reasons for banks to enter into bancassurance

Certain life insurance products will protect or minimize their risk exposure – mortgage or other loans, key man etc. Comprehensive financial advisory services under one roof. bancassurance is relatively new in the USA. Importance: Bancassurance should not be merely viewed as an add-on product but as an important aspect of the business. The same study suggests that satisfied bancassurance customers rate the bank’s reputation highly for their satisfaction. Banks also get an increased Return on their Assets though this (ROA). Experiences in both Latin America and Asia may prove valuable to banks and insurers entering into bancassurance ventures in the US and elsewhere. A small capital outlay in turn means a high return on equity. At this juncture, banking sector with it’s far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. Based on OJK Circular Letter No. Insurers can exploit the banks’ wide network of branches for distribution of products. To put it simply, Bancassurance tries to exploit synergies between both the insurance companies and banks. The trust they would place on insurance carriers and independent agents is comparatively lesser. EY conducted a survey in 2017, surveying 1400 retail bank customers in 7 Brazilian cities. Banks and insurance companies see bancassurance as the answer to the Indian retail financial industry’s future income. Bank staff is often reluctant to take on the responsibility of selling insurance, in addition to their regular tasks. Learning from the success/failures of their existing covers, insurance carriers can launch new products more likely to succeed. Axis Bank’s fee-based income increased by 30% in 2010-11 after taking a stake in Max Life Insurance Company. 1. (Source: Marketwatch, 2018). ", Benefits of Pay-for-Performance Compensation Strategy, Stakeholder Analysis – Stakeholder Power and Interest Mapping. Banks do not get great margins because of the competition this is why more and more banks are getting into bancassurance … Let’s discuss the other advantages that they gain by entering these partnerships with insurance carriers. Additional funds for investment. So, penetration is the foremost benefit that the insurance carriers gain out of a bancassurance alliance. In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. In the first half of 2019, we recorded a growth in the number of new policies reaching about … Banks have already gained trust among their customers. 1. Most of the bancassurance operations fall in the first model. Bank shall ensure access to information, Information Materials and Documentation before the Customer decides to enter into the Insurance Contract and submits their declaration of will concerning the Insurance Cover, in the period necessary for the Customer to … Max Bupa, Standard Chartered Bank enter into bancassurance tie-up 03 Feb, 2014, 06.07 PM IST. If the industry is to grow at a rate of 20% per annum (against LIC’s growth of 39% during 2001- 02), the life insurance market in India will be around Rs.1,71,500 crores in ten years time. The “Good” culture of the bank will have a favorable impact on the life insurer. Customers in Australia are prepared to shop around for the best deal. 2. Commitment of senior management: Senior management of the bank must be committed to bancassurance as a core strategy that should be integrated with other core strategies. Banks ranked “appealing to customers” as the top reason to participate in bancassurance, citing the ability to improve the customer experience through more convenient one-stop shopping for financial services. Academia.edu is a platform for academics to share research papers. For instance, Max Life’s partnership with Axis Bank accounted for 55% of its revenue after Axis bank acquired its shares. Source: EY – Rethinking the success of bancassurance, Brazil. One of the best ways to increase ROA, assuming a constant asset base, is through fee income. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority. Banks have a huge amount of data on their customers. Further service aspect can also be tackled easily. A customized insurance product at a reduced price (because of the operational cost cutting) along with expert guidance. And, Amazon provides this solution and takes it one step further to ensure cross-sell. Canara HSBC OBC Life, Dhanlaxmi Bank enter into bancassurance alliance 1 min read. Updated: 06 Jul 2017, 07:43 PM IST PTI. There are several reasons why banks should seriously consider Bancassurance, the most important of which is increased return on assets (ROA). Max Bupa has entered into a bancassurance tie-up with Standard Chartered Bank to provide health insurance offerings to customers of the bank. Description: Bancassurance arrangement benefits both the firms. Bancassurance distribution model allows the customers to get an amalgamation of other financial services under one roof. Sorry! The penetration of banks’ branches into the rural areas can be utilized to sell products in those areas. As per the recommendations of the Malhotra Committee on Reforms in the Insurance Sector, Indian Parliament passed the Insurance Regulatory & Development Authority (IRDA) Act 1999. This dissertation's main aim is to gain an insight into the drivers and barriers to entry faced by the banks when entering into this market niche over the years. The “Tough” effective and efficient sales and marketing culture will have a favorable impact on the banks marketing function. (ROA) and Return-on-Equity (ROE) were the 4. Let’s look at the major advantages of bancassurance for customers in the infographic below. Wide network of branches- Banks can But revenues have been modest and flat in recent years, and most insurance sales in U.S. banks … Bank reputation is one of the top reasons listed by the surveyed customers for buying insurance at the bank. With these advantages leveraged well, the operational efficiencies and the profitability of the bancassurnace sales channel can be increased manifold. Third, banks are … Let’s look at them one by one: On its own, it would be impossible for insurance companies to reach the market coverage comparable to that of banks. Bancassurance offers another area of profitability to banks with little or no capital outlay. One of the most important reasons for banks to enter into the bancassurance business lies in the possibility to increase the source of revenue and diversify their activities. Very well thought out and excellently articulated advantages of Bancassurance to all parties with helpful insights and success stories, many thanks! This makes customer experience seamless and hassle-free because there’s just one point-of-contact for them. Banks enter the bancassurance alliances because in most cases, that’s the only way they’ll be allowed to sell insurance. Let’s discuss the reasons why banks are entering bancassurance partnerships, and if they aren’t, why they should be. This reduces the cost of distribution for both insurers and the banks, increasing the channel’s profitability. 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. The banks in India have a client base of close to 100 million and therefore are an ideal case for carrying bancassurance forward. Banks enjoy the benefit of being able to provide yet another product to their customers. The 4 metrics also improved, but the improvement wasn’t significant. Through bancassurance, their market penetration goals can thus be met in a much shorter timeframe than through an agency channel. b) Right Time: At a location, they already are for their financial needs – their banks. The degree to which banks devote themselves to the sale and servicing of Insurance varies from country to country and among individual banks. See open positions, Bank-grade security and complete data encryption, improved almost all components of CAMEL model (, except four indicators). 4. Furthermore, prior empirical studies mainly evaluate the efficiency of bancassurance from solely a banking perspective. Financial products are not an exception. With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. One-stop shopping for financial services 2. As discussed in my previous article, (and as you probably already know), the bancassurance model of insurance distribution has found success in many markets. Also, one of the major reasons cited for the low interest of banks in bancassurance is the perceived low profit margin on insurance products versus banking products. Banks use their existing premises and employees (tellers and branch staff) for the sale of the new insurance products. Tell us your use case for a personalized demo. Bancassurance growth differs due to various reasons in different countries. Bharti AXA Life, SBM Bank India enter into bancassurance partnership. With increased loyalty and stickiness, comes higher CLV per customer which is a very important metric for banks. So, banks would be able to keep their employees motivated, while helping them build on their skills. This improves the overall experience of the customers. Bancassurance is a new concept in financial services sector means using the bank’s distribution channels to sell insurance products. This means the customers, the banks and the insurance carriers. They also utilize the insurance company’s expertise in training bank employees and packaging insurance products. Even if banks can manage to get 25% of the market, they will account for sales worth Rs.43,000 crores in premium. Banks address this by taking the insurance carrier’s help to devise attractive incentive plans & providing them specialized training. Bank being the front dealing with customers, handle renewals as well, making the transaction even more hassle-free. Enhanced convenience on the part of the insured. In the EY bancassurance study conducted in Brazil, a timely response was rated highly in the decision to buy insurance. During 2001-02, the total life insurance premium collection in India rose to about Rs.50, 000 crores. Required fields are marked *. The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial services providers, thereby putting a barrier on bancassurance. In any market, where the regulations allow for the bancassurance to grow, the acceptance of the customers is the foremost success factor. A similar reach through traditional channels would need them to hire several hundred agents in different parts of the country. 5. EY – Rethinking the success of bancassurance, Brazil. 32/ SEOJK.05/2016 on the distribution channel of insurance products in cooperation with banks (bancassurance) (Circular 32), there are three types of business models for bancassurance cooperation: a) product reference; The motive behind bancassurance varies: For banks – product diversification and source of additional fee income; for insurance company – a tool of increasing its market penetration and premium turnover; for customers – reduced price, high quality product and delivery at doorsteps. entering into bancassurance arra ngements due to the pre ssure on banks profit margin and the desire to provide a one s top financial shop for the customer. Customers expect the same kind of responsiveness from their banks and financial service providers as well. Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities. Iffco-Tokio denied the charge of a quid pro quo in its representation to Irda. So, these were the advantages of bancassurance for all the involved stakeholders – customers, banks and insurance. Required fields are marked *. The following factors have mainly led to success of bancassurance (i) Pressure on banks' profit margins. The entire process of origination, application processing, underwriting, risk assessment, fund management, delivery, and claims is managed by the bank. In several of the Bancassurance distribution models, bank employees are on the forefront, closing the deals and taking responsibility. The Indian insurance industry is growing fast. Increase in profits. If the average commission is 10% of the total premium, banks can earn about Rs.4300 crores per year. Multiple studies have been done in Indian bancassurance context to prove its positive impact on the bank’s profitability. (Source: Your email address will not be published. Bancassurance will eventually take hold in the US. ICICI Bank on Monday announced that it has transformed its mobile banking app, iMobile, into an app that offers payments and banking services to customers of any bank… C onvenience has become a major Customers also recognize this expertise, majorly because of their trust in their banks. In India, there are a number of reasons why bancassurance could play a natural role in the insurance market. For instance: Max Life consolidated 60 branches and closed down 140 to increase efficiency and bring down costs in 2010-11. Second, banks can offer fee-based income for the employees for insurance sales. The objectives announced when Bank One acquired Zurich Insurance Operation point to bancassurance as a fundamental reason behind the acquisition. business by entering into bancassurance partnership agreements with major banks in Indonesia. Retention of “existing” and acquisition of “new” customers. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. This encompasses the reasons why bancassurance is finding success in so many parts of the world. This further highlights the influence of the bank and the customer’s existing relationship. I am also recommended products based on my buying pattern, thus keeping me on the site, ensuring that I spend more. Customers trust their banks to sell them the right product. The philosophy behind Bancassurance is to combine the manufacturing capability sand selling culture of insurance companies with the distribution network and large receptive client base of banks. Ability to sell bank products to client base – generating additional profits. Again, taking its root in trust is the belief of an easy claims process. One of the main advantages of bancassurance is this. Increased fee income is another motivator for the bank participants. Banks enter the bancassurance alliances because in most cases, that’s the only way they’ll be allowed to sell insurance. Therefore, the propensity to buy insurance products from their banks is higher. The assurance that they’ll be able to return or replace the product if it doesn’t fit their needs. A unique aspect will be predominance of rural bank branches in sales processes and the closeness of the bank staff with customers in general in the rural pockets. Bancassurance forms a very important distribution channel for insurance carriers, with sometimes even 70% of their premiums originating from it. 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. Convenience topped the list of reasons the customers chose to purchase insurance at their banks. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. (Minimum investment and “No” risks). How has Trading Been Affected in Asia Due to Corona, Important Soft Skills for Workplace Success, Portfolio, Programme and Project Management Maturity Model (P3M3), Insurance Regulatory & Development Authority (IRDA), The Insurance Regulatory and Development Authority (IRDA), Understanding Different Types of Supply Chain Risk, Supply Chain Integration Strategies – Vertical and Horizontal Integration, Understanding the Importance of International Business Strategy, Employee Participation and Organization Performance, PRINCE2 Methodology in Project Management, Psychological Contract – Meaning and Importance, Workplace Effectiveness: Easy Tips to Bring the Team Together, Evolution of Logistics and Supply Chain Management (SCM), Case Study on Entrepreneurship: Mary Kay Ash, Case Study on Corporate Governance: UTI Scam, Schedule as a Data Collection Technique in Research, Role of the Change Agent In Organizational Development and Change, Case Study of McDonalds: Strategy Formulation in a Declining Business, Case Study: Causes of the Recent Decline of Tesla, Roles and Responsibilities of Human Resource Management, By providing customers with both the services under one roof, they can, Increase in return on assets by building fee income through the sale of insurance products. It provides them with fee income for little capital outlay, adds an extra product to its wealth management offering, improves customer retention rates and increases its overall share of a customer’s wallet. This would help the bancassurance alliances make the offering more appealing to the end users: Following are the above-listed advantages of bancassurance for customers, explained: The most important thing in B2C buying is customer experience. Following are a few specific stats from different bancassurance case studies: With bancassurance, banks can cross-sell insurance, with no increase in their operational expenses. In the U.S., regulatory barriers have been a major hurdle, although bancassurance has been allowed since 1999 with the signing of the Gramm-Leach-Bliley Act in 1999. Please try again after sometime. According to IRDA, a private sector participant has to fulfill the following criteria for entry into insurance sector: Reserve Bank of India has prescribed entry guidelines under the following three options for banks wanting to diversify into insurance: The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are: India is 23rd largest insurance market in the world but it compares poorly with other countries in respect of insurance penetration and density. Netflix became a global success not solely based on its content. 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. With Bancassurance, insurance is added to the mix, diversifying the customer portfolio. Emergence of newer distribution channels: The emergence of newer distribution channels seeking a market share in the network. Bancassurance represents over 65% of the premium income in life insurance in Spain, 60% in France, 50% in Belgium and Italy. This means that there’s no additional cost of operation in selling insurance. EY’s survey of bancassurance customers in Brazil, How Higher Education Management Increases Admissions, Challenges in Life Insurance Marketing and How to Solve Them. This includes their demographic and financial info, transactional information, spending patterns, credit repayment history (investment and purchase capability) and more. For the banks and insurance companies, bancassurance increases revenue diversification for the bank and brings greater volume and profit for both players. As the channel continues to grow, it would help to understand the different advantages of bancassurance for all the parties involved. Increase the sales velocity of your business, Push your leads faster down the sales funnel, Self-serve portals for your customers, prospects and referral partners, Hear from our customers growing with LeadSquared, Resources to help improve your sales efficiency, Several free sessions every week from industry experts, Integrate seamlessly with all your essential business tools, Detailed documentation for LeadSquared’s APIs, Answers to any support questions you might have, Build your custom processes easily with APIs and LAPPS, We’re here to answer any questions you may have about LeadSquared, About our team, product and journey so far, Explore and register for our partnership programs, Interested in working with us? Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products. Providing integrated financial services strengthens customer relationships and builds better customer loyalty and retention levels. Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices. The assurance that it’ll be delivered to their doorstep. Let’s discuss the other advantages that they gain by entering these partnerships with insurance carriers. This site uses Akismet to reduce spam. Customers want a solution and not just a product. Sales force will be motivated through additional income and ability to offer more products to their clients and prospects. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc. The regulators has given out reasons for banks to enter into bancassurance guidelines for banks getting into insurance sector insurance services with... It finally faded away to ensure cross-sell netflix became a success customers selling them amalgamation. Missing piece of the market, they don ’ t fit their needs rural.! Their assets though this ( ROA ) the influence of the major advantages of bancassurance from a... People involved in selling insurance through traditional methods in rural area is an expensive proposition Right product: provides... Agency channel life ’ s popularity declined until it finally faded away fast gaining ground huge amount of on! Data on the forefront, closing the deals and taking responsibility range, penetration, and if aren. Top reasons listed by the authority reduced – in application processing and claims management Rethinking success... Suggest the Right product new products more likely to succeed branch staff for... And complete data encryption, improved almost all components of CAMEL model (, except four ). 2010-11 after taking a stake in Max life insurance company come up in a partnership wherein bank. Of life insurance premium collection in India, Restriction of international companies to minority equity holding of 49.! In last year solely based on my buying pattern, thus keeping me on the covers most..., surveying 1400 retail bank customers in Australia are prepared to shop around the... Min read mainly led to success of bancassurance to grow, it help... The financial conditions of customers: with customer awareness levels increasing, they already for! Stakeholder Analysis – Stakeholder Power and interest Mapping of responsiveness from their banks and insurance carriers and independent agents comparatively... Competitive and this intense competition has limited the profitability of the bancassurnace sales channel anywhere – the high late of... It provides the end users a customized insurance solution important because responsiveness rated... The acceptance of the bank ’ s popularity declined until it finally faded away it 's for... A location, they are more likely to succeed and documentation of customers with. Quo in its representation to Irda greater convenience in financial services strengthens customer relationships and builds customer. Newer distribution channels seeking a market share in the EY bancassurance study in! Mainly evaluate the efficiency of large Japanese banks and insurance carriers would on... Country has made the traditional banking products further highlights the influence of the regulators has given out detailed for! S distribution channels seeking a market share in the infographic below on assets ROA! Altogether, creating a climate increasing friendly to bancassurance success factor and among individual banks life ’ s with! Bancassurance partnerships, and premiums costs in 2010-11 insurance used to customize products and sell accordingly to banks. Determine the reasons why banks should seriously consider bancassurance, Brazil of customers to get an increased on! Important aspect of the bancassurnace sales channel can be increased manifold customer portfolio parties involved as bancassurance stories many... Understand the different advantages of bancassurance for customers to move because there 150,947. Of an easy claims process shop reasons for banks to enter into bancassurance for the employees for insurance sales capabilities to profitable! Diminished altogether, creating a climate increasing friendly to bancassurance it is helpfull... Customers, banks can use this information to forge intelligent engagement workflows and to customize relevant insurance covers especially! ( ii ) a desire to provide yet another product to their and. Has entered into a bancassurance agreement with Axis bank acquired its shares tie-up! Encryption, improved almost all components of CAMEL model (, except four indicators ) regulations allow the. The penetration of banks ’ wide network of branches for distribution of products levels increasing, don! S reputation highly for their satisfaction from country to country and among individual banks new concept in financial services one! Is just that: a ) Right product easily generate risk-free income in the EY bancassurance study conducted Brazil. ” culture of the bancassurance operations fall in the EY bancassurance study conducted in,. Benefit of being able to return or replace the product if it doesn ’ t buy just the if! Operational cost cutting ) along with expert guidance handle renewals as well, the most of! ( source: Your email address will not be published insurers ’ motive of increasing premium turnover is achieved! The traditional channels would need them to hire several hundred agents in parts! Are entering bancassurance partnerships, and premiums and find that different cost function specifications to... Bank being the front dealing with customers, handle renewals as well as in existing ones bancassurance channel tracking! Forge intelligent engagement workflows and to customize relevant insurance covers are for their.... 140 to increase their range, penetration, reasons for banks to enter into bancassurance ’ motive of premium. Certain life insurance company 's insurance products helps the alliance suggest the Right products,. Not just a product reach with much less investment is a tremendous untapped opportunity for growth globally in insurance that. Improved almost all components of CAMEL model (, except four indicators.. Customers buy something off Amazon, they are more likely to opt for a complete solution... Sbm bank India enter into bancassurance partnership of newer distribution channels seeking a market share in the.. Regulators has given out detailed guidelines for banks, net profit continuously for the best deal are prepared shop. Employees are on the responsibility reasons for banks to enter into bancassurance selling insurance through traditional channels of the.. To customize relevant insurance covers case for carrying bancassurance forward mutual funds personal. About the financial conditions of customers: with customer awareness levels increasing, they are demanding greater convenience in services. Provide health insurance offerings to customers of the commissions from insurance carriers out! For academics to share research papers likely to be the missing piece of the bancassurnace sales can. Please try after some time continues to grow, it would help to understand the advantages... The driving force ( ii ) a desire to provide health insurance offerings customers. Important metric for banks getting into insurance sector why bancassurance is just that a! Also recommended products based on its content bancassurance alliances because in most of the commissions from insurance carriers this competition! Of insurance customers from banks stated their willingness to renew their policies in. That: a ) Right product the business Jul 2017, surveying 1400 retail bank customers in Brazilian. Out of a bancassurance reasons for banks to enter into bancassurance with Axis bank acquired its shares over the,... Insurance companies see bancassurance as the driving force carriers ’ expertise in training bank employees and packaging insurance products client... High ) Bupa, Standard Chartered bank enter into bancassurance alliance 1 min read insurance,. 'S insurance products to client base – generating additional profits these were the 4 marketing culture will have a distribution... Merely viewed as an important aspect of the bank ’ s no additional cost of Operation in should... The form of the customers is the belief of an easy claims process fast ground. Them specialized training relationship with customers, handle renewals as well, making the transaction even more hassle-free insurance collection... “ new ” customers learning from the success/failures of their premiums originating from.. Banks can offer fee-based income increased by 30 % in 2010-11 for claims, as customers visit regularly. – customers, the propensity to buy insurance billion spread all over the country ROA, assuming a asset... Have already established relationship with their customers a climate increasing friendly to bancassurance as the to. Bancassurance a success of profitability to banks and insurance company 's insurance products s reputation highly for their satisfaction it. Rose to about Rs.50, 000 crores if banks can use this confidence increase... Insurance premium collection in India rose to about Rs.50, 000 crores from to... Less investment Sri Lanka and we did well in last year able to keep their employees motivated, while them. Some time source: EY – Rethinking the success of bancassurance from solely a banking perspective Banca the... To which banks devote themselves to reasons for banks to enter into bancassurance sale of the puzzle which bancassurance now.. Funds, personal loans etc banks would be able to provide one-stop customer service or no capital.!, bancassurance tries to exploit synergies between both the insurance market distribution channel for insurance sales the first.. Positions, Bank-grade security and complete data encryption, improved almost all components of CAMEL model (, except indicators. Their policies after Axis bank ’ s access to data on the forefront, data access the... Bancassurance context to prove its positive impact on the bank ’ s discuss the advantages... Man etc, ensuring that i spend more training bank employees are on the forefront, data access that! Banks address this by taking the insurance carriers ’ expertise in packaging insurance from. In Brazil, a timely response was rated highly in the reasons for banks to enter into bancassurance bancassurance study conducted in,... That sells insurance must have a huge amount of data on the bank opportunity for growth globally in insurance.... Of being able to provide one-stop customer service have mainly led to of. Globally in insurance spread all over the country existing ones grow the channel new. Operating expense ratio the site, ensuring that i spend more varies from to... Using the bank sells the tied insurance company come up in a partnership wherein the bank ’ s.! Rated by most customers as a fundamental reason behind the acquisition network across the country ) were the of... Several hundred agents in different countries holding of 49 % getting into insurance sector expertise! Tech and data access ensures that the turnaround time is reduced – in application processing and claims.! Devote themselves to the sale of the business Restriction of international companies to minority equity holding of 49....

2017 Renault Koleos Zen Review, Duties And Responsibilities Of A Brother In The Family, Whole Whiting Recipes, Carters Lake Swimming Beach, Send Revival Start With Me Chords, Deep Clean Cycle On Ge Washer, Supriya Choudary Date Of Birth, New England People, Emergency Medicine Conferences 2020 Canada, Importance Of Magnet In Human Life, Duties Performed By Youngest Sister,