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What is the use of bancassurance?



Bancassurance 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 immediate 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’ to begin with. Banks even offer gap in their own premises to provide accommodation the insurance staff for selling the insurance products or giving access to their clients database for the use of the insurance companies. As number of banks in India have begun to act as ‘corporate agents’ to one or the other insurance company, it is a general sight that banks canvassing and marketing the insurance products across the counters. The present IRDA’s regulation, however, restricts bankers to act as a corporate agent on behalf of only one life and non-life insurance company.

In the case of ICICI-Prudential Life Insurance company, within two years of its operations, it could reach more than 25 major cities in India and as much as 20 per cent of the life insurance sale are through the bancassurance channel (Malpani 2004). In the case of ICICI bank, SBI and HDFC bank insurance companies are subscribers of their respective investment companies. ICICI bank sells its insurance products practically at all its major branches, besides it has bancassurance partnership arrangements with 19 other banks as also as several as 200 corporate tie-up arrangements. Thus, among the private insurance companies, ICICI Prudential appears to exploit the bancassurance potential to the maximum. ICICI stated that Bank of India has gradually grown the life insurance segment of its business since its inception. ICICI prudential had also reported to have entered into associated tie-ups with a number of RRBs, to reap the potential of rural and semi-urban. In fact, it is a step in the right direction to tap the enormous potential and semi-urban market. It will not be astounding if other insurance companies to follow this direction. Aviva Insurance had reported that it has tie-ups with as many as 22 banking companies, which includes private, public sector and foreign banks to market its products. Similarly, Birla Sun Life Insurer reported to have tie-up arrangements with 10 leading banks in the country. A distinct feature of the recent trend in tie-up arrangements was that a number of cooperative banks have roped in with bancassurance agreement. This has added advantage for insurer as well as the cooperative banks, such as the banks can increase the non-fund based income without the risk participation and for the insurers the vast rural and semi-urban market could be tapped without its own presence. Bancassurance alone has contributed abundantly to as much as 45 per cent of the premium income in individual life segment of Birla Sun Life Insurer (Javeri, 2006).

Incidentally even the public sector major LIC reported to have tie-up with 34 banks in the country, it is likely that this could be the largest number of banks selling single insurance company’s products. Ironically, LIC also has the difference of being the oldest and the largest presence of its own in the country. SBI Life Insurance for instance, is uniquely placed as a pioneer to usher bancassurance into India. The company has been broadly utilizing 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 has distinct advantage of having access to over 100 million accounts and which provides it a vibrant and largest customer base to build insurance selling across every region and economic strata in the country. In 2004, the company reported to have became the first company amongst private insurance players to cover 30 lakh lives.Interestingly, in respect of new (life) business bancassurance business channel is even greater than the size of direct business by the insurers at 2.17 per cent. Even in respect of LIC around 1.25 percent of the new business is through bancassurance. Considering the large base, even this constitutes quite sizeable to begin within the case of LIC. This speaks for itself the rate at which the bancassurance becoming an important channel of distribution of insurance products in India. It is significant to note that the public sector giant LIC which has branches all over India is also moving towards making use of bancassurance channel. It is significant to note that in the Indian case, all those insurers and banks who have taken the lead in identifying the bancassurance channel, at the early stage, are now reaping the maximum profit of deeper existing customer relationship as also wider coverage of newer customers besides enhancing fee based income. During 2005-06, as much as 16.87 per cent of new business were underwritten through banks as corporate agent channel alone as compared with 6.61% through direct business (Table 6). However, banks as referrals taken together has sizeable chunk of business. This growth was primarily due to the aggressiveness witnessed in the private life insurance sector and one of the drivers for this.

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