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In a country of 1Billion people, sky is the limit for personal lines insurance products. There is a vast untapped potential waiting to be mined mainly 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 about 200 Million households waiting to be approached for a householder’s insurance policy. Millions of people travelling in and out of India can be tapped for Overseas Mediclaim and Travel Insurance policies. After discounting the population below poverty line the middle market segment is the second major in the world after China. The insurance companies worldwide are eyeing on this, why not we pre-empt this move by doing it ourselves? Our other strength lies in a huge pool of experienced professionals whether it is banks or insurance companies who may be easily relocated for any bancassurance venture. LIC and GIC both have a good range of personal line products already lined up, therefore R & D efforts to create new products will be minimal in the beginning. Additionally, GIC with 4200 operating offices and LIC with 2048 branch offices are almost already omnipresent, which is so essential for the development of any bancassurance project
The IT culture is unfortunately missing completely in all of the potential and future collaborators i.e. banks, GIC & LIC. A late awakening seems to have dawned upon but it is a case of too late and too little. Elementary IT requirement like networking (LAN) is not in place even in the headquarters of these institutions, when the need today is of Wide Area Network (WAN) and Vast Area Network (VAN). Internet connection is not accessible even to the managers of operating offices. The middle class population that we are eyeing at is today overburdened, firstly by inflationary pressures on their pockets and then by the tax net. Where is the money left to think of insurance? Fortunately, LIC schemes get IT exemptions but personal line products from GIC (mediclaim already has this benefit) like householder, travel, etc. also need to be given tax exemption to further the cause of insurance and to increase domestic revenue for the country. 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 customer.
Banks’ database is gigantic even though the goodwill may not be the same as in case of their European counterparts. This database has to be dissected variously and different homogeneous groups are to be churned out in order to position the bancassurance products. With a good IT infrastructure, this can really do wonders. Other developing economies like Malaysia, Thailand and Singapore have already taken a leap in this direction and they are not doing badly. There is already an atmosphere created in the country for liberalization and there appears to be a political consensus also on the subject. Therefore, RBI or IRA should have no hesitation in allowing the marriage of the two to take place. This can take the form of merger or acquisition or setting up a joint venture or creating a subsidiary by either party or just the working collaboration between banks and insurance companies.
Success of a bancassurance venture requires variations in approach, thinking and work culture on the part of everybody involved. Our work force at every stages are so well entrenched in their standard way of working that there is a specific threat of conflict to any change that bancassurance may set in. Any transfer to a new company or subsidiary or change from one work to a different kind of work will be resented with vehemence. Another possible threat may come from non-response from the target customers. This happened in USA in 1980s after the enactment of Garn - St Germaine Act. A rush of joint ventures took place between banks and insurance companies and all these failed due to the non-response from the target customers. US banks have once again (since late 1990s) twisted their attention to insurance i.e., life insurance. The investors in the capital may turn their face off in case the rate of return on capital falls short of the existing rate of return on capital. Since banks and insurance companies have major portion of their earnings coming from the investments, the return from bancassurance must at least match those returns. Also if the unholy alliances are allowed to take place there will be severe competition in the market resulting in lower prices and the bancassurance venture may never break-even.