Bancassurance

Meaning of Bancassurance
Bancassurance services have evolved in different parts of the world according to the nature of deregulation and other national or regional factors in place. Bancassurance - a term coined by combining the two words bank and insurance (in French) connotes distribution of insurance products through banking channels

RBI Guidelines for Bancassurance

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 following guidelines for banks wishing to do insurance business.

Any scheduled commercial bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. The subsidiaries of banks will also be allowed to undertake distribution of insurance products on agency basis.
Banks which satisfy the eligibility criteria will be given permission to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards.

RBI Guidelines for Bancassurance

Corporate Agency Regulations Banks can act as corporate agents for only one life and one non life insurance company for a commission, as per the current regulatory framework set up by IRDA.

RBI Guidelines for Bancassurance

Broking Route Banks cannot become brokers, as regulations require brokers to be exclusively engaged in insurance broking. RBI does not allow banks to promote separate insurance broking outfits.

RBI Guidelines for Bancassurance

Referral Arrangement
Banks which are not eligible for corporate agency license as per RBI guidelines can adopt a referral model wherein they merely part with their client database with insurers for a fee. As per the above circular no insurer could enter into a referral arrangement with any bank, which has been licensed by the Authority to act as an agent or an insurance intermediary The banks need not obtain prior approval of the RBI for engaging in insurance agency business or referral arrangement without any risk participation, subject to the conditions

RBI Guidelines for Bancassurance

Insurance through Joint ventures Apart from the above, the fully integrated Bancassurance involves much more comprehensive relationship between insurer and bank, where banks will have a counter within and sell/market the insurance products as a core activity. This includes banks having wholly owned insurance subsidiaries with or without foreign participation. In the Indian case several banks like ICICI bank and HDFC bank in private sector and State Bank of India in the public sector, have already taken a lead in resorting to this type of Bancassurance model and have acquired sizeable share in the insurance market, within a short span of time

Benefits of Bancassurance to Bank

Additional and stable stream of income through diversification into insurance and reduction on reliance on interest spreads as the major source of income Leverage on their extensive customer bases as also better utilization of fixed infrastructure Inculcation of sales oriented culture amongst staff of banks Offering a whole range of financial services to clients and increase customer retention Reduce risk-based capital requirement for the same level of revenue increased return on capital as also assets Work towards the provision of integrated financial services tailored to the life-cycle of customers

Benefit of Bancassurance to Insurance Company

Tap into a huge customer base of banks business growth Reduce their reliance on high-cost traditional agents by making use of the various channels owned by banks Availability of the relatively more sophisticated technology Improved efficiency on account of reduced ratio of expenses to premium Develop new financial products more efficiently in collaboration with their bank partners Establish market presence rapidly without the need to build up a network of agents/insurance outlets

Benefit of Bancassurance to Customers

A part of the reduced distribution cost may be passed on to clients in the form of lower premium rates. In addition, it is likely that new products will be developed to better suit client needs, which otherwise may not be available if banks and insurers worked independently.

Issues with respect to Bank and Insurance Company

Banks have not taken bancassurance seriously as most banks do not have comprehensive long-term policy on bancasssurance.

Bancassurance Business Across Globe

Europe The most successful Bancassurance players in France, Italy, and Spain operate either through fully owned insurance subsidiaries or through joint ventures that have an exclusive distribution agreement with the bank. In these countries insurance business is deeply integrated with the banks processes. Premiums are collected by the bank, usually by direct debit from the customers current account held in the bank.

Bancassurance Business Across Globe

Hong Kong Bancassurance business is predominantly sold by bank staff but in some cases, the staff of insurance company works in the branches of the partner bank. Bancassurance in life insurance business in Hong Kong is around 35 per cent.

Bancassurance Business Across Globe

South Koreas South Koreas Bancassurance regime, started in August 2003, has emerged as a major sales channel for the insurance industry in that country. The latest available data from the Financial Supervisory Service (FSS) suggest that Bancassurance accounted for more than 7% of total insurance premiums from April to June 2006, which was more than double the penetration recorded in financial year 2003-04,

Bancassurance Business Across Globe

Malaysia Bancassurance in Malaysia started with the establishment of Mayban Life Insurance in 1992 as a dedicated Bancassurance arm of Maybank of Malaysia, one of the largest banks in Malaysia.

Bancassurance Business Across Globe

China In China, commercial banks have quickly become a major distribution channel of insurance since the Insurance Law was revised in 2003 which lifted restrictions stating that banks were no longer limited to being agents for one insurance firm

Penetration of Bancassurance

Bancassurance as Cost effective measure