Spend, Save and Invest Smartly
This is basically insurance products channelled through banks. Banks have easy access to customers. When you enter the bank you must have noticed a lobby (person who talks to you and persuades you ) to take up some banking or an insurance product you may need.This is bancassurance where insurance products are channelled through banks so that they are easily available to you and you can purchase these policies without much of a fuss. By now, it has become clear that as economy grows it not only demands stronger and lively financial sector but also necessitates to provide with more sophisticated and variety of financial and banking products and services. Krueger (2004) pointed out that the history of the North America is a case in reference of one of financial growth and deepening in tandem with economic growth. As India is being considered one of the developing countries among the Emerging market economies, financial sector has also developed much vibrant with the financial reforms. In fact, in recent years, it is surmised that even the ‘global economic growth’ hinges on development prospects of the emerging economies like China and India to a greater extent. Significantly, Indian financial system has recorded an average growth of over 8.5 per cent for the last four years, with macroeconomic and financial stability (RBI, 2006) and indications are that it may grow at even improved rate in the near future provided there is good monsoon. Experience also showed that economic growth had powerfully supported the expansion of middle income class in most of the Asian countries, and now it is the turn of India. Experience reveals that at the early growing stage of the economy the primary financial needs are met by the banking system and thereafter as the economy moves on to advanced pedestal, the need for the other non-banking financial products including insurance, derivatives, etc., were strongly felt. Moreover, as India has already more than 200 million middle class population coupled with vast banking network with largest depositors base, there is larger scope for use of bancassurance. For instance as at end March 2005, there were more than 466 lakh bank accounts with scheduled commercial banks. It is worth being noted that, Swiss Re (2002) in its study on Asia pointed out that bancassurance penetration is expected to tangibly increase in Asia over next 5 years and this has been greatly proved. In simple words, it is rightly put that bancassurance has promised to combine insurance companies’ viable edge in the “production” of insurance products with banks’ edge in their distribution, through their vast retail networks (Knight, 2006).
In the post reforms, the financial sector has more number of players of both domestic and foreign and the dividing line between the banks and non-banking financial institutions’ activities had considerably thinned down. Overlapping in one another’s functions/ areas have become more common than exception. The direct upshot of these developments led to intensive competition in the banking sector and which in turn had a strong bearing on the banks’ net interest margin (spread). In fact the emerging scenario is likely to bring down the banks’ spread even thinner.
Contemporaneously, with the extensive financial reforms in the insurance sector and the subsequent opening up of this sector, all the private entities plunged almost simultaneously with a very little spacing of time and the entire insurance sector has been revealed to stiff competition. A number of foreign insurance companies in both life and non-life segment have entered by means of joint ventures with an equity stake of upto 26 per cent in the local companies. IRDA had reported that as much as Rs. 8.7 billion was brought in by these companies by way of foreign investments, with the extant provision of 26 per cent foreign capital. In the context of Indian insurance market being growing at an annual rate of 21.9 per cent (IRDA, 2005), increase in the foreign participation in the capital would only strengthen the competition with more number of fresh entrants, given the better growth prospects.