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Executive Summary

The Banking and Insurance industries have changed rapidly in the


changing and challenging economic environment throughout the world. In this
competitive and liberalized environment everyone is trying to do better than others
and consequently survival of the fittest has come into effect.

This has given rise to a new form of business wherein two big financial
institutions have come together and have integrated all their strength and efforts and
have created a new means of marketing and promoting their products and services. On
one hand it is the Banking sector which is very competitive and on the other hand is
Insurance sector which has a lot of potential for growth. When these two join
together, it gives birth to BANCASSURANCE.

Bancassurance is nothing but the collaboration between a bank and an


insurance company wherein the bank promises to sell insurance products to its
customers in exchange of fees. It is a mutual relationship between the banks and
insurers. A relationship which amazingly complements each other’s strengths and
weaknesses.

Taking all these things into consideration I would like to present my project
“BANCASSURANCE (an emerging concept in India). The project flashes some light
on Bancassurance and how it is perceived by people in India. It deals with the
conceptual part of Bancassurance as well as its practical applications in India.

The main focus of this project is on benefits and importance of


Bancassurance in India. The regulations governing Bancassurance are also dealt with
in this project. SWOT analysis is also done so as to identify the various opportunities
and threats for Bancassurance in India.

The Indian as well as Global contexts both are taken into account. The
project also revolves around data, facts and figures that are necessary to prove the
importance of Bancassurance.

Further the project also includes the case study of SBI Life Insurance
Company, its various products, the growth they have experienced since the opening
up of a wholly owned subsidiary of SBI Bank that sells insurance products.

A survey analysis has also been done so as to know the popularity and the
growth perspectives of Bancassurance. The survey tries to identify whether the
conditions are favourable for it India or not. At the end some suggestions are also
given to fill the potholes that still exist in this system.

This project is just a gist about how the Globalization, Liberalization and
tough Competition have brought the Banking as well as the Insurance Industries
together to help each other and to provide excellent services to the customers.

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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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Introduction to Insurance Sector

Insurance may be defined as: -

“It is a contract between two parties where by one party undertakes to


compensate the another party for the loss arising due to an uncertain events for which
the another 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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Chapter 2

 About Bancassurance

1. Meaning

2. Origin

3. Models of Bancassurance

i. Structural classification

ii. Product based classification

iii. Bank Referrals

What is BANCASSURANCE?

With the opening up of the insurance sector and with so many players
entering the Indian insurance industry, it is required by the insurance companies to
come up with innovative products, create more consumer awareness about their
products and offer them at a competitive price. Since the banking services, insurance
and fund management are all interrelated activities and have inherent synergies,
selling of insurance by banks would be mutually beneficial for banks and insurance
companies. With these developments and increased pressures in combating
competition, companies are forced to come up with innovative techniques to market
their products and services. At this juncture, banking sector with it's far and wide

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reach, was thought of as a potential distribution channel, useful for the insurance
companies. This union of the two sectors is what is known as Bancassurance.

Meaning

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


channel. It is a phenomenon wherein insurance products are offered through the
distribution channels of the banking services along with a complete range of banking
and investment products and services. To put it simply, Bancassurance, tries to exploit
synergies between both the insurance companies and banks.

Bancassurance can be important source of revenue. With the increased competition


and squeezing of interest rates spread, profits are likely to be under pressure. Fee
based income can be increased through hawking of risk products like insurance.

Bancassurance if taken in right spirit and implemented properly can be win-win


situation for the all the participants' viz., banks, insurers and the customer.

Origin

The banks taking over insurance is particularly well-documented with reference to the
experience in Europe. Across Europe in countries like Spain and UK, banks started
the process of selling life insurance decades ago and customers found the concept
appealing for various reasons.

Germany took the lead and it was called “ALLFINANZ”. The system of
bancassurance was well received in Europe. France taking the lead, followed by
Germany, UK, Spain etc. In USA the practice was late to start (in 90s). It is also
developing in Canada, Mexico, and Australia.

In India, the concept of Bancassurance is very new. With the liberalization and
deregulation of the insurance industry, bancassurance evolved in India around 2002.

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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

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, and packaged with proper

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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 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

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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. 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

1. For Banks:
i. As a source of fee based income
ii. Product diversification
iii. Building close relations with the customers

2. 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 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

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been fairly predictable. However shrinking interest rate, growing competition and
increased horizontal mobility of customers have forced bankers to look elsewhere to
compensate for the declining profit margins and Bancassurance has come in handy for
them. Fee income from the distribution of insurance products has opened new
horizons for the banks and they seem to love it.

From the banks’ point of view, opportunities and possibilities to


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

 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

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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

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.

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 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

Now a 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

 Regulations for Bancassurance in India

1. RBI Norms for banks entering into Insurance sector

2. IRDA Norms for Insurance companies tying up with Banks

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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.

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1 Any scheduled commercial bank would be permitted to undertake insurance
business as agent of insurance companies on fee basis. Without any risk
participation

2. Banks which satisfy the eligibility criteria given below will be permitted to set up a
joint venture company for undertaking insurance business with risk participation,
subject to safeguards. The maximum equity contribution such a bank can hold in the
Joint Venture Company will normally be 50% 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;
iii. The level of non-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if
any, of the concerned bank should be satisfactory.

3. In cases where a foreign partner contributes 26% 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.

4. A subsidiary of a bank or of another bank will not normally be allowed to join the
insurance company on risk participation basis.

5. Banks which are not eligible for ‘joint venture’ participant as above, can make
investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is
lower, in the insurance company for providing infrastructure and services support.
Such participation shall be treated as an investment and should be without any
contingent liability for the bank.

The eligibility criteria for these banks will be as under:


i. The CRAR of the bank should not be less than 10%;
ii. The level of NPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive
years.

6. All banks entering into insurance business will be required to obtain prior
approval of the Reserve Bank. The Reserve Bank will give permission to banks on
case to case basis keeping in view all relevant factors including the position in regard

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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.

7. 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.

8. Latest audited balance sheet will be considered for reckoning the eligibility criteria.

IRDA Norms for Insurance Companies

The Insurance regulatory development & Authority has given certain guidelines for
the Bancassurance they are as follows: -

1) Chief Insurance Executive: Each bank that sells insurance must have a chief
Insurance Executive to handle all the insurance matters & activities.

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2) 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.

3) Corporate agents: Commercial banks, including co-operative banks and RRBs


may become corporate agents for one insurance company.

4) 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:-

1) 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 (2) Licensing of Corporate agents

(2) 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.

Chapter 5

 Benefits of Bancassurance

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1. To Banks

2. To Insurance companies

3. To Customers

To Banks

From the banks point of view:

(A)By selling the insurance product by their own channel the banker can increase
their income.

(B) 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.

(C) The Bankers have extensive experience in marketing. They can easily attract
customers & non-customers because the customer & non-customers also bank on
banks.

(D) 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.

(E) Productivity of the employees increases.

(F) By providing customers with both the services under one roof, they can
improve overall customer satisfaction resulting in higher customer retention
levels.

(G) Increase in return on assets by building fee income through the sale of
insurance products.

(H) Can leverage on face-to-face contacts and awareness about the financial
conditions of customers to sell insurance products.

(I) Banks can cross sell insurance products E.g.: Term insurance products with
loans.

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To Insurers

From the Insurer Point of view:

(A) The Insurance Company can increase their business through the banking
distribution channels because the banks have so many customers.

(B) By cutting cost Insurers can serve better to customers in terms lower premium rate
and better risk coverage through product diversification.

(C)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.

(D)Customer database like customers' financial standing, spending habits, investment


and purchase capability can be used to customize products and sell accordingly.

(E)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.

(F)The insurance companies can also get access to ATM’s and other technology being
used by the banks.

(G)The selling can be structured properly by selling insurance products through


banks.

(H) The product can be customized as per the needs of the customers.

To Customers

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From the customers' point of view:

(A) Product innovation and distribution activities are directed towards the
satisfaction of needs of the customer.

(B) Bancassurance model assists customers in terms of reduction price, diversified


product quality in time and at their doorstep service by banks.

(C)Comprehensive financial advisory services under one roof. i.e., insurance


services along with other financial services such as banking, mutual funds,
personal loans etc.

(D) Easy access for claims, as banks are a regular visiting place for customers.

(E) Innovative and better product ranges and products designed as per the needs of
customers.

(F)Any new insurance product routed through the bancassurance


Channel would be well received by customers.
.

(G) 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.

Chapter 6

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 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

Distribution Channels

Traditionally, insurance products were promoted and sold principally


through agency systems only. The reliance of insurance industry was totally on the
agents. Moreover with the monopoly of public sector insurance companies there was
very slow growth in the insurance sector because of lack of competition. The need for
innovative distribution channels was not felt because all the companies relied only
upon the agents and aggressive marketing of the products was also not done. But with
new developments in consumers’ 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:

 Career Agents:

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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.

 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:

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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.

 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:

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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.

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Chapter 7

 HDFC Standard Life Insurance (profile)

 Products offered

 HDFC Standard Life Insurance (perspective)

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HDFC Standard Life Insurance

Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a
joint venture between Housing Development Finance Corporation Limited (HDFC
Limited) - India's leading housing finance institution, and a Group Company of the
Standard Life Plc, UK. The Company is one of leading private insurance companies,
offering a range of individual and group insurance solutions, in India. Being a joint
venture of top financial services groups, HDFC Standard Life has adequate financial
expertise to manage long-term investments safely and resourcefully.

HDFC Standard Life Insurance offers a range of individual and group solutions,
which can be easily personalized to specific needs. Its group solutions have been
planned to offer complete flexibility, together with a low charging structure. As of 31
December, 2008, the Company's new business premium income stood at Rs. 1,839.70
Crores; it has covered over 812,811 lives so far.

The MD and CEO of HDFC Standard Life Mr. Deepak Satwalekar, has given
the company new directions and has helped the company achieve the status it
currently enjoys. HDFC Standard Life brings to you a whole range of insurance
solutions be it group or individual or NAV services for corporations; they can be
easily customized as per specific needs.

HDFC Standard Life Insurance India boasts of covering around 8.7 lakh lives by
March'2007. The gross incomes standing at a whopping Rs. 2, 856 crores, HDFC
Standard Life Insurance Corporation is sure to become one of the leaders and the first
preference for any life insurance customer.

The Bancassurance partners of HDFC Standard Life Insurance Co Ltd are HDFC,
HDFC Bank India Limited, Union Bank of India, Indian Bank, Bank of Baroda,
Saraswat Bank and Bajaj Capital.

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Products Offered by HDFC Standard Life Insurance

Protection Plans

• HDFC Term Assurance Plan


• HDFC Loan Cover Term Assurance Plan
• HDFC Home Loan Protection Plan

Children's Plans

• HDFC Children's Plan


• HDFC Unit Linked Young Star II
• HDFC Unit Linked Young Star Plus II
• HDFC Unit Linked YoungStar Champion

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Retirement Plans

• HDFC Personal Pension Plan


• HDFC Unit Linked Pension II
• HDFC Unit Linked Pension Maximiser II
• HDFC Immediate Annuity

Savings & Investment Plans

• HDFC Unit Linked Endowment Plus II


• HDFC SimpliLife
• HDFC Unit Linked Endowment II
• HDFC Unit Linked Enhanced Life Protection II
• HDFC Unit Linked Wealth Maximiser Plus
• HDFC Unit Linked Endowment Winner
• HDFC Endowment Assurance Plan
• HDFC Money Back Plan
• HDFC Single Premium Whole of Life Insurance Plan
• HDFC Assurance Plan
• HDFC Savings Assurance Plan

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Health Plans

• HDFC Critical Care Plan


• HDFC SurgiCare Plan

Group Plans

• Group Term Insurance Plan


• Group Variable Term Insurance Plan
• Group Unit Linked Plan - Gratuity
• Group Unit Linked Plan - Superannuation
• Group Unit Linked Plan - Leave Encashment

HDFC Standard Life Insurance (perspective)

HDFC Standard Life insurance is the oldest life insurance company in the world. It is
the largest insurer in the UK and is the 28th largest company in the world. In India, the
company is marketing life insurance products and unit linked investment plans. From
my research at HDFC SLIC, I found that the company has a lot of competition from
other private insurers like ICICI, Aviva, Birla Sun Life and Tata AIG. It also faces
competition from LIC. To compete effectively HDFC SLIC could launch cheaper and

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more reasonable products with small premiums and short policy terms (the number of
year’s premium is to be paid). The ideal premium would be between Rs. 5000 – Rs.
25000 and an ideal policy term would be 10 – 20 years.

HDFC must advertise regularly and create brand value for its products and services.
Most of its competitors like Aviva, ICICI, Max, Reliance and LIC use television
advertisements to promote their products. The Indian consumer has a false perception
about insurance – they feel that it would not benefit them if they do not live through
the policy term. Nowadays however, most policies are unit linked plans where a
customer is benefited even if their death does not occur during the policy term. This
message should be conveyed to potential customers so that they readily invest in
insurance.

Family responsibilities and high returns are the two main reasons people invest in
insurance. Optimum returns of 16 – 20 % must be provided to consumers to keep
them interested in purchasing insurance.

On the whole HDFC standard life insurance is a good place to work at. Every new
recruit is provided with extensive training on unit linked funds, financial instruments
and the products of HDFC. This training enables an advisor/sales manager to market
the policies better. HDFC was ranked 13 in the Best Places to Work survey. The
company should try to create awareness about itself in India. In the global market it is
already very popular. With an improvement in the sales techniques used, a fair bit of
advertising and modifications to the existing product portfolio, HDFC would be all set
to capture the insurance market in India as it has around the globe.

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Chapter 8

 Various Trends

 Challenges

Trends

 Though bancassurance has traditionally targeted the mass market, but


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

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 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.

 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.

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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 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

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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.

Chapter 10

 Indian scenario

 Global scenario

 Future scope of Bancassurance

 Other tie ups

 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.

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

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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.

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.

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

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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 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 companies. Given the current relatively

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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.

Other tie-ups

Life Insurance tie-ups:

Private Sector Companies:

1. Bajaj Allianz Life Insurance Co. Ltd.


2. Birla Sun Life Insurance Co. Ltd.
3. HDFC Standard Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Co. Pvt. Ltd.
6. SBI Life Insurance Company Limited
7. TATA-AIG Life Insurance Company Ltd.
8. Sahara India Life Insurance Co. Ltd.
9. Aviva Life Insurance Co India Pvt. Ltd.
10. Kotak Mahindra OU Mutual Life Insurance Co. Ltd.
11. Max New York Life Insurance Co. Ltd.
12. MetLife India Insurance Co. Pvt. Ltd.
13. Reliance Life Insurance Co. Ltd.
14. Shriram Life Insurance Co. Ltd.

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15. Bharti Axa Life Insurance Co. Ltd.

Public Sector Company:

16. Life Insurance Corporation of India

Non-Life Insurance tie-ups:

Private Sector Companies:

1. Royal Sundaram Allianz Insurance Co. Ltd.


2. TATA-AIG General Insurance Co. Ltd.
3. Reliance General Insurance Co. Ltd.
4. IFFCO-TOKIO General Insurance Co. Ltd.
5. ICICI Lombard General Insurance Co. Ltd.
6. Bajaj Allianz General Insurance Co. Ltd.
7. HDFC Chubb General Insurance Co. Ltd.
8. Cholamandalam MS General Insurance Co. Ltd.
9. Star Health and Alhed Insurance Co. Ltd.

Public Sector Companies:

10. The New India Assurance Co. Ltd.


11. National Insurance Co. Ltd.
12. United India Insurance Co. Ltd.
13. The Oriental Insurance Co. Ltd.
14. Export Credit Guarantee Corporation Ltd.
15. Agriculture Insurance Company Ltd.

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.

 Have You Taken An Insurance Policy From Your Bank?

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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.

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

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70 63%

60

50 42%

40

30 23%
18%
20

10

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.

 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

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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.

 On Your Choice Which Mode Of Insurance Distribution


Channel Would You Prefer To Buy The Policy From?

Ins urance
com panies Banks
20% 23%

Brokers
7%

Ag ents
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

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. 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%

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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.

 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 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, 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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Bibliography

 Insurance watch.

 Business world.

 Business today.

 Theories and Practices in Insurance.

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Bibliography

 www.insuremagic.com

 www.google.com

 www.hdfclife.com

 www.india infoline.com

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