurance is a method wherein large numbers of
persons exposed to a similar risk are covered and risk is
spread over among the larger insurable public. Therefore, “
insurance is a social or co-operative method where in losses
of one is borne by the society.”
• Insurance is a contract:
Insurance is a valid contract between the insured on the one
side and the insurer on the other side. It has all the essential
elements of a valid contract & is enforceable in the court of
law.
• Consideration:
Like other contracts there must be lawful consideration in
Insurance also. This consideration is in the form of premium,
which the insured agrees to pay to the insurer.
• Protection against the risk:
The insurer agrees to indemnify the insured upon the
happening of a particular event. Thus, insurance is a
protection against risk.

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• Based upon certain principle:-
The insurance is based upon certain principles. They are
insurable interest, utmost good faith, indemnity, subrogation,
contribution etc.
• It is regulated by law:
In every country, statutory laws now regulated the business
of insurance. In our country too, life insurance and general
insurance is regulated by life Insurance Corporation Act 1956
and general Insurance business Act 1972 and IRDA
regulation Act etc.

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 KIND OF INSURANCE

There are different types of Insurance which consist the following

main:

• Life Insurance:

Life Insurance provides two fold advantages, the first in the

form of small saving and the other in the form of security. In
India, Life Insurance Corporation transacts life insurance
business. Personal accident and sickness insurance cover the
risk of death due to accident and also pay compensation for
self- injury & sickness.

• General Insurance:

Broadly speaking except life insurance, all types of insurance

come under general insurance. It consist Marin Insurance
which covers all the marine perils. Fire insurance which
covers risk from fire. Other than these main branches General
Insurance consist Liability Insurance, Social Insurance, and
miscellaneous Insurance.

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 CHAPTER 2

 About Bancassurance

1. Meaning

2. Origin

3. Models of Bancassurance

• Structural classification

• Product based classification

• Bank Referrals

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 INTRODUCTION TO BANCASSURANCE

BANCASSURANCE’ as term itself tells us what does it means. It’s a

combination of the term ‘Bank’ and ‘Insurance’. It means that insurance
have started selling there product through banks. It’s a new concept to Indian
market but it is very widely used in western and developed countries. It is
profitable both to Banks and Insurance companies and has a very bright
future to be the most develop and efficient means of distribution of
Insurance product in very near future.

Insurance company can sell both life and non-life policies through
banks. The share of premium collected by banks is increasing in a decent
manner from the time it was introduce to the Indian market. In India
Bancassurance in guide by Insurance Regulatory and Development
Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and
insurance company have to meet particular requirement to get into
Bancassurance business.

It is predicted by experts that in future 90% of share of premium will

come from Bancassurance business only. Currently there are more and more
banking and Insurance Company and venturing into Bancassurance business
for better business prospect in future.

The banking business is also generating more profit by more premium

collected by them and they also receive commission like normal insurance
agent which increase there profits and better reputation for the banks as there
service base also increase and are able to provide more service to customers
and even more customer are attracted toward bank.

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 It is even profitable for Insurance Company as they receive more and
more sales and higher customer base for the company. And they have to
directly deal with an organization which reduce there pressure to deal with
each customer face to face.In all Bancassurance has proved to be boom in
whole Banking and Insurance arena.

Bancassurance is defined as ‘Selling Insurance products through

banks’. The word is a combination of two words ‘Banc’ and ‘assurance’
signifying that both banking and insurance products and service are provided
by one common corporate entity or by banking company with collaboration
with any particular Insurance company. In concrete terms bancassurance,
which is also known as Allfinanz - describes a package of financial services
that can fulfill both banking and insurance needs at the same time.

Financial Services

Banking Insurance

Bancassurance

The usage of the word picked up as banking and insurance

companies merged together and banks sought to provide insurance, in

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the market which has been liberalized recently. But it is a
controversial issue as many experts feels that this ides gives banking
sector too great a control over financial market in that country.
Therefore it has also been restricted in many countries too. But, still
which countries have permitted Bancassurance in their market has
seen a tremendous boom in that sector. The share of premium
collected by them has increased in constant and decent manner. This
success coincided with a favorable taxation for life insurance
products, as well as with the consumers' growing needs, in terms of
middle and long term savings, which is due to an inadequacy of the
pension schemes in India.
The links between bank and insurance takes place through
various ways (distribution agreements, joint ventures, creation of a
company new company) which gives rise to a complete upheaval
concerning marketing strategies and the setting up of insurance
products' distribution. More and better insurance starts coming in
market.
This stream of market has just been opened very recently for
the Indian market and there is lot of development left to be done by
the government and regulatory authority. But this has proven to be a
boom for the Insurance and Banking companies together and both the
different sector of the industry has shown better result and
improvement in their own field due coming of the whole new concept
of Bancassurance.

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 Bancassurance in its simplest form is the distribution of
insurance products through a bank’s distribution channels. It is the
provision of insurance and banking products and service through a
common distribution channel or through a common base.
Banks, with their geographical spreading penetration in terms
of customer’s reach of all segments, have emerged as viable source
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.
However, the evolution of bancassurance as a concept and its
practical implementation in various parts of the world, have thrown up
a number of opportunities and challenges.
The motives behind bancassurance also vary. For Banks, it is n
means of product diversification and source of additional fee income.
Insurance companies see bancassurance as a tool for increasing their
market penetration and premium turnover. The customer sees
bancassurance as a bonanza in terms of reduced price, high quality
products and delivery at the doorsteps.
With the liberalization of the insurance sector and competition
tougher than ever before, companies are increasingly trying to come
out with better innovations to stay that one-step ahead.
Progress has definitely been made as can be seen by the number
of advanced products flooding the market today - products with
attractive premiums, unitized products, unit-linked products and

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innovative riders. But a hitherto untapped field is the one involving
the distribution of these insurance products.
Currently, insurance agents are still the main vehicles through
which insurance products are sold. But in a huge country like India,
one can never be too sure about the levels of penetration of a product.
It therefore makes sense to look at well-balanced, alternative channels
of distribution.
Nationalized insurers are already well established and have an
extensive reach and presence. New players may find it expensive and
time consuming to bring up a distribution network to such standards.
Yet, if they want to make the most of India's large population base and
reach out to a worthwhile number of customers, making use of other
distribution avenues becomes a must. Alternate channels will help to
bring down the costs of distribution and thus benefit the customers.

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 WHAT IS BANK ASSURANCE?

Bancassurance is the distribution of insurance products through a

bank's distribution channels. It is a service that can fulfill both
banking and insurance needs at the same time. Bancassurance as a
concept first began in India when the insurance industry opened up
to private participation in December 1999. There are basically four
models of bancassurance:

• Distribution alliance between the insurance company and the

bank.
• Joint venture between the two companies.
• Mergers between a bank and insurer.
• Bank builds or buys own insurance products.

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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. The concept of bancassurance was evolved
in Europe. Europe leads the world in Bancassurance market
penetration of banks assurance in new life business in Europe
which ranges between 30% in United Kingdom to nearly 70% in
France. However, hardly 20% of all United States banks were
selling insurance against 70% to 90% in many Western European
countries. In Spain, Belgium, Germany and France more than 50%
of all new life premiums is generated by banks assurance. In Asia,
Singapore, Taiwan and Hong Kong have surged ahead in
Bancassurance then that with India and China taking tentative step
forward towards it. In Middle East, only Saudi Arabia has made

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some feeble attempts that even failed to really take off or make any
change in the system.

In France more than 70% of life insurance is done by banks.

In U.K a large number of banks deal with insurance as providers of
products. In USA banks leave space to insurers & retail products of
multiple insurers.

In India, the concept of Bancassurance is very new. With the

liberalization and deregulation of the insurance industry,
bancassurance evolved in India around 2002. In India too, bank
have been offering personal accident and baggage insurance
directly to their credit cardholder as value addition to their
products.

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 MODELS OF BANCASSURANCE

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 of commission.
The actual transaction with the prospective client in referral model is done
by the staff of the insurance company either at the premises of the ban0k 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 of 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 can resort to this model and then move on to the other models.

b) Corporate Agency

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 The other form of non-sick participatory distribution channel is that of
‘Corporate Agency’, wherein the bank staff as an institution acts as
corporate agent for the insurance product 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, 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. 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
cooperative banks because neither there is sharing of risk nor does it require
huge investment in the form of infrastructure and yet could be a good source
of income. This model of bancassurance worked well in the US, because
consumers generally prefer to purchase policies through broker banks that
offer a wide range of products from competing insurers.

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. This
includes banks having wholly owned insurance subsidiaries with or without
foreign participation. The great advantage of this strategy being that the
bank could make use of its full potential to reap the benefit of synergy and
therefore the economies of scope. This may be suitable to relatively larger

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banks with sound financials and has better infrastructure. As per the extant
regulation of insurance sector the foreign insurance company could enter the
Indian insurance market only in the form of joint venture, therefore, this type
of bancassurance seems to have emerged out of necessity in India to an
extent. There is great scope for further growth both in life and non-life
insurance segments as GOI is reported have been actively considering to
increase the FDI’s participation up to 49 per cent.

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 bank’s customer, however, the products of banks and insurance will
have their respective brands too.

(b) Blend of Insurance with Bank Products

This method aims at blending of insurance products as a ‘value

addition’ while promoting the bank’s 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 bank’s 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.

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Similarly the home loans / vehicle loans, etc., have also been packaged with
the insurance cover as an additional incentive.

III. BANK 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 every where as the banks get commission, the insurance companies
get databases of the customers and the customers get the benefits.

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 CHAPTER 3

• Utilities of Bancassurance

 For Banks:
I. As a source of fee based income
II. Product diversification
III. Building close relations with the customers

 For Insurance Companies

I. Stiff competition
II. High cost of agents
III. Rural penetration
IV. Multi-channel distribution
V. Targeting middle income customers

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 For the new insurance players who started during the post- reform
period in India, bancassurance has come as a blessing in disguise. Getting a
ready- made distribution network at one shot and that too at a fraction of the
total cost to develop a distribution network of their own, enabled them to go
aggressive on this channel. Companies like SBI life and Aviva have reported
over 65% of their businesses through bancassurance channel for the year
2004-05.
It is estimated that through bancassurance banks could collectively
receive a fee- based income of Rs. 13,500 crore and Rs. 22,000 crore over
the next five year. Many banks and financial institution have joint venture
set up with foreign insurance companies. Following are some of the
bancassurance tie-ups in India:-

Insurance Companies Banks

Birla Sun Life Co. Ltd. Bank of Rajasthan, Andhra Bank,

Bank of Muscat, Development Credit
Bank, Deutsche Bank
Dabur CGU Life Insurance Canara Bank, American Express
Company Pvt. Ltd. Bank and ABN AMRO bank.
HDFC Standard Life Insurance Co. Union Bank of India
Ltd.
ICICI Prudential Life Isurance Co. Lord Krishna Bank, ICICI Bank,
Ltd Bank of India, Citibank, Allahabad
Bank, Federal Bank.

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Life Insurance Corporation of India Corporation Bank, Indian Overseas
Bank, Centurion Bank, Yeotmal
Mahila Sahkari Bank, Vijay Bank,
Oriental Bank of Commerce
Met Life India Insurance Co. Ltd. Karnataka Bank, Dhanalakshmi
Bank & J& K Bank
SBI Life Insurance Company Ltd. State Bank of India
Bajaj Allianz general Insurance Co. Karur Vysya Bank and Lord kishna
Ltd. Bank
National Insurance Co Ltd. City Union Bank
Royal Sundaram General Insurance Standard Chartered Bank, ABN
Company AMRO Bank, Citi Bank
United India Insurance Co. Ltd. South Indian Bank.

Banks have got a wide retail network, which can be exclusively used
by there insurance companies to sell their products. India’s 27 public sector
banks accounts for approximately 92% of the total network. Among other
things, the network involves 33000 rural branches and 14000 semi- urban
branches where insurance penetration largely untapped.
In this competitive world there are utilities of bancassurance for Bank &
Insurance Company which is as follows:

FOR BANKS

 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,

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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. A typical 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
bank’s point of view. At the end of the day, it is easy money for the banks as
there are no risks and only gains.

 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 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 set up specialized Bancassurance

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

 Building close relations with the customers

Increased competition also makes it difficult for banks to retain their
customers. Banassurance 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 a customer gets home
loans along with insurance at one single place as a 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

 Stiff Competition

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 At present there are 15 life insurance companies and 14 general
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 stay a 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.

 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.

 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 help 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.

 Multi channel Distribution

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 Now days 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 India’s large population
base and reach out to a worthwhile number of customers there was a need
for Bancassurance as a distribution model.

 Targeting Middle income Customers

In previous there was lack of awareness about insurance. The agents
sold insurance policies to a more upscale client base. The middle income
group people got very less attention from the agents. So through the venture
with banks, the insurance companies can recapture much of the under served
market. So in order to utilize the database of the bank’s middle income
customers, there was a need felt for Bancassurance.

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 CHAPTER 4

 Benefits of Bancassurance

1. To Banks

2. To Insurance companies

3. To Customers

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 There are several reasons why banks should seriously consider
Bancassurance, the most important of which is increased return on assets
(ROA). One of the best ways to increase ROA, assuming a constant asset
base, is through fee income. Banks that build fee income can cover more of
their operating expenses, and one way to build fee income is through the sale
of insurance products. Banks those effectively cross-sell financial products
can leverage their distribution and processing capabilities for profitable
operating expense ratios.

The Benefit of bancassurance to bank, insurer & customer as follows.

TO BANKS

From the banks point of view:

By selling the insurance product by their own channel the banker can
increase their income.
Banks have face-to-face contract with their customers. They can directly
ask them to take a policy. And the banks need not to go any where for
customers.
The Bankers have extensive experience in marketing. They can easily
attract customers & non-customers because the customer & non-customers
also bank on banks.
Banks are using different value added services life-E. Banking tele
banking, direct mail & so on they can also use all the above-mentioned
facility for Bankassurance purpose with customers & non-customers.
 Productivity of the employees increases.

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  By providing customers with both the services under one roof, they
can improve overall customer satisfaction resulting in higher customer
retention levels.
 Increase in return on assets by building fee income through the sale of
insurance products.
 Can leverage on face-to-face contacts and awareness about the

financial conditions of customers to sell insurance products. Banks

can cross sell insurance products E.g.: Term insurance products with
loans.

TO INSURERS

From the Insurer Point of view:

The Insurance Company can increase their business through the banking
distribution channels because the banks have so many customers.
By cutting cost Insurers can serve better to customers in terms lower
premium rate and better risk coverage through product diversification.
Insurers can exploit the banks' wide network of branches for distribution of
products. The penetration of banks' branches into the rural areas can be
utilized to sell products in those areas.
Customer database like customers' financial standing, spending habits,
investment and purchase capability can be used to customize products and
sell accordingly.
Since banks have already established relationship with customers,
conversion ratio of leads to sales is likely to be high. Further service aspect
can also be tackled easily.

36
The insurance companies can also get access to ATM’s and other technology
being used by the banks.
The selling can be structured properly by selling insurance products through
banks.
The product can be customized as per the needs of the customers.

CUSTOMERS

From the customers' point of view:

Product innovation and distribution activities are directed towards the
satisfaction of needs of the customer.
Bancassurance model assists customers in terms of reduction price,
diversified product quality in time and at their doorstep service by banks.
Comprehensive financial advisory services under one roof. i.e., insurance
services along with other financial services such as banking, mutual funds,
personal loans etc.
Easy access for claims, as banks is a regular visiting place for customers.
Innovative and better product ranges and products designed as per the needs
of customers.
Any new insurance product routed through the bancassurance
Channel would be well received by customers.
Customers could also get a share in the cost savings in the form of
Reduced premium rate because of economies of scope, besides getting better
financial counseling at single point.

37
THE WIN – WIN CONDITION FOR BANKS AND
INSURANCE COMPANIES.

Banks Insurance

• Revenues and channel

• Customer retention
of diversification

• Satisfaction of more
• Quality customer
financial need under
access.
same roof.

• Revenue • Establish a low cost

diversification acquisition channel.

• More Profitable • Creation of Brand

resources utilization. Image.

• Establish sales • Quicker Geographical

orientated culture. reach.

• Enrich work • Leverage service

environment. synergies with Bank.

38
 CHAPTER 5

 Regulations for Bancassurance in India

1. RBI Norms for banks entering into Insurance

Sector

2. IRDA Norms for Insurance companies tying up

with Banks

39
 RBI NORMS FOR BANKS

RBI Guidelines for the Banks to enter into 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.
• Any scheduled commercial bank would be permitted to undertake
insurance business as agent of insurance companies on fee basis.
Without any risk participation

• 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% of the paid up capital of the insurance
company.

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;

40
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.

• In cases where a foreign partner contributes 26% 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 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.

• A subsidiary of a bank or of another bank will not normally be

allowed to join the insurance company on risk participation basis.

• 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;

41
iii. The bank should have net profit for the last three consecutive years.

• 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.
There should be ‘arms length’ relationship between the bank and the
insurance outfit.

• Holding of equity by a promoter bank in an insurance company or

participation in any form in insurance business will be subject to
compliance with any rules and regulations laid down by the
IRDA/Central Government. This will include compliance with
Section 6AA of the Insurance Act as amended by the IRDA Act,
1999, for divestment of equity in excess of 26 per cent of the paid up
capital within a prescribed period of time.

• Latest audited balance sheet will be considered for reckoning the

eligibility criteria.

42
IRDA NORMS FOR INSURANCE COMPANIES

• The Insurance regulatory development & Authority has given certain

guidelines for the Bancassurance they are as follows: -

Chief Insurance Executive: Each bank that sells insurance must have a
chief Insurance Executive to handle all the insurance matters &
activities.
• Mandatory Training: All the people involved in selling the insurance
should under-go mandatory training at an institute determined
(authorized) by IRDA & pass the examination conducted by the
authority.
• Corporate agents: Commercial banks, including co-operative banks
and RRBs may become corporate agents for one insurance company.
• Banks cannot become insurance brokers.

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 following:-
• Training and examination 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.

43
• Specified person to satisfy the training & examination: According to
new regulation of IRDA only the specific persons have to satisfy the
training & examination requirement as insurance agent.

44
 CHAPTER 6

Distribution Channels:
1. Career agents
2. Special advisers
3. Salaried agents
4. Bank employees
5. Corporate agency & Brokerage firm
6. Direct response
7. Internet
8. E- Brokerage
9. Outside lead generating techniques

45
 DISTRIBUTION CHANNELS

One of the most significant changes in the financial services sector

over the past few years has been the growth & development of
bancassurance. Banking institutions and insurance companies have found
bancassurance to be attractive and profitable complement to their existing
activities. Distribution is the key issue in bancassurance and is closely linked
to the regulatory climate of the country. Over the years, a regulatory barrier
between banking and insurance has diminished and has created a climate
increasingly friendly to bancassurance.
Bancassurance experience in Europe as well as in other select
countries offers valuable guidance for those interested in insurance
distribution through the banking.
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’ behaviours, evolution of technology and deregulation, new
distribution channels have been developed successfully and rapidly in recent
years.
Recently Bancassurers have been making use of various distribution
channels, they are:

46
  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.

 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
personalised and high quality service. Usually Special advisors are paid on a
salary basis and they receive incentive compensation based on their sales.

 Salaried Agents:

Salaried Agents are an advantage for the bancassurers because they

are 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.

47
  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.

 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.

 Direct Response:

In this channel no salesperson visits the customer to induce a sale

and no face-to-face contact between consumer and seller occurs. The
consumer purchases products directly from the bancassurer 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.

48
  Internet:

Internet banking is already securely established as an effective and

profitable basis for conducting banking operations. Bancassurers can feel
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.

 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.

 Outside Lead Generating Techniques:

One last method for developing bancassurance eyes involves

"outside" lead generating techniques, such as seminars, direct mail and
statement inserts. Great opportunities await bancassurance partners today
and, in most cases, success or failure depends on precisely how the process
is developed and managed inside each financial institution.

49
 CHAPTER 7

 SBI Life Insurance (profile)

 Products offered

 SBI Life Insurance (perspective)

50
 STATE BANK OF INDIA LIFE INSURANCE
SBI Life Insurance is a joint venture between the State Bank of India
and Cardif SA of France. SBI Life Insurance is registered with an authorized
capital of Rs 1000 crore and a paid up capital of Rs 500 crores. SBI owns
74% of the total capital and Cardif 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.
Cardif is a wholly owned subsidiary of BNP Paribas, which is the Euro
Zone’s leading Bank. BNP Paribas is one of the oldest foreign banks with a
presence in India dating back to 1860. Cardif is ranked 2nd worldwide in
creditor’s insurance offering protection to over 35 million policyholders and
net income in excess of Euro 1 billion. Cardif has also been a pioneer in the
art of selling insurance products through commercial banks in France and in
35 more countries.
SBI Life Insurance’s 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 multi-distribution 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. SBI’s 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.

51
 Agency Channel, comprising of the most productive force of more than
25,000 Insurance Advisors, offers door to door insurance solutions to
customers.

PRODUCTS OFFERED BY SBI

 INDIVIDUAL PRODUCTS

A. Unit Linked Poducts:

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 be a 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

52
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.

4) SBI Life – Unit Plus Elite:

In this policy the customer can choose the type of cover, type
of fund to be invested in and the term the customer wants to pay
premium for.

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

53
with the unique feature of Automatic Asset Allocation by means of
which you truly, don’t 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 tax 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.

54
C. Pure Protection Products:

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
benefit is 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.

55
 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.

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.

56
 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 customer’s 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.

F. For Brokers:

1) SBI Life - SARAL ULIP:

It is a simple Unit Linked Non-Participating Insurance Plan.
The sum assured is based on Term and Premium amount. There is
also flexibility to increase or decrease regular premium and it also
provides tax benefits.

57
 GROUP PRODUCTS

A. Group Employee Benefit Products
I. Retirement Solutions:
1) SBI Life - CapAssure Gratuity Scheme:
It is a Non-Participating yearly renewable traditional Group Gratuity
Scheme. Under this scheme, the contributions paid continue to accumulate
on traditional platform of investments and at the end of the financial year; an
investment income earned on your contributions is credited to your gratuity
fund account.
2) SBI Life - CapAssure Superannuation Scheme:
It is a Non-Participating yearly renewable traditional group
superannuation scheme. The object of this scheme is to ensure that the
underlying fund is accumulated in such a manner so that the fund will be
sufficient to purchase an expected amount of annuity to an employee upon
his retirement / to the legal heir in the event of an unfortunate death during
service. The scheme would also entitle the employee for some benefit,
defined as per the scheme rules, on his resignation, retirement, permanent
total disability whilst in service, death whilst in service.
3) SBI Life - CapAssure Leave Encashment Scheme:
It is a Non-Participating yearly renewable traditional group leave
encashment scheme. Under this scheme, the contributions paid continue to
accumulate on traditional platform of investments and at the end of the
financial year; an investment income earned on your contributions is
credited to your CA-LE fund account.
4) SBI Life - Group Immediate Annuity:

58
 t is a scheme wherein life annuity is payable at a constant rate through
out the life time. Employees can choose the periodicity of the annuity
depending upon the needs.
5) SBI Life - Golden Gratuity:
It is a yearly renewable unit linked group gratuity plan. Along with
managing the gratuity fund a life cover on the employee’s life protect their
family financially in case of unfortunate event.
6) SBI Life - Dhanrashi:
It is a traditional non participating Group Savings Linked Insurance
scheme. This scheme is applicable for both employer-employee and non-
employer employee groups. It has attractive returns on savings with twin
benefits. It also provides protection at low cost with no medical examination
and also hassle free joining process with no entry charges.
7) SBI Life - Swarna Jeevan:
It is a Group Immediate Annuity Plan for Corporate Clients
(ie.Employer-Employee groups) and other Group Administrators. It provides
Attractive Annuity rates due to group effect. It also gives customized annuity
options to customers. It gives the option to choose the periodicity of annuity
payment.
8) SBI Life - Group Gratuity cum Life Cover Scheme:
It is a Participating yearly renewable traditional Group Gratuity
Scheme. Under this scheme, the contributions paid continue to accumulate
on traditional platform of investments. It also provides tax benefits.

59
9) SBI Life - Group Superannuation Scheme:
SBI Life provides two types of Superannuation schemes:
1.Defined Benefit Scheme: It defines the amount of benefit that an
employee receives at retirement.
2. Defined Contribution Scheme: It defines the annual contribution
that the employer will deposit into the scheme for each employee.

10) SBI Life provides SBI Life - Group Leave Encashment cum
Life Cover Scheme:
It is a Non-Participating yearly renewable traditional group leave
encashment scheme. Under this scheme, the contributions paid continue to
accumulate on traditional platform of investments.
11) SBI Life - SWARNA GANGA:
It is a unique product that offers life cover, with an advantage of
accumulating savings at attractive rates, to group of persons who share a
common identity or affinity

II. Group Protection Plans

1) SBI Life - Sampoorn Suraksha:

SBI Life - Sampoorn Suraksha is a yearly renewable group term
insurance plan which provides life cover at comparatively lower premium
than individual insurance to the groups who are engaged in the similar kind
of activities. It is available for both Formal and Informal Groups.

60
2) SBI Life – Super Suraksha:
It is group term assurance non-participating plan. The Product
provides cover at an affordable premium due to the benefits of coverage of a
wide section, and the administered savings achieved. There is a possibility of
profit sharing based on the mortality experience of the group.

3) SBI Life - Super Suraksha in Lieu of EDLI:

Life cover available to employees irrespective of their Provident
Fund Balance. Lower premium rates are also available. No medical evidence
is required and also there accident death benefit.

4) SBI Life - Credit Guard:

It is a Non Participating Group Term Insurance Plan. It is a simple
and easy solution to cover the cardholders of a bank/other Financing entity,
through a Group Master Policy.

III. Specialized Term Insurance

1) SBI Life - Shield used as Keyman:

It is a pure term life cover to protect the organization from adverse
financial consequences arising due to death of a key employee. The aim is to
indemnify the company for these losses and to allow for business continuity.

61
B. Group Term with ROP

1) SBI Life - Swadhan (Group):

It is a Non Participating Group Term Insurance Plan with Return of
Premium. It is a simple and easy solution which offers dual benefits of life
cover protection in the event of death and refund of premium in case of
survival up to the end of the cover term.

C. Group Loan Protection Products

1) SBI Life - Dhanaraksha Plus SP:

It provides decreasing term cover at a very low cost. Available for
various types of individual loans for borrowers of a lending institution
through a Group Master Policy. There is only one time payment of premium.
2) SBI Life - Dhanaraksha Plus LPPT:
It provides decreasing term cover at a very low cost. Available for
various types of individual loan for borrowers of a lending institution
through a Group Master Policy. There is Limited Premium Payment Term.
3) SBI Life - Dhanaraksha Plus RP:
It provides decreasing term cover at a very low cost. Available for
various types of individual loan for borrowers of a lending institution
through a Group Master Policy. There are two options for premium payment
i.e. throughout the cover term or 2/3rd of the cover term.

62
D. Group Savings Protection

1) SBI Life - Nidhi Raksha RP:

It is a unique Plan which will help protect and grow the customers’
savings. It is offered to deposit holders of the master policyholder
(bank/financial institution). It is a transparent plan, where the benefit
available at any point of time is clearly defined in the Certificate of
Insurance (COI) issued to the insured group member.

E. Group Micro Insurance

1) SBI Life - Grameen Shakti:

The purpose of this product is to provide life insurance protection to
the weaker sections of the society. It is a Group Micro insurance product
with refund of premiums at maturity.

2) SBI Life - Grameen Super Suraksha:

The purpose of this Product is to provide life cover at low costs to
groups of economically weaker sections of Society. It is a low cost Group
term assurance plan for rural people who can seek life insurance protection
without maturity benefit.

63
 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.
SBI’s 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

64
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 Rs 4,800 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.

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 another aspect is their
superior investment performance. They have consistently, over the last two
years, generated 11-12 per cent earnings from the investments.

65
 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 cross-selling insurance products along with its
numerous banking product packages such as housing loans, personal loans
and credit cards. SBI’s access to over 100 million accounts provides a
vibrant base to build insurance selling across every region and economic
strata in the country.

66
 CHAPTER 8

 Various Trends

 Challenges

67
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 favour 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.

68
  Banks even offer space in their own premises to accommodate the

insurance staff for selling the insurance products or giving access to

their client’s 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 counters.

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 weighted against
the higher cost of servicing those policies.

 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.

 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

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 entering into a bancassurance alliance, just like any merger, cultural
due diligence should be done and human resource issues should be
adequately prioritized.

 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.

 The banks also have fear that at some point of time the insurance
partner may end up cross-selling 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.

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 CHAPTER 9

 SWOT Analysis

1. Strengths

2. Weaknesses

3. Opportunities

4. Threats

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 SWOT ANALYSIS:

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 wedding rings,
Bancassurance as a means of distribution of insurance products is already in
force in some form or the other.
Banks are selling Personal Accident and Baggage Insurance
directly to their Credit Card members as a value addition to their products.
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 previously was not thought of.
The sale of insurance products can earn banks very significant
commissions (particularly for regular premium products). In addition, one of
the major strategic gains from implementing bancassurance successfully is
the development of a sales culture within the bank. This can be used by the
bank to promote traditional banking products and other financial services as
well. Bancassurance enables banks and insurance companies to complement
each other’s strengths as well.
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:

STRENGTHS:

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 In a country like India of one billion people where sky is the limit
there is a vast untapped potential waiting for life insurance products.
Our other strength lies in a huge pool of skilled professionals whether
it is banks or insurance companies who may be easily relocated for
any bancassurance venture.
 Banks have the credibility established with their constituents because
of a variety of services and schemes provided by them. They also
enjoy pride of place in the hearts of people because of their long
presence and sustained image.
 Banks also enjoy a wide network of branches, even in the remotest
areas that can facilitate taking up the task on a large and massive
scale, simultaneously.
 Banks are very well aware with the psychology of the customers
because of their interaction with the customers on regular basis.
Because of this the bankers can guess the attitude and diverse needs of
the customers and could change the face of insurance distribution to
personal line insurance.
 People rely more upon LIC and GIC for taking insurance. If the
products of LIC and GIC are provided through bancassurance it would
be an added advantage to the insurance companies.
 With the help of banks trained staff, its brand name and the
confidence and reliability of people on the banks, the selling of
insurance products can be done in a more proper way.
 Other than all these things there is a huge potential for insurance
sector, as the population of India is high and a large part of it has

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 remained untapped till now. So this can create an added advantage for
both banks and insurers.

WEAKNESSES:
 In spite of growing emphasis on total branch mechanism and full
computerization of bank branches, the rural and semi-urban banks
have still to see information technology as an enabler. The IT culture
is unfortunately missing completely in all of the future collaborations.
The internet connections are also not properly provided to the staff.
 To undertake the distribution of the insurance products, the bank
employees have to undergo certain minimum period of training,
followed by a test and then get themselves licensed. Moreover the
standards of the examination have been raised in the recent past
making it difficult for many examinees to clear the same.
 There is lack of personalized services because the traditional
insurance agent is considered a member of the family and hence is
able to render a personalized service during and after the sales
process. However that may not be the case in regards to a bank
employee.
 There are many differences in the way of thinking and business
approaches of bankers and the managers of insurance companies.
Banks are traditionally “demand-driven” organizations with a reactive
selling philosophy. Insurance organizations are usually “need-driven”
and have an aggressive selling philosophy.

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  The visit of a customer to the bank is to have a simple transaction like
deposit or withdrawal. Busy customers will have no time to have a
discussion on a long-term durable purchase like insurance across the
counter. Also, the visits in urban or metro branches are going to be
fewer because of ATM’s and e-banking.
 Another drawback is the inflexibility of the products i.e. it cannot be
tailor made to the requirements of the customer. For a bancassurance
venture to succeed it is extremely essential to have in-built flexibility
so as to make the product attractive to the customers.

OPPORTUNITIES:
 There is a vast untapped potential waiting to be mined particularly for
life insurance products. There are more than 900 million lives
waiting to be given a life cover (total number of individual life
policies sold in 1998-99 was just 91.73 million).
 There are many people in many areas that are still unaware about the
insurance and its various products and are waiting that somebody
should come and give them the information about it.
 In urban and metro areas, where the customers are willing to get many
services like lockers and safe deposit systems and other products and
services from banks, there is a good opportunity to market many
property related general insurance policies like fire insurance,
burglary insurance and medi-claim insurance etc.
 Banks' database is enormous even though the goodwill may not be the
same. This database has to be dissected and various homogeneous

75
 groups are to be churned out in order to position the Bancassurance
products. With a good IT infrastructure, this can really do wonders.
 Banks in their normal course of functions lend finance in the form of
loans for cars, or for buying a house to clients etc. They can take
advantage of this by cross-selling the insurance products and combine
it as a package.
 Another area that could be of interest to bankers to sell insurance is
exploiting the corporate customers and tying up for insurance of the
employees of corporate clients, which would be an avenue with easy
access. In most cases banks provide salary disbursement and loan
facilities but here they can provide insurance cover as well.

THREATS:
 Success of a Bancassurance venture requires change in approach,

thinking and work culture on the part of everybody involved. The

work force at every level are so well entrenched in their classical way
of working that there is a definite threat of resistance to any change
that Bancassurance may set in. Any relocation to a new company or
subsidiary or change from one work to a different kind of work will
not be easily acceptable by the employees.
 Another possible threat may come from non-response from the
targeted customers. If many joint ventures took place between banks
and insurance companies then it may happen that the customers may
not respond to such ventures as happened in U.S.
 Insurance in India is perceived more as a saving option than providing
risk cover. So this may create an adverse feeling in the minds of the

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 bankers that such products may lessen the sales of regular bank saving
products. Also selling of investment and good return products may
affect the FD Portfolio of the banks.
 There would be a problem of “Reputational Contagion” i.e. loss of
market confidence towards one in a venture leading to loss of
confidence on the other because of identical brand recognition, similar
management and consolidated financial reporting etc.
 If no strict norms are there for such ventures then many unholy
ventures may take place which may give rise to tough competition
between bancassurers resulting in lower prices and the Bancassurance
venture may never break because of such situations.
 The most common obstacles to success of Bancassurance are poor
manpower management, lack of a sales culture within the bank, no
involvement by the branch manager, insufficient product promotions,
failure to integrate marketing plans, marginal database expertise, poor
sales channel linkages, inadequate incentives, resistance to change,
negative attitudes toward insurance and unwieldy marketing strategy.

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 CHAPTER 10

 Indian scenario

 Global scenario

 Future scope of Bancassuranc

 Survey Analysis

 Findings

 Recommendations

 Conclusion

 Bibliography

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 INDIAN SCENARIO

The business of banking around the globe is changing due to

integration of global financial markets, development of new technologies,
universalization of banking operations and diversification in non-banking
activities. Due to all these movements, the boundaries that have kept various
financial services separate from each other have vanished. The coming
together of different financial services has provided synergies in operations
and development of new concepts. One of these is bancassurance.

Bancassurance is a new buzzword in India. It originated in

India in the year 2000 when the Government issued notification under
Banking Regulation Act which allowed Indian Banks to do insurance
distribution. It started picking up after Insurance Regulatory and
Development Authority (IRDA) passed a notification in October 2002 on
'Corporate Agency' regulations. As per the concept of Corporate Agency,
banks can act as an agent of one life and one non-life insurer. Currently
bancassurance accounts for a share of almost 25-30% of the premium
income amongst the private players in India.

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 Bancassurance provides various advantages to banks,
insurers and the customers. For the banks, income from bancassurance is the
only non interest based income. Interest is market driven and fluctuating and
quite narrowing these days. Banks do not get great margins because of the
competition This is why more and more banks are getting into
bancassurance so as to improve their incomes. Increased competition also
makes it difficult for banks to retain their customers. Banassurance comes as
a help in this direction also. Providing multiple services at one place to the
customers means enhanced customer satisfaction. As for the insurance
company the advantage that bancassurance provides is evident. The
insurance company gets improved geographical reach without additional
costs. In India around 67,000 branches are there for PSU banks alone. If all
67,000 branches sell the insurance products one can see the reach. This is
one method of penetrating the market.

India's rural market has huge potential that is still untapped

by the insurance companies. Setting up their own networks entails such a
huge cost, that no company would be interested in doing so. Bancassurance
again comes as an answer. It helps the insurance companies to tap the market
at a much lower cost. As for the customer the competitive nature of the
Indian market ensures that the reduction in costs would result in benefits in
terms of lower premium rates being passed on to him. The penetration level
of life insurance in the Indian market is considerably low at 2.3% of GDP
with only 8% of the total population currently insured.

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 Thus, bancassurance provide an apparently viable model for
product diversification by banks and a cost-effective distribution channel for
insurers. The success of the partnership between the two entities depends on
the ‘right model’ partnership. Given these changes, bancassurance and
collaboration between banks and insurers has a long way to go in India. With
almost half of the population likely to be in the 'wage earner' bracket by
2010, there is every reason to be optimistic that bancassurance in India will
play a long inning.

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 GLOBAL SCENARIO

Bancassurance has grown at different pace and taken different

shapes and forms in different countries depending on the demography,
economic and legislations in that country. During the last two decades,
bancassurance has taken deep roots in various countries, especially in
Europe. Bnacassurance, so far, has been basically European.

Bancassurance has seen tremendous acceptance and growth

across nations. Although it enjoys a penetration rate in excess of 50% in
France, Spain, Italy and Belgium, other countries have opted for more
traditional networks. The Life insurance market in the UK is largely in the
hands of the brokers. With advent of bancassurance, their market share has
increased from 40% in 1992 to 54% in 1999. Sales agents also play an
important role on a market entirely regulated by the Financial Services &
Markets Act (FSMA) which imposes very strict marketing conditions. In

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Germany, the market continues to be dominated by general sales agents,
even if their market share has declined from 85% in 1992 to 54% in 1999.

Bancassurance recorded huge growth in Europe but not in USA

and Canada. In the US, there were hurdles till recently banks were not
allowed to do insurance business and vice versa. In several countries in
LatinAmerica, banks have benefited from recent reforms – financial
deregulation, among others – by selling insurance products across the
counter. In China, banks are limited to playing the role of tide agents to
insurance companies, which can still provide a good platform for
bancassurance to develop.

In Hong Kong, when a Swiss bank introduced bancassurance, the

life insurance sales went up by 240%. Japan has to make a remarkable
headway in bancassurance. In the Philippines, banks are permitted to own
100% of the insurance company. Bancassurance is yet to be exploited in
Singapore. There is a huge market potential out there in many countries and
especially in India when compared to the global benchmark. It is a good
news to bancassurers that only about 25% of the global insurable population
is insured, and even among them most are underinsured.

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 FUTURE SCOPE FOR BANCASSURANCE

By now, it has become clear that as economy grows it not only

demands stronger and vibrant financial sector but also necessitates to
provide with more sophisticated and variety of financial and banking
products and services. The outlook for bancassurance remains positive.
While development in individual markets will continue to depend heavily on
each country’s regulatory and business environment, bancassurers could
profit from the tendency of governments to privatize health care and pension
liabilities.

India has already more than 200 million middle class population
coupled with vast banking network with largest depositors base, there is
greater scope for use of bancassurance. In emerging markets, new entrants
have successfully employed bancassurance to compete with incumbent

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companies. Given the current relatively low bancassurance penetration in
emerging markets, bancassurance will likely see further significant
development in the coming years.

In India the bancassurance model is still in its nascent stages, but

the tremendous growth and acceptability in the last three years reflects green
pasture in future. The deregulation of the insurance sector in India has
resulted in a phase where innovative distribution channels are being
explored. In this phase, bancassurance has simply outshined other alternate
channels of distribution with a share of almost 25-30% of the premium
income amongst the private players.

To be fruitful, it is vital for bancassurance to ensure that banks

remain fully committed to promoting and distributing insurance products.
This commitment has to come from both senior management in terms of
strategic inputs and the operations staff who would provide the front-end for
these products. In India, the signs of initial success are already there despite
the fact that it is a completely new phenomenon. There is no doubt that
banks are set to become a significant distributor of insurance related
products and services in the years to come.

Survey analysis (questionnaire)

A survey was conducted of about 50 people who did regular banking
transactions and also had an insurance policy. These included several
housewives, businessmen, professionals, students, etc. The following
analysis was done on the basis of the survey conducted:

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  Are you aware of Bancassurance?

No 20%

Yes
Yes 80% No

Interpretation: - Among those who surveyed, 80% of respondents were

aware that their bank provided bancaasurance.They knew with which
Insurance Company their bank has tie up with; also they were aware about
various policies provided by their banks. However, 20% of the respondents
were amused with the term bancassurance and didn’t know anything about it
and the services provided by their banks.

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  Have You Taken An Insurance Policy From Your Bank?

Yes
34%
No

No Yes
66%

Interpretation: Among the people who were surveyed, there were only
34% people who had taken insurance policy from their respective banks.
Remaining 66% respondents didn’t opt to take a policy from their banks.

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  The Kind Of Insurance Policy Taken From The Bank:-

70 63%

60

50 42%

40

30 23%
18%
20

10
0

Deposit Based Loan Based Life Insurance Others

Interpretation: Maximum number of insurance taken was related to

loan. It was either car insurance or a home insurance. Out of the people
surveyed 63% said that they have taken a loan based insurance. There were
23% who have taken insurance which are deposit based because it is a part
of the deposit scheme. Only 18% have taken life insurance cover from the
bank and 42% belong to others category.

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  Reasons For Taking An Insurance Policy:-

90
80% 28% 65% 40%
80
70

60
50
40
30
20
10
0
Security Savings Brand Image of Bank Image of
Bank Insurance

Interpretation: There was a mixed response from the customers. 80%

said that they took the insurance policy because of security benefits. 65%
said that since, they trusted their bank, they took the policy. There were 4o%
who said that the brand image of the company also mattered. Only 28% said
that savings was a reason that encouraged them to buy insurance policy.

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  On Your Choice Which Mode Of Insurance Distribution
Channel Would You Prefer To Buy The Policy From?

Insurance
companies Banks
20% 23%

Brokers
7%

Agents
50%

Interpretation: 50% people preferred agents because they provide

personalized services. 20% took insurance from companies because of their
trust on the company. 23% said they would buy insurance from banks
because of the brand name and their trust on banks. Only 7% said that they
would buy insurance from brokers.

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  Which Bank Do You Feel Would Excel In
Bancaasurance? Rate Them Accordingly

100
90%
90
80
70%
70
60
50 38%
40
30
20
10
0

Public Sector Private Sector Foreign Banks

Banks Banks

Interpretation: 90% people said that private sector banks would excel in
this because of their aggressive selling policies and they provide quality
services to the customers. 70% votes were given to foreign banks. Because
foreign banks have proper management and aggressive selling strategies.

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The public sector banks were given the least votes because of their lazy
approach to work.

 Do You Think Bancassurance Has A Good Future?

No,5%

Yes
No

Yes,95%

Interpretation: 95% people said that they believe that Bancassurance has
a very bright future because there is an immense potential for the insurance
industry in India. But 7% believe that because of the emergence of the new
technology such as ATM’s, Internet banking etc the banks will soon go
virtual so there is not much scope for it.

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 FINDINGS

 Although the concept is simple enough in theory, but in practice it has

been found to be far from straightforward.

 Almost many people have a fair idea about Bancassurance and that
their banks sell various insurance products. But still few people don’t
know about Bancassurance as a concept.

 It has been also found out that the banks have various opportunities to
cross sell insurance products. The insurance companies also have the
opportunity to take advantage of the bank’s network and other
avenues.

 It is also seen that customers have a lot of trust on the banks, and
because of that trust the customers will take the insurance products
from banks.

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 As the brand name of the banks is important so is the brand image of
the insurance companies. So the banks and the insurance companies
must tie-up with the right partners. This will help them to create a
better image in the minds of the customers.

 It has also clear from the study that the private sector and the foreign
banks have better future in Bancassurance. But the public sector banks
are also trying to give them a tough competition e.g. SBI Life
Insurance Co.

 The insurance business can go a long way because there is a large

population who is still unaware about insurance. So the insurance
companies have a huge potential market in the years to come.

 The banks fail to provide personalized services as are provided by the

agents. So banks will have to improve in that area. They should
provide after sales services to the customers.

 Banks now-a-days are trying to provide each and every service to its
customers. So by providing insurance, banks can add one more
service to their list.

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 RECOMMENDATIONS

 The Insurance companies need to design products specifically for

distributing through banks. Trying to sell traditional products may not
work so effectively.

 The employees of the banks who are selling insurance products must
be given proper training so that they can answer to any queries of the
customers and can provide them products according to their needs.

 Banks should also provide after sales services and they should be
more aggressive in selling the insurance products.

 Banks should also do the settlement of claims which will increase the
trust and reliability of the customers on the banks.

 In India, since the majority of the banking sector is in public sector

which has been widely responsible for the lethargic attitude and poor

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 quality of customer service, it needs to rebuild the blemished image.
Else, the bancassurance would be difficult to succeed in these banks.

 A formal and standard agreement between these banks and the

insurance companies should be taken up and drafted by a national
regulatory body. These agreements must have necessary clauses of
revenue sharing. In case of possible conflicts, the bank management
and the management of the insurance company should be able to
resolve conflicts arising in future.

 For bancassurance to succeed, products and processes will need to be

tailored to bank markets, rather than adjusted to insurer’s
specifications.

 Banks and Insurance companies should apply all the skills and
potential in this area and take advantage of the same and they should
improve the products from time to time according to the needs of the
customers.

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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, a diverse 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 long inning.

But the proper implementation of bancassurance is still facing so

many hurdles because of poor manpower management, lack of call centers,

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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 an 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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