Bancassurance and Indian Banks

1 Bancassurance and Indian Banks Lalat K Pani1 & Sukhamaya Swain2. 1. Dept. of Commerce, Bhadrak Autonomous College, Bhadrak 2. Circle Business Banking Head, Orissa Circle, AXIS bank Ltd. E-mail : I. INTRODUCTION alliance with different financial services providers, thereby putting a barrier on Bancassurance . As a result Bancassurance refers to selling of insurance policies of this life insurance was primarily sold through through Banks . Banks earn revenue through this sale. In individual agents, who focused on wealthier individuals, India, the process began in 2000.

2 IRDA came up with leading to a majority of the American middle class regulation on registration of Indian companies. households being under-insured. With the US. Government of India also issued a Notification Government repealing the Act in 1999, the concept of specifying Insurance' as a permissible form of business Bancassurance started gaining grounds in the USA also. that could be undertaken by Banks under Section 6(1)(o) In 2000 itself in France, Bancassurance accounted for of the Banking Regulation Act, 1949.

3 However it was 35% of Life Insurance premiums; 60% of savings clarified that any bank intending to take up the business premiums; 7% for Property Insurance and 69% of new would have to take specific approval from RBI. All premium income in individual savings. scheduled commercial Banks were permitted to undertake insurance business as agent of insurance III. PREVALENT Bancassurance MODELS. companies on fee basis, without any risk participation. Specific rules were framed for setting up of joint venture companies for undertaking insurance business with risk a) Insurer able to leverage the participation.

4 bank 's infrastructure; source of There has been no looking ever since. Traditionally, fee income for Banks . insurance products were sold only through individual b) bank and insurer may have a agents and they accounted for a major chunk of the Distribution fragmented view of the customers. business in retail segment. With the opening up of this Agreement sector to private players, competition has become more c) Low level of integration. intense and the public sector major LIC has been d) Reluctance of bank staff to sell challenged with a flood of new products and new means insurance; insurer has little control of marketing.

5 Insurance industry in India has been over distribution. progressing at a rapid pace since opening up of the sector to the entry of private companies in 2000. a) Insurer able to leverage the bank 's infrastructure; source of II. Bancassurance ACROSS THE GLOBE fee income for Banks . Bancassurance has grown at different places and b) Integration in product taken shapes and forms in different countries depending Strategic development and channel upon demography, economic and legislative Alliance management. prescriptions in that country.

6 It is most successful in c) Sharing of customer database. Europe, especially in France, from where it started, Italy, Belgium and Luxembourg. The concept of d) Reluctance of bank staff to sell Bancassurance is relatively new in the USA. insurance; insurer has little control Bancassurance growth differs due to various reasons in over distribution. different countries. The Glass-Steagall Act of 1933. prevented the Banks of the USA from entering into ISSN (Print): 2319 5479, Volume-2, Issue 1, 2013. 11. international Journal of Research and Development - A Management Review (IJRDMR).

7 Exercise control over distribution. a) Joint decision making; bank participation in product and d) bank may be able to realize distribution design. higher profitability as an insurance distributor rather than a b) High system integration, producer. infrastructure utilization; low-cost model. Joint Venture IV. NEED FOR Bancassurance IN INDIA. c) Insurer loses control on distribution. Researches and present day statistics speak about the need of a well equipped financial structure for a d) bank may be able to realize country that helps it to grow economically.

8 No when we higher profitability as an talk of statistics, we have to check out the Insurance insurance distributor rather than a density and Insurance penetration. Table I shows the producer. Life Insurance density across many countries. a) Full integration of system; low- . cost model. Financial b) Potential for fully integrated Services products and developing a one- Group stop shop for financial services. c) Insurer is ill-equipped to Table 1: international Comparison of Life Insurance Density Countri 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10.

9 Es Developed Countries US UK France Germany South Korea Japan Developing Countries Brazil Russia Malaysia India China South Africa Australia Insurance density is measured as ratio of premium (in US Dollar) to total population One would clearly observe that the average density is much lesser in comparison to that of developing countries leave aside developed nations. ISSN (Print): 2319 5479, Volume-2, Issue 1, 2013. 12. international Journal of Research and Development - A Management Review (IJRDMR). Table 2: international Comparison of Life Insurance Penetration Countries 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10.

10 Developed Countries US UK France Germany South Korea Japan Developing Countries Brazil Russia Malaysia India China South Africa Australia Insurance penetration is measured as ratio (in per cent) of premium (in US Dollars) to GDP (in USD).. Even though it has dramatically increased over the b) The size of the country, a diverse set of people years (as is evident from the figures of 2000-01 and combined with problems of connectivity in rural areas, 2009-10), it is still lesser than many developed makes insurance selling in India a very difficult countries.