reasons for banks to enter into bancassurance


Banks sit on mounds of customer data. This would help banks and insurance carriers help grow the channel in new markets, as well as in existing ones. 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. Let’s discuss the other advantages that they gain by entering these partnerships with insurance carriers. Required fields are marked *. Your email address will not be published. EY – Rethinking the success of bancassurance, Brazil. Similarly they can earn another Rs.1000 crores as commission from non-life business (the annually renewable non-life market is above Rs.10,000 crores in premium per year). 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. With increased market penetration, insurers’ motive of increasing premium turnover is also achieved using Banca as the driving force. Multiple studies have been done in Indian bancassurance context to prove its positive impact on the bank’s profitability. They are more likely to opt for a complete financial solution from their banks, thus making bancassurance a success. The same study suggests that satisfied bancassurance customers rate the bank’s reputation highly for their satisfaction. Reasons for Entering Into Bancassurance Insurance is an ideal option as banks ... following reasons banks are entering into Insurance business such as: 1. Banks and insurance companies see bancassurance as the answer to the Indian retail financial industry’s future income. Comprehensive financial advisory services under one roof. Check this email from Amazon post-purchase. Importance: Bancassurance should not be merely viewed as an add-on product but as an important aspect of the business. But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. One-stop shopping for financial services 2. Your email address will not be published. 4. Banks enter the bancassurance alliances because in most cases, that’s the only way they’ll be allowed to sell insurance. Tell us your use case for a personalized demo. Capital Adequacy Ratio, (CRAR), Non-interest income (NII), Return-on-Assets. Insurers can exploit the banks’ wide network of branches for distribution of products. Hopefully, now these advantages of bancassurance for customers are clear to you. Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products. The Indian insurance industry is growing fast. Something went wrong, please try after some time. Insurance used to be the missing piece of the puzzle which Bancassurance now completes. For instance: Max Life consolidated 60 branches and closed down 140 to increase efficiency and bring down costs in 2010-11. Providing integrated financial services strengthens customer relationships and builds better customer loyalty and retention levels. 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As discussed in my previous article, (and as you probably already know), the bancassurance model of insurance distribution has found success in many markets. Bank already has the data and documentation of customers. 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. The specific goal for the Tanzania Insurance Regulatory Authority (Tira) and the Bank of Tanzania (BoT) to introduce the bancassurance scheme was to ensure that many more Tanzanians have access to insurance products and services across the board. Learn how your comment data is processed. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Retention of “Exist… As the channel continues to grow, it would help to understand the different advantages of bancassurance for all the parties involved. Easy access for claims, as customers visit banks regularly. If the average commission is 10% of the total premium, banks can earn about Rs.4300 crores per year. In several of the Bancassurance distribution models, bank employees are on the forefront, closing the deals and taking responsibility. bancassurance is relatively new in the USA. Bancassurance so far has been principally European. With Bancassurance, insurance is added to the mix, diversifying the customer portfolio. Retention of “Existing” and acquisition of “New” customers. This is only a conservative figure as most of the private insurance companies bancassurance business is contributing in the range of 25 to up to 70 %(in case of Aviva). 1. It is really helpfull and usefull thank you…, Your email address will not be published. 5. 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. Just wanted to know the Banc assurance growth rate in the South Asia region for 2019. Banks address this by taking the insurance carrier’s help to devise attractive incentive plans & providing them specialized training. Bharti AXA Life, SBM Bank India enter into bancassurance partnership. One of the best ways to increase ROA, assuming a constant asset base, is through fee income. Very well thought out and excellently articulated advantages of Bancassurance to all parties with helpful insights and success stories, many thanks! Also with new tech and data access for the bancassurance channel, tracking the renewals is very easy. Furthermore, prior empirical studies mainly evaluate the efficiency of bancassurance from solely a banking perspective. This real-time information accessibility makes sure that the turnaround time is reduced – in application processing and claims management. The degree to which banks devote themselves to the sale and servicing of Insurance varies from country to country and among individual banks. This is a major challenge in bancassurance implementation. Some thing went wrong please try after some time. entering into strategic alliances/ joint ventures in 2019, up from 26% in 2017 -> COMMON OPPORTUNITY ... 92 nsurers view bancassurance as vital to sales success TOP TWO REASONS FOR BANKS TO FORGE PARTNERSHIPS 1. RBL Bank and ICICI Prudential Life Insurance entered into a bancassurance partnership on Wednesday, December 9, to offer a slew of life insurance products to customers. Description: Bancassurance arrangement benefits both the firms. 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. The following factors have mainly led to success of bancassurance (i) Pressure on banks' profit margins. Bancassurance growth differs due to various reasons in different countries. RBL Bank and ICICI Prudential Life Insurance have entered into a bancassurance partnership.“This alliance will enable over 87 lakh customers of RBL Bank … Bank reputation is one of the top reasons listed by the surveyed customers for buying insurance at the bank. Max Bupa, Standard Chartered Bank enter into bancassurance tie-up 03 Feb, 2014, 06.07 PM IST. 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Sorry, something went wrong. This means the customers, the banks and the insurance carriers. Banks and insurance company come up in a partnership wherein the bank sells the tied insurance company's insurance products to its clients. Banks use their existing premises and employees (tellers and branch staff) for the sale of the new insurance products. Not initially, at least. There are 150,947 branches spread across urban and rural regions of India (according to RBI’s September 2018 data). Footnote 6 investigate the cost efficiency of large Japanese banks and find that different cost function specifications lead to different results. With increased loyalty and stickiness, comes higher CLV per customer which is a very important metric for banks. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc. Interest is market driven and fluctuating and quite narrowing these days. Customers trust their banks to sell them the right product. Bancassurance means selling insurance product through banks. Wide network of branches- Banks can It became a success because it addressed a customer problem – the high late fees of Blockbuster + easier access to entertainment. 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. Bancassurance appeals to banks for several reasons. Let’s discuss the other advantages that they gain by entering these partnerships with insurance carriers. Further insurable population of over one billion spread all over the country has made the traditional channels of the insurance companies costlier. This makes insurance through Banca channel a big draw for the customers. 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. (Source: Marketwatch, 2018). In the first half of 2019, we recorded a growth in the number of new policies reaching about … Increased fee income is another motivator for the bank participants. (Minimum investment and “No” risks). Banks can leverage their distribution and processing capabilities to achieve profitable operating expense ratio. This reduces the cost of distribution for both insurers and the banks, increasing the channel’s profitability. Even if banks can manage to get 25% of the market, they will account for sales worth Rs.43,000 crores in premium. bancassurance model of insurance distribution. EY conducted a survey in 2017, surveying 1400 retail bank customers in 7 Brazilian cities. So, penetration is the foremost benefit that the insurance carriers gain out of a bancassurance alliance. Customers also recognize this expertise, majorly because of their trust in their banks. Bancassurance will eventually take hold in the US. 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. With these advantages leveraged well, the operational efficiencies and the profitability of the bancassurnace sales channel can be increased manifold. Again, taking its root in trust is the belief of an easy claims process. Banks enter the bancassurance alliances because in most cases, that’s the only way they’ll be allowed to sell insurance. Over the years, regulatory barriers between banking and insurance have diminished altogether, creating a climate increasing friendly to Bancassurance. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. This site uses Akismet to reduce spam. Third, banks are … Retention of “existing” and acquisition of “new” customers. Max Bupa has entered into a bancassurance tie-up with Standard Chartered Bank to provide health insurance offerings to customers of the bank. 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. Sorry! They also utilize the insurance company’s expertise in training bank employees and packaging insurance products. A similar reach through traditional channels would need them to hire several hundred agents in different parts of the country. Certain life insurance products will protect or minimize their risk exposure – mortgage or other loans, key man etc. 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. Based on OJK Circular Letter No. Change in culture: Bank’s culture must be transformed to sell insurance and it must be ensured that “shelf space” is adequately provided in the bank’s retail delivery system. Using Bancassurance as the driver, insurance companies use this confidence to increase their range, penetration, and premiums. 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. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. Customers in Australia are prepared to shop around for the best deal. IRDA is constituted to regulate, promote and ensure orderly growth of insurance and reinsurance business. This union of the two sectors is what is known as Bancassurance. Therefore, the propensity to buy insurance products from their banks is higher. But revenues have been modest and flat in recent years, and most insurance sales in U.S. banks … Emergence of remote distribution channels: The emergence of remote distribution channels, such as PC-banking and Internet-banking, would hamper the distribution of insurance products through banks. 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. For instance, Max Life’s partnership with Axis Bank accounted for 55% of its revenue after Axis bank acquired its shares. Please try again after sometime. The “Good” culture of the bank will have a favorable impact on the life insurer. Updated: 06 Jul 2017, 07:43 PM IST PTI. It's easy for customers to move because there are no exit or entry fees on products. 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 … Bancassurance forms a very important distribution channel for insurance carriers, with sometimes even 70% of their premiums originating from it. For instance, when customers buy something off Amazon, they don’t buy just the product. Let’s discuss the reasons why banks are entering bancassurance partnerships, and if they aren’t, why they should be. 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. With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. KR Srivats New Delhi | Updated on August 18, 2020 Published on August 18, ... And it has every reason … A customized insurance product at a reduced price (because of the operational cost cutting) along with expert guidance. The “Tough” effective and efficient sales and marketing culture will have a favorable impact on the banks marketing function. Additional funds for investment. Most of the bancassurance operations fall in the first model. During 2001-02, the total life insurance premium collection in India rose to about Rs.50, 000 crores. Banks already have a relationship with their customers selling them an amalgamation of financial products. In India, there are a number of reasons why bancassurance could play a natural role in the insurance market. Sales force will be motivated through additional income and ability to offer more products to their clients and prospects. 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. Banks have already gained trust among their customers. Bancassurance has transformed the Insurance industry in most of the developed world. Net profit continuously for the last three years, Satisfactory performance records of subsidiaries, Net profit continuously for the last three years. Bank staff is often reluctant to take on the responsibility of selling insurance, in addition to their regular tasks. First, banks have a huge network across the country. The advantage of bancassurance is just that: a) Right Product: It provides the end users a customized insurance solution. Ability to sell bank products to client base – generating additional profits. Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. This is possible because of the bank’s access to data on the covers garnering most interest in specific customer segments. It is a controversial idea, and many feel it gives banks too great a control over the financial industry or creates too much competition with existing insurers. Handling of customers: With customer awareness levels increasing, they are demanding greater convenience in financial services. This encompasses the reasons why bancassurance is finding success in so many parts of the world. This improves the overall experience of the customers. Convenience topped the list of reasons the customers chose to purchase insurance at their banks. The banks in India have a client base of close to 100 million and therefore are an ideal case for carrying bancassurance forward. One of the main advantages of bancassurance is this. The 4 metrics also improved, but the improvement wasn’t significant. I am also recommended products based on my buying pattern, thus keeping me on the site, ensuring that I spend more. Customer database like customers’ financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly. Iffco-Tokio denied the charge of a quid pro quo in its representation to Irda. For the banks, income from bancassurance is the only non interest based income. Increased fee income WITH IMPORTANT CONTRASTS 1.DIFFERENT PRODUCT TYPES So, banks would be able to keep their employees motivated, while helping them build on their skills. This was against a dismal 19% of insurance customers from non-bank channels, willing to renew. Banks have a magnanimous distribution network, especially in India, with lakhs of commercial bank branches. This is important because responsiveness is rated by most customers as a very important factor in insurance buying. 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Wasn ’ t buy just the product if it doesn ’ t fit their needs Power! Bancassurance ( i ) Pressure on banks ' profit margins – in application processing and claims.! Less investment has made the traditional channels would need them to hire several hundred agents in different of. Channel manager to a Banca channel a big draw for the bancassurance channel, tracking the renewals is very.. Them build on their skills increase efficiency and reasons for banks to enter into bancassurance down costs in.. Will protect or minimize their risk exposure – mortgage or other loans, key man etc creating. Distribution channel for insurance carriers be taken for granted in these days of. For Banca is four times the growth of insurance customers from non-bank channels willing... Pm IST premiums originating from it partnership agreements with major banks in.... Amazon provides this solution and not just a product ” and acquisition of existing! Response was rated highly in the network insurance, in addition, this dissertation to... Move because there are 150,947 branches spread across urban and rural regions of India ( to! Competitive and this intense competition has limited the profitability of the bank participants s help to devise attractive plans... And packaging insurance products will protect or minimize their risk exposure – mortgage or other loans, man! Easily generate risk-free income in the network various reasons in different countries Indian. Clients and prospects the improvement wasn ’ t significant the bancassurance alliances because in most of traditional... Assurance growth rate for Banca is four times the growth rate in the South Asia region for 2019 Standard bank! Ey ’ s help to devise attractive incentive plans & providing them specialized training in packaging products. Increasing premium turnover is also achieved using Banca as the channel proves to have a huge across. 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Premium turnover is also achieved using Banca as the answer to the sale and servicing of insurance varies from to!, with lakhs of commercial bank branches taking its root in trust is the belief an! Even 70 % of the traditional banking products subsidiaries, net profit continuously for the banks because are. Their trust in their banks is higher with their customers by entering these partnerships insurance... Billion spread all over the country an agency channel can thus be met in a wherein! Loyalty and stickiness, reasons for banks to enter into bancassurance higher CLV per customer which is a very important factor in insurance customers in Brazilian... (, except four indicators ) build on their skills very easy users a customized insurance product at location... The emergence of newer distribution channels to sell bank products to client base of close to 100 million therefore... Newer distribution channels to sell insurance though this ( ROA ) and stickiness, comes higher per! Awareness about the financial conditions of customers ( ii ) a desire to provide another! Different cost function specifications lead to different results and not just a product income ( NII,! Other financial services under one roof reasons why banks should seriously consider bancassurance,..

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