PART- I

INSURANCE

Chapter 1- Introduction to Insurance

[1.1] Insurance Sector during Post Reforms - A snapshot

[1.2] Insurance Market in India - A Quick look

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 Chapter 1 → Introduction to Insurance

Insurance is an establishment, which eradicates risk and which replaces certainty for
uncertainty. Insurance is a contract between insurer (insurance company) and the
insured (whose life or assets are covered) under which the insurer agrees to reimburse
the insured for the loss arising from the risk insured against. The term insurance can be
defined in both financial and legal terms.
In financial sense, “Insurance is a social device in which group of individuals
(insured) transfers risk to another party (insurer) in order to combine loss experience,
which permits statistical prediction of losses and provides for payment of losses from
funds contributed (premium) by all members who transferred risk.”
World over the idea of separation of roles between banks and other financial
activities has become redundant. Even in the United States which was known for strict
separation of banking and non-banking activities during the Glass-Steagall Act regime
broke the dividing wall. The financial liberalisation and financial innovations have
drawn the worlds of banking and insurance closer together, de-segmenting the financial
industry and spurring competition. Therefore, banks dealing in insurance products have
increasingly become accepted norm rather than exception.

In India, ever since espousing of financial reforms following the recommendations of

First Narasimham Committee, the contemporary financial landscape has been reshaped.
Banks, in particular, stride into several new areas and offer innovative products, viz.,
merchant banking, lease and term finance, capital market / equity market related
activities, hire purchase, real estate finance and so on. Thus, present-day banks have
become far more diversified than ever before. Therefore, their entering into insurance
business is only a natural corollary and is fully justified too as ‘insurance’ is another
financial product required by the bank customers.
The Reserve Bank of India being the regulatory authority of the banking system,
recognising the need for banks to diversify their activities at the right time, permitted
them to enter into insurance sector as well. India has a well entrenched wide branch
network of banking system which only few countries in the world could match with.

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 [1.1] Insurance Sector during Post Reforms - A snapshot

It is obvious that reforms in financial sector would not be complete if one of the key
sub-sectors, viz., insurance sector is not being taken along. Therefore, the Government
of India had appointed a Committee on Reforms in the Insurance Sector under the
Chairmanship of Late R.N.Malhotra (known as Malhotra Committee) in 1994. There
has been considerable time lag between reforms in the insurance sector and the rest of
the financial sector, particularly in comparison with the banking sector. However,
following the implementation of Malhotra Committee’s far reaching recommendations,
the insurance sector had undergone sweeping changes during the later 1990s and 2000
onwards and of which only a few developments are highlighted here. IRDA was
established in the year 2000 as an exclusive Regulatory Authority for the insurance
sector through the enactment of IRDA Act, 1999.

A number of amendments were brought in various insurance related statutes, viz.,

Insurance Act, 1938, LIC Act, 1956 and General Insurance Business Nationalisation
Act, 1972 (GIBA). The Progress in the overall developments in the insurance sector
were swift and more prominent after the establishment of IRDA. The four public sector
non-life insurance companies were de-linked from being subsidiary of the General
Insurance Company of India. Now they operate independently and compete with each
other. The upshot of these developments was the breakage of monopoly by public sector
in the insurance sector paving the way for the entry of private entities into the insurance
market and the era of competition set in with availability of wide range of insurance
products in the market than ever.

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 [1.2] Insurance Market in India - A Quick look

With the progress of reforms, Insurance market has been flooded with a number of
players. As at end-March 2006, among the life insurers, there were 15 companies in
private sector and Life Insurance Corporation of India (LIC) was the solitary public
sector company. Among non-life insurers, nine companies were in private sector and
four companies were in public sector. As regarding the present size of the insurance
market in India, it is stated that India accounts not even one per cent of the global
insurance market. However, studies have pointed out that India’s insurance market is
expected to grow rapidly in the next 10 years.

In terms of ‘insurance penetration ratio’ (defined as ratio of insurance premium to

GDP), a key indicator of the spread of insurance coverage and insurance culture, India
compares poorly by international standards. The penetration ratio was less than one per
cent in 1990s and it improved to 4.8% by end-March 2006. As against this, a Survey
Report of Swiss Re revealed that the penetration ratio as at end-March 2006, in respect
of some of the European countries, viz., UK and Switzerland at 16.5% and 11.0%. In
Asia, Taiwan and South Korea had registered their respective ratio of as high as 14.5%
and 11.1%. Insurance Penetration ratio for the World was placed at 7.5% far greater
than that of India.

Thus in a country with more than 1.2 billion population, the poor penetration ratio
indicates that a vast majority of population remain outside the reach of the insurance,
especially in rural and semi-urban areas, in the context of the absence of social security
schemes. This clearly suggests the presence of vast potential for tapping the insurance
market particularly by widening the distribution channels. This is where the strategy of
bancassurance could possibly become more relevant.

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 Part II
BANCASSURANCE EVOLUTION

Chapter 2 – Introduction to Bancassurance

[2.1] Historical Developments of Bancassurance

[2.2] Bancassurance Strategy – The Concept
[2.3] Evolution of Bancassurance in India
[2.4] Entering Into Bancassurance
[2.5] Reasons for Banks to Enter Into Bancassurance
[2.6] The Major Need Of Bancassurance In India

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 Chapter 2 → Introduction to Bancassurance

The banking and insurance industries have developed rapidly in the changing and
challenging economic environment all over the world. Due to merging of global
financial markets, development of new technologies, universalization of banking
industries and with the expansion of non banking activities, the insurance industry has
globally brought in new channels of distribution into existence. This has given rise to a
new form of business wherein two big financial institutions have come together and
have integrated all their strength and efforts to generate new means of marketing for
encouraging their products and services. When these two join together it gives birth to
“BANCASSURANCE”.

Bancassurance is the allocation of insurance products through the huge network of

banks whereby, banks act as a distribution channel for providing varieties of banking
and investment products and services. In simple words we can say bancassurance tries
to develop synergies between both ‐ insurance companies and banks.

Banks see value in insurance business due to complementarity of products, fee income
derived from the distribution of insurance and ease of recovery of advances in case of
death of the borrower or destruction of properties. Several banks being promoters of the
insurance companies also gain when valuation of those companies goes up due to
synergies derived from bancassurance.

The growth of bancassurance depends on how well banks and insurance companies are
able to conquer the operational challenges that are frequently thrown at them. The need
of the hour for the bancassurance business is to gather together new ideas, new
development /advancement / improvement /evolution and work culture. It was initially a
controversial issue in the some countries as many critics believed that this would give
banking sector too good a control over financial services market. Therefore it was
earlier restricted in many countries. But today, many countries have started accepting
bancassurance in their market and have seen an incredible boom in this sector.

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 [2.1] Historical Developments of Bancassurance

The concept of bancassurance was started in France in 1980’s and spread across
different parts of Continental Europe, USA, and also in Asia, particularly in India.
Banks started the process of selling life insurance decades ago and customers found the
concept appealing. In Germany, bancassurance was called “ALLFIANZ” and it got well
recognized in Europe also. In USA the practice was started in late 90’s. It is also on the
rise in Canada, Mexico and Australia.

Government of India, during its notification dated 3rd August 2000, has accepted
insurance as an acceptable form of banking under the Banking Regulations Act 1949.
The Reserve Bank of India too has approved bancassurance by allowing banks to offer
physical infrastructure to insurance companies within the premises of some selected
branches and allowing them to sell their insurance products to the bank’s customers.
These banks in exchange earn referral fees based on the premium collected

The companies keep diversifying their product portfolios, using established ‘incumbent’
networks to promote and distribute new product lines. Banks, too, have in the recent
past adopted this strategy both in India as well as internationally. This is the
phenomenon of ‘universal banking’ that builds on the principle of leveraging existing
networks to broaden portfolio offerings. Change in regulatory regimes also facilitated
this diversification.

This diversification of banking services has been driven by a number of factors, all of
which have threatened bank profitability. In the US, the banks were earlier not allowed
to sell insurance due to the restrictions imposed by Glass-Stegall Act of 1933, which
acted as a wall between banking and insurance. As a result of this life insurance was
primarily sold through individual agents, who focussed on wealthier individuals,
leading to a majority of the American middle class households being under-insured.
With the repealing of this Act in 1999, the doors were opened for banks to distribute
insurance and cater to the large middle class segment.

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Daniel (1995) provided an analysis of how ‘bancassurance’ products have evolved,
which reflects the way the concept of bancassurance itself grew. The analysis of Daniel
is based on the French market with reference to other European countries. Daniel
divided the evolution of bancassurance products into three periods.
 In the first period, prior to 1980, banks sold insurance guarantees that were a
direct extension of their banking activities, but were not associated with life
insurance. For example, credit insurance was not regarded as bancassurance.
 After 1980, savings products that benefited from advantageous tax regimes
associated with life insurance flourished in the banking markets.
 Around 1990, the supply of insurance products by banks became much more
diversified in both life and general insurance categories.
Figure 2 illustrates the diffusion of bancassurance over time.
THE EVOLUTION OF BANCASSURANCE

Prior to 1980 1980 1990

Products Extension of Savings Products Diversification of

banking classified as Life Supply: Pure Life &
Assurance Complex Financial
Products

The third period (around 1990), is considered crucial in the development of

bancassurance by Daniel. Banks tried to exploit more synergies between banking and
insurance. They started innovating, moving away from the very basic vanilla products to
products that responded to customers’ needs. These included unit-linked and
investment-linked plans that came under variable life insurance categories. In parallel,
with bancassurance innovations banks also started selling pure life insurance products.
In other European countries, the banks started selling whole-life policies too.
Bancassurance has grown in importance over the years, embracing both the distribution
and production of insurance. The evolution of bancassurance led to the customer-driven
approach to the delivery of financial products.

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 [2.2] Bancassurance Strategy – The Concept

A sound and effective banking system is needed for a healthy economy. The Indian
banking system is not hassle free but it is able to meet the new challenges posed by the
technology. In the recent years new trends have raised in the banking sector. The
business of banking around the globe is changing due to globalization and liberalization.
The boundaries that have kept various financial services separate from each other have
vanished. The wave of financial deregulation and the changes in customer demands
paved the way for the emergence of financial conglomerates which resulted in
“Bancassurance”.

Bancassurance, i.e., banc + assurance, refers to banks selling the insurance products.
Bancassurance term first appeared in France in 1980, to define the sale of insurance
products through banks’ distribution channels. Banks are being used as an effective
alternate channel to distribute insurance products either as ‘stand-alone insurance
products’ or ‘add-ons to the bank products’ by way of combining the insurance with
typical banking products/services.

According to IRDA, ‘bancassurance’ refers to banks acting as corporate agents for

insurers to distribute insurance products. Literature on bancassurance does not
differentiate if the bancassurance refers to selling of life insurance products or non-life
insurance products. Accordingly, here ‘bancassurance’ is defined to mean banks dealing
in insurance products of both life and non-life type in any forms.

It is profitable both to Banks and Insurance companies and has a very bright future to be
the most develop and efficient means of distribution of Insurance product in very near
future. The share of premium collected by banks is increasing in a decent manner from
the time it was introduce to the Indian market. In India Bancassurance in guided by
Insurance Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank
of India. All banks and insurance company have to meet particular requirements to get
into Bancassurance business.

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 [2.3] Evolution of Bancassurance in India
The New Economic Policy (NEP) was introduced in India in June 1991 by the then
newly elected government and thus, the process of liberalization of Indian financial
sector started. Reforms in the banking and non-banking sectors focused on creating a
deregulated environment, strengthening the prudential norms and the supervisory
system, changing the ownership pattern, and increasing competition. The main idea was
Globalization, Privatization, Deregulation and Liberalization.

In India, the reforms in the insurance sector (Life and General) commenced with the
setting up of the Committee on Reforms on Insurance Sector under the chairman-
ship of Dr.R.N.Malhotra, the ex- governor of RBI, by the Government of India in April
1993 for examining the structure of insurance industry. The recommendations of the
Committee was submitted in 1994 which was accepted in principle by the government
which started implementing the recommendations since December 1999, thus heralding
an era of liberalization in the country’s insurance sector.

The setting up of Insurance Regulatory and Development Authority (IRDA) and

opening up of Insurance Business (life and general) to foreign capital up to 26 per cent
were the initial steps in this direction. It is widely acknowledged that the opening up of
the insurance sector has been aimed at ushering in greater efficiency in the insurance
business by maximising productivity and minimising transaction cost. Competition is
believed to bring a wider choice of products at lower prices to the consumers, larger
coverage of population, better customer service, superior information technology,
higher returns to the policyholders, and so on.

At present there are 21 private life insurers operating in the Indian life insurance market
along with the only state owned life insurer Life Insurance Corporation of India (LIC).
In India, private life insurers are slowly gaining the momentum to penetrate the market
with their new products, services and the global knowledge of expertise in doing life
business. This can be witnessed from their growing market share statistics which shows
nearly 30 percent of the market are in their hands. Most important aspect is that their
acceptability is on the rise though it is an urban phenomenon.

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Present-day banks have become far more diversified than ever before. Therefore, their
entering into insurance business is only a natural corollary and is fully justified too as
‘insurance’ is another financial product required by the bank customers. The Reserve
Bank of India being the regulatory authority of the banking system, recognising the
need for banks to diversify their activities at the right time, permitted them to enter into
insurance sector as well. Furtherance to this line, it issued a set of detailed guidelines
setting out various ways for a bank in India to enter into insurance sector. In the
insurance sector, the Insurance Regulatory and Development Authority (IRDA), despite
its recent origin in 2000, avowed to regulate and develop the insurance sector in India
through calibrated policy initiatives.

Bancassurance as a concept first began in India when the insurance industry opened up
to private participation in December 1999.

It is profitable to both banks and insurance companies. India being the one of the most
populous country in the world has a huge potential for insurance companies. Banks
have expertise on the financial needs, saving patterns and life stages of the customers
they serve. Banks also have much lower distribution costs than insurance companies.

Despite a billion of population, India still has a low insurance percentage of 1.95 and it
is in 51st position in world. Despite of the fact that India boosts a saving rate around
25%, less than 5% is spending on insurance. Nearly 80 per cent of Indian population is
without life insurance cover while health insurance and non-life insurance continues to
be below international standards.

IRDA had allowed bancassurance from 2002. Under the norms, a bank was allowed
to act as an agent for only one life and one general insurer.

It is predicted by experts that in future 90% of share of premium will come from
Bancassurance business only. Currently there are more and more banking and Insurance
Company and venturing into Bancassurance business for better business prospect in
future. It is a service that can fulfil both banking and insurance needs at the same time.

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 [2.4] Entering into Bancassurance

There is no single way of entering into bancassurance which is “best” for every insurer
and every bank. As in all business situations, a proper strategic plan drafted according to
the company’s internal and external environmental analysis and the objectives of the
organization is necessary before any decision is taken. There are many ways of entering
into bancassurance. The main scenarios are the following:

 One party’s distribution channels gain access to the client base of the other party. If
the two parties do not work together to make the most of the deal, then there will be
at best only minimum results and low profitability for both parties. If, however, the
bank and the insurance company enter into a distribution agreement, according to
which the bank automatically passes on to a friendly insurance company all “warm
leads” emanating from the bank’s client base, this can generate very profitable
income for both partners. The insurance company sales force, in particular usually
only the most competent members of the sales force, sells its normal products to the
bank’s clients. The co-operation has to be close to ensuring success.
 A bank signs a distribution agreement with an insurance company, under which the
bank will act as their appointed representative. With proper implementation this
arrangement can lead to satisfactory results for both partners, while the financial
investment required by the bank is relatively low. The products offered by the bank
can be branded.
 A bank and an insurance company agree to have cross shareholdings between them.
A member from each company might join the board of directors of the other
company. The amount of interest aroused at board level and senior management
level in each organization can influence substantially the success of a
bancassurance venture, especially under distribution agreements using multi
distribution channels.
 A joint venture: This is the creation of a new insurance company by an existing
bank and an existing insurance company. E.g ICICI-Prudential Life, HDFC-
Standard Life, Kotak Life (with Old Mutual of South Africa), SBI Life (with
Cardiff of France).

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 A bank wholly or partially acquires an insurance company. This is a major
undertaking as it must carefully define in detail the ideal profile of the targeted
insurance company and make sure that the added benefit it seeks will materialize.
 A bank starts from scratch by establishing a new insurance company wholly owned
by the bank. For a bank to create an insurance subsidiary from scratch is a major
undertaking as it involves a whole range of knowledge and skills which will need to
be acquired. This approach can however be very profitable for the bank, if it makes
underwriting profits.
 The acquisition (establishment) of a bank that is wholly or partially owned by an
insurance company is also possible. In this case the main objective is usually to
open the way for the insurance company to use the bank’s retail banking branches
and gain access to valuable client information as well as to corporate clients,
allowing the insurance company to tap into the lucrative market for company
pension plans. Finally, it offers the insurance company’s sales force bank product
diversification (and vice versa). This form is used in many cases as a strategy by
insurance companies in their effort not to lose their market share to bancassurers.

The best way of entering bancassurance depends on the strengths and weaknesses of the
organization and on the availability of a suitable partner if the organization decides to
involve a partner. In India, the model of partnership depends upon the regulations of the
IRDA, the insurance regulator. If the conditions for corporate agency tie-up are not
fulfilled by the bank, the bank may enter into a referral mode of tie-up with the insurer,
whereby its staff generates warm leads and offers it to the insurer’s sales persons. The
remuneration for the bank would be higher in case of the corporate agency model than a
mere referral mode of tie-up. Whatever the form of ownership, a very important factor
for the success of a bancassurance venture is the influence that one party’s management
has on that of the other. An empowered liaison between respective managements, with
regular senior management contacts, as well as sufficient authority to take operational
and marketing decisions, is vital. Regular senior management meetings are also a vital
element for a successful operation. There must be a strong commitment from the top
management to achieving the aims in the business plan.

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 [2.5] Reasons for Banks To Enter Into Bancassurance

The main reasons why banks have decided to enter the insurance industry area are the
following:

 Intense competition between banks, against a background of shrinking interest

margins, has led to an increase in the administrative and marketing costs and limited
the profit margins of the traditional banking products. New products could
substantially enhance the profitability and increase productivity.

 Financial benefits to a bank performance can flow in a number of ways, as briefly

outlined below:
- Increased income generated, in the form of commissions and/or profits from
the business (depending upon the relationship)
- Reduction of the effect of the bank fixed costs, as they are now also spread
over the life insurance relationship.
- Opportunity to increase the productivity of staff, as they now have the
chance to offer a wider range of services to clients.

 Customer preferences regarding investments are changing. For medium-term and

long-term investments there is a trend away from deposits and toward insurance
products and mutual funds where the return is usually higher than the return on
traditional deposit accounts. This shift in investment preferences has led to a
reduction in the share of personal savings held as deposits, traditionally the core
element of profitability for a bank which manages client’s money. Banks have sought
to offset some of the losses by entering life insurance business. Life insurance is also
frequently supported by favourable tax treatment to encourage private provision for
protection or retirement planning. This preferential treatment makes insurance
products more attractive to customers and banks see an opportunity for profitable
sales of such products.

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 Analysis of available information on the customer financial and social situation
can be of great help in discovering customer needs and promoting or
manufacturing new products or services. Banks believe that the quality of their client
information gives them an advantage in distributing products profitably, compared
with other distributors (e.g. insurance companies)
 The realization that joint bank and insurance products can be better for the customer
as they provide more complete solutions than traditional standalone banking or
insurance products.
 Banks are experiencing the increased mobility of their customers, who to a great
extent tend to have accounts with more than one bank. Therefore there is a strong
need for customer loyalty to an organization to be enhanced.
 Client relationship management has become a key strategy. To build and maintain
client relationships, banks and insurers are forming partnerships to provide their
clients with a wide range of bank and insurance products from one source.
 It is believed that as the number of products that a customer purchases from an
organization increases the chance of losing that specific customer to a competitor
decreases.
[2.6] The Major Need Of Bancassurance In India

 Now banks have realised that by entering into the product value services in
insurance sector, they can meet client expectations and earn more profit while
carrying on their banking business.
 In an insurance product there is a periodic nature of premium deposit which is
positive for the bank
 Banks have also realised that customer’s loyalty increases profit.
 Banks are projected as a ‘shoppers stop’ to provide all kind of financial services.
 Insurance sector is in the extensive need to use the bank’s distribution network,
large client base and huge customer database, which are helpful in selling their
products.
 It reduces the cost of distribution of insurance products in comparison to the
traditional agency channel.

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 Part III

REGULATORY GUIDELINES GOVERNING

BANCASSURANCE

Chapter 3- Guidelines Given By RBI & IRDA

[3.1] Regulation Of Banking Companies Indulging In

Insurance Services

[3.2] Guidelines Given By IRDA

[3.3] Recommendations of Committee Constituted By IRDA

on Bancassurance

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 Chapter 3- Guidelines Given By RBI & IRDA

The best way of entering into bancassurance depends on the strengths and weaknesses
of the organization and on the availability of an appropriate partner if the organization
decides to involve a partner. In India, the model of partnership depends upon the
regulations of the RBI and IRDA, the insurance regulator.
1. RBI Norms for banks entering into Insurance sector
2. IRDA Norms for Insurance companies tying up with Banks

[3.1] Regulation of Banking Companies Indulging In Insurance Services

In our country the banking & insurance sectors are regulated by two different entries.
They are:

 Banking sector is regulated by Reserve Bank of India; and

 Insurance Sector is regulated by the Insurance Regulatory and Development
Authority (hereinafter IRDA).

Bancassurance being the combination of two sectors comes under the purview of both
the regulators. Each of the regulators has given out detailed guidelines for banks getting
into insurance sector.

Government of India issued following notification dated August 3, 2000, specifying

‘Insurance’ as a permissible form of business that could be undertaken by banks under
Section 6(1) (o) of The Banking Regulation Act, 1949; RBI issued the guidelines on
Insurance business for banks.
The circular provides three options for banks to enter the Insurance Sector. They are as
follows:-

1. Permission with Risk participation

A bank which wishes to undertake insurance business can be permitted provided joint
ventures must be allowed for financially strong banks with risk participation. Provided
that such bank further satisfy the following conditions:-
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  The minimum net worth of the bank must not be less than Rs.500 crore.
 The minimum level of Capital Adequacy Ratio must not be less than 10% in the
bank.
 Non Performing Assets (NPA) should be reasonable in the bank.
 The bank should have been earning a net profit continuously for last three years.
 The track record of the performance of the subsidiaries should be satisfactory.
For example in India, ICICI Bank and HDFC Bank in private sector and State
Bank of India in the public sector has taken its shape by following this model.
The main benefit of this model is that the foreign insurance company can enter
into the Indian market through a joint venture.

2. Permission without Risk Participation

A bank which is not eligible for joint venture participation can make investment up to:
 10% of the net worth of bank or
 Rs.50 crores, whichever is lower, in the insurance company for providing
infrastructure services support. Such participation is treated as investment and
does not hold any contingent liability of the bank.

3. Referral Model
This model of Bancassurance India is regulated by Insurance Regulatory and
Development Authority (Sharing of Database for Distribution of Insurance Products)
Regulations, 2010. Any commercial bank can undertake insurance business as an agent
of insurance company on fee basis . The bank does not participate in risk under this
category. This is also known as referral model. In this model, a ‘referral arrangement’ is
done between ‘Referral Company’ and insurer for selling of insurance products. The
referral company only shares the database of its customers and does not directly indulge
in soliciting or selling of insurance product through agent or corporate agent or
insurance intermediaries. In other words, the actual transaction is done by the staff of
the insurance company either at the bank premise or elsewhere. The bank charges only
fees or commission for every business from their customers.

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 [3.2] Guidelines Given By IRDA

Insurance Regulation and Development Authority Act 1999 provides the entry norms
for any new company for operation in insurance sector. Any such new company must
have:-

 Banks should have a minimum paid up capital of Rs.100 Crores.

 Each bank that sells insurance must have a Chief Insurance Executive to handle
all the insurance matters and activities.
 There is a restriction for international companies to the minority equity holdings
up to 26%.
 All the people involved in selling the insurance should undergo mandatory
training at an institute determined or authorized by IRDA and should have passed
the examination conducted by the authority.
 Commercial banks, including co‐operative banks and Regional Rural Banks may
become co‐operate agents for one insurance company.
 Banks can act as a corporate agent for any one of life or non life insurers.
 But, cannot become insurance brokers for many life or non life insurers.
 IRDA has also notified regulations relating to registration of insurers, their assets
and liabilities, conduct of business, licensing of insurance agents etc.
 Investment of policy holders fund only in India.

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 [3.3] Recommendations of Committee Constituted By IRDA on
Bancassurance

As we have discussed earlier that banks are not allowed to sell insurance products of
more than one insurance company. But due to persistent request from the side of various
life and general insurance companies from the IRDA led to formation of a seven-
member committee in the mid of 2009 to look after the matter . The committee had to
submit its report and to examine the desirability for a differential treatment of insurance
intermediation by banks under the Bancassurance model consistent with intermediation
best practices and modified suitably to meet domestic regulatory requirements. The
committee submitted its recommendation on 26th May, 2011.

Following are some of the recommendations of the Committee:-

 Banks should be allowed to tie up with any of the following two sets of
insurers:-

 Two in life insurance sector- The committee admitted that at present there is
ambiguity on the organization and practices of the Bancassurance.
 Two in non-life insurance sector excluding health
 Two in health insurance sector
 ECGC and AIC.

Efforts should be made to more use of information technology which would reduce the
manpower requirement and would increased more structured, transparent and efficient
organization.

The tenure of the agreement between the banker and insurer is normally one to three
year at present. This makes the relationship between the two unstable; therefore the
minimum period of the agreement between the banker and the insurer shall not be less
than five years. Here, the committee also made a very significant point that the
responsibility of servicing of the policies issued already through the bank or subsidiary

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or special purpose vehicle shall remain with the bancassurance partner even if the tie-up
ends and the said partner shall receive the renewal commission on per renewed policy
basis. For all this purpose there is need of proforma for memorandum of agreement
between bank and insurer with minimum requirement.

As far as inspection and supervision is concerned, the proposed regulation must contain
separate provision which empowers IRDA and RBI to inspect any of the Bancassurance
partner.

The regulation must have provisions of maintaining accounts and certification which
should be furnished in periodicals returns to the authority. Corporate governance norms
regarding disclosure should be complied by the banks treating bancassurance as integral
part of bank’s business operation.

Regulations should made it mandatory that the bank staff be fully trained in handling
insurance products so that the sale process is transparent and the policyholder gets full
disclosure of the features of the product.

The committee gave the green light for multiple insurers but only if a bank fulfils all
other conditions specified in the committee’s recommendations.

The Committee recommended abolition of the referral system of bancassurance because

it is costlier than corporate agent model. The reason behind the high cost is that the
insurer has not only to pay the higher amount of first year premium as referral fee but
also has to deploy staff and infrastructure in the bank premises.

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 Part IV

BANCASSURANCE BUSINESS

Chapter 4 -Why Bancassurance in India?

[4.1] Banking on Bancassurance

[4.2] Models on Bancassurance

[4.3]Advantages of Bancassurance

[4.4] Disadvantages of Bancassurance

[4.5] SWOT Analysis

[4.6] Obstacles in the Success of Bancassurance

[4.7] Distribution Channels of Bancassurance

[4.8] Cultural Issues in Distribution

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 Chapter 4 -Why Bancassurance in India?

The life insurance industry in India has been progressing at a swift pace since opening
up of the sector in 2000. The size of the country, a diverse set of people combined with
problems of connectivity in rural areas makes insurance selling in India a very difficult
proposition. Life insurance companies require enormous distribution of strength and
tremendous manpower to reach out to such a huge customer base. This distribution has
undergone a paradigm shift as various insurance companies are proposing to bring
insurance products into the lives of the common man by making them available at the
most basic financial point, the local bank branch, through Bancassurance.

The management of the new Indian operations are conscious of the need to grow
quickly to reduce painful start -up expense overruns. Banks with their huge networks
and large customer bases give insurers an opportunity to do this efficiently.

Regulations requiring certain proportions of sales to the rural and social sectors give an
added impetus to the drive for bancassurance. Selling through traditional methods to
these sectors can be inefficient and expensive. Tying up with a bank with an appropriate
customer base can give an insurer relatively cheap access to such sectors. This is still an
issue for insurers despite the recent widening of the definition of the rural sector.

In India, as elsewhere, banks are seeing margins decline sharply in their core lending
business. Consequently, banks are looking at other avenues, including the sale of
insurance products, to augment their income. The sale of insurance products can earn
banks very significant commissions (particularly for regular premium products). In
addition, one of the major strategic gains from implementing bancassurance
successfully is the development of a sales culture within the bank. This can be used by
the bank to promote traditional banking products and other financial services as well.

Bancassurance is not simply about selling insurance but about changing the mindset of a
bank. In addition to acting as distributors, several banks have recognised the potential of
insurance in India and have taken equity stakes in insurance companies.

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 [4.1] Banking on Bancassurance

Most of the insurance companies have already tied up with banks to explore the
potential of the channel that has been a success story in Europe and legislations are also
in place. For insurance companies and banks the convergence brings about benefits for
both but then what's stopping it from taking off in a big way?

Bancassurance primarily banks on the relationship the customer has developed over a
period of time with the bank. And pushing risk products through banks is a cost-
effective affair for an insurance company compared to the agent route, while, for banks,
considering the falling interest rates, fee based income coming in at a minimum cost is
more than welcome.

Reasons for Banks' Eagerness to Collaborate with Insurance Companies

 Attraction of fee income

 Diversion of surplus workforce
 Development of product range

Reasons for Insurance Companies' Eagerness to Collaborate with Banks

 Reliance on wide network

 Attraction of strong clientele base
 Aggressive marketing strategies

Reasons for Consumers' Eagerness to Welcome Bancassurance

Consumer perception is itself a very dynamic phenomenon. Today's customer is very

demanding and sensitive too. Their expectations in respect of service quality are quite
high. They insist on respectable behaviour from their banker. Now, when there are so
many operators, they can always switch over their loyalty at any moment. Thus, there is
a challenge before service providers that their clientele base is retained. The competitive
state of market suits the consumer as customer care is always better. The customer will
be benefited the most if the market is developed and competition is aroused to a greater
extent.

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 [4.2] Models of Bancassurance

Bank Insurance Model allows the insurance company to maintain smaller direct sales
teams as their products are sold through the bank to bank customers by bank staff. Bank
staff and tellers, rather than an insurance salesperson, become the point of sale/point of
contact for the customer. Bank staff are advised and supported by the insurance
company through product information, marketing campaigns and sales training.

The concept combines banking and investment management services with the
sophisticated use of insurance as a financial planning structure to achieve fiscal
advantages and security for investors and their families. Models of bancassurance as
based on mainly three classifications which are as under:

I) Structural classification

II) Product based classification

III) Bank referrals

I) STRUCTURAL CLASSIFICATION
Structural classification can be done as under:
 Referral Model
Banks which are planning not to consider risk can take up ‘referral model’. The actual
transaction with the clients in referral model is done by the staff of the insurance
company either at the premises of the bank or elsewhere. Referral model is an
agreement, wherein the bank, while controlling the clients data base, does business
through the agents/sales staff of the insurance company for a ‘referral fee’ or
commission for every business lead that was passed on. In fact a number of banks in
India have already started implementing this strategy. This model would be appropriate
for almost all types of banks including the Regional Rural Banks (RBBs) /Co‐operative
Banks and even Co‐operative Societies both in rural and urban areas.

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  Corporate Agency
Corporate agency is another form of non‐risk participatory distribution channel, wherein
the bank staff is trained to appraise and sell the products to the customers. Here the bank
as an institution operates as corporate agent for the insurance products for a
fee/commission. This seems to be more practical and is suitable for most of the banks in
India. Here, the rate of commission would be comparatively higher than the referral
arrangement. There are also practical difficulties in the form of professional knowledge
about the insurance products. Besides, struggle from the staff to handle totally new
service/product could not be ruled out. However, this could be overcome by thorough
training to selected staff along with proper incentives in the banks for the selling of
simple insurance products in the initial stage. This model is best suited for majority of
banks including some major urban cooperative banks because it neither involves sharing
of risk nor does it require huge investment in the form of infrastructure and yet can be a
good source of income.
 Insurance as Fully Integrated Financial Service / Joint Venture
Apart from the above two, the fully integrated financial service occupies complete and
complex relationship between the insurer and the bank. Here, the bank functions as fully
universal in its operation and selling of insurance products are just one more function
within. The banks will have a separate counter within, to sell the insurance products as
an internal part with the rest of its activities. Thus the banks can wholly be an owner to
the insurance subsidiary.
Eg. ICICI bank and State Bank of India in the public sector have already gone ahead
with this type of bancassurance model and have obtained a large share in the insurance
market within a short period.

II) PRODUCT BASED CLASSIFICATION

Product based classification of the bancassurance model is as under:
 Stand‐Alone Insurance Products
Under stand‐alone insurance products, marketing of the insurance products is done
either through referral arrangement or corporate agency without mixing the insurance
products with any of the bank’s own products/services. Insurance is sold as an

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additional item in the list of products offered to the bank’s customer. However, the
products of banks and insurance will have their individual brands too, e.g., Karur Vysya
Bank Ltd selling of life insurance products of Birla Sun Life Insurance or general
insurance products of Bajaj Allianz General Insurance Company does act as an
additional attraction.
 Blend Of Insurance With Bank Products
This strategy intends to blend insurance products with the bank product as a ‘value
addition’ while encouraging its own products. Thus, banks could sell the insurance
products without any extra efforts. Sometimes, giving insurance cover at a nominal
premium or without specific premium proves to be an attractive deal for banks to sell an
individual product. For example credit card, housing loans, education loans, etc. Many
banks in India, are determined in marketing credit and debit card business, whereas the
cardholders get the ‘insurance cover’ for a nominal fee or (completely included in the
annual fee) free from simple charges/ premium. Similarly the home loans / vehicle
loans, etc., have also been designed with the insurance cover as an added incentive.

III) BANK REFERRALS

Under bank referral method, banks do not issue the policies; they only give the database
to the insurance companies. These companies issue the policies and pay the commission
to the banks. In this method all the three parties involved i.e. banks, insurance
companies and customers are benefited. Banks get commission, the insurance
companies get records of the customers and the customers get the benefits.

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 [4.3] Advantages Of Bancassurance

Bancassurance is a tool, which is beneficial to bank, Insurer & customer at a time. There
are certain benefits of bancassurance:

(1) From the Banks point of view: -

 By selling the insurance product by their own channel the banker can increase their
income.

 Productivity of the employees increases.

 Banks have face-to-face contract with their customers. They can directly ask them
to take a policy and the banks need not to go anywhere for customers.

 Banks can cross sell insurance products.

 Bankers have extensive experience in marketing. They can easily attract customers
& non-customers because the customer & non-customers also bank on banks.

 Banks are using different value added services like- E. Banking, Tele- banking,
direct mail & so on. They can also use all the above-mentioned facility for
Bancassurance purpose with customers & non-customers.

(2) From the Insurer Point of view:-

 The Insurance Company can increase their business through the banking
distribution channels because the banks have so many customers.

 The foremost advantage for insurers being that they will have the direct access to
the large customer base, at relatively faster rate and at the lowest cost. Banks’ prior
knowledge about the customers and their financial standing and other background is
a gold mine for the insurers not only to tap the market but also would help to device
the products that suits customers the most.

 Insurers can exploit the banks' wide network of branches for distribution of
products. The penetration of banks' branches into the rural areas can be utilized to
sell products in those areas.

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 The success or otherwise of any new business/ products/ service depends on how
quickly and widely it reaches out to the customers/ potential customers. This holds
good even for insurance products, the insurance companies can reach out the entire
country at a greater speed with less cost through bancassurance.

 Since banks have already established relationship with customers, conversion ratio
of leads to sales is likely to be high. Further service aspect can also be tackled
easily.

 By cutting cost Insurers can serve better to customers in terms lower premium rate
and better risk coverage through product diversification.

(3) From the Customers' point of view:-

 Product innovation and distribution activities are directed towards the satisfaction of
needs of the customer.

 Bancassurance model assists customers in terms of reduction price, diversified

product quality in time and at their doorstep service by banks.

 Easy accesses for claims, as banks are a regular go.

 Innovative and better product ranges.

 Comprehensive financial advisory services under one roof. i.e., insurance services
along with other financial services such as banking, mutual funds, personal loans
etc.

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 [4.4] Disadvantages of Bancassurance

 After allying with one insurance company a bank may discontinue it to set up
their own venture. Banks may change insurance partners due to attractive
benefits offered by a competing insurer.
 Sometimes the banks feel they get a raw deal as the benefit accruing to the bank
is negligible as compared to the insurance companies.
 The existing insurance companies feel that by granting multiple permissions to
the bank may not be fair in promoting a particular companies’ product as there
would be clashes of interest.
 Many experts feel that the idea of bancassurance gives too great and much
control to the banks over the financial market of the country.
 Human resource management has experienced some complications due to such
association in the financial industry. Recently some issues like increased work
load, maintaining the motivation levels have cropped up quite occasionally among
the employees. Therefore, human resource issues should be given first priority
before entering into bancassurance business.
 The banks also fear that at some point the insurance partner may end up
cross‐selling banking products to their policy holders. If the insurer is selling the
products by agents as well as banks then there is a risk of clash between both if
the agents targeting the same customers.

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 [4.5] SWOT ANALYSIS

STRENGTHS OPPORTUNITIES

Swot
Analysis

WEAKNESS THREATS

 Huge number of people are without life insurance (91.73

million out of 1 billion had life insurance in 1999)
 Millions of people travelling in and out of India can be tapped
Strengths for Overseas Mediclaim and Travel Insurance policies
 200 million households waiting for householder’s insurance
 Good range of products from Insurance Companies
 Good amount of R&D into insurance
 Not much IT initiative from leading insurance players
 Higher tax nets for the middle class
Weaknesses
 No Tax exemptions for products like householder, travel
policies etc
 Inflexibility of the products
 Bank’s database can help insurance companies devise policies
Opportunities  Better IT infrastructure from the bank’s side can help
integrating
 Risks in integrating approach, thinking and work culture
 Non-response from target customers because banks are
Threats
considered as insurance company agents by the customers
 Investors might suffer if the new rate of return on capital is
lower than the existing rate of return

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 [4.6] Obstacles in the Success Of Bancassurance

There are some cultural differences between the bank and insurance company which are
hurdle in the way of success of bancassurance. Some of them are as follows:
 There may be a problem at the time of implementation of bancassurance
partnership.
 Poor manpower management is one of the biggest hurdles in this area.
 Lack of sales culture and no involvement of branch manager.
 Insufficient product promotions and failure to integrate marketing plans.
 The most important in all of them is the negative attitude of the bank staff
towards insurance and unwieldy marketing strategy.
Besides that, following are the specific cultural differences between both of them:
 Banks provides tangible services whereas an insurance company provides
intangible services.
 Banks sell its product on good-faith. On the other hand, insurance companies sell
their products on utmost good-faith.
 Banks provided services are 'immediate' whereas insurance provided services are
'futuristic'.
 Bank provides short term finance whereas insurance companies provide long
term Finance.
 Banks generally deal with their customers directly whereas insurance companies
deals with their customers through intermediaries.
 Bank customers have their accounts in banks whereas insurance customers
unaware of their accounts.
 Dealing with banks is highly personal whereas dealing with insurance is less
personal.
 The Reserve Bank of India in its 2009-2010 circular made it mandatory for bank
to disclose in the "Notes to Accounts" from the year ending March 31, 2010, the
details of fees or remuneration received in respect of bancassurance business
undertaken by them

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 [4.7] Distribution Channels In Bancassurance

Distribution is an important factor in bancassurance which is strongly associated with

the regulatory issues of the country. Over the years, regulatory obstacles between
banking and insurance have lessened and have created an increasingly friendly climate
for bancassurance. The passage of Gramm‐Leach Bliley Act of 1999 in US and IRDA
Bill in India in 2000 has encouraged the growth of bancassurance by allowing the use of
multiple distribution channels by banks and insurance companies. Nowadays, many
banks and insurers including large and traditional companies that would not have
considered about such an approach about a decade ago are now looking with great
interest at constructive new revenues through Bancassurance.

Today, insurance products have been supported and sold mainly through agency
systems in most of the countries. With new developments in consumer’s behaviors,
evolution of technology and deregulation, new distribution channels have been
developed successfully in the recent years. The type of distribution channels that a
company uses affects the design and pricing of its products, as well as the way in which
the products are promoted and perceived in the market place. Recently Bancassurers
have been making use of various distribution channels which are as under:

Career agents
Seminar
Special
Selling
Advisers

E-commerce Salaried
Distribution Agents
Channels
Worksite Bank
marketing employees

Direct Corporate Agencies &

Response Brokerage Firms

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The main characteristics of each of these channels are:

1. Career agents: They are full-time commissioned sales personnel holding an

agency contract. Although some insurance companies offer such contracts to part
timers, within bancassurance operations such people are usually excluded. Career agents
are generally considered to be independent contractors. Consequently an insurance
company can exercise control only over the activities of the agent which are specified in
his contract. Despite this limitation on control, career agents with suitable training,
supervision and motivation can be highly productive and cost effective. Moreover their
level of customer service is usually very high due to the renewal commissions, policy
persistency bonuses, or other customer service-related awards paid to them. However,
many bancassurers avoid this channel, believing that agents might oversell out of their
interest in quantity and not quality. Such problems with career agents usually arise, not
due to the nature of this channel, but rather due to the use of improperly designed
remuneration and/or incentive packages.

2. Special advisers: They are highly trained employees usually belonging to the
insurance partner, who distribute insurance products to the bank’s corporate clients.
Usually they are paid on a salary basis and they receive incentive compensation based
on their sales. Otherwise they present the same characteristics as those of career agents,
with the exception of their training which focuses on the group and business insurance
sectors.

3. Salaried agents: They have the same characteristics as career agents. The only
difference in terms of their remuneration is that they are paid on a salary basis and they
receive incentive compensation based on their sales. Some bancassurers, concerned at
the bad publicity which they have received as a result of their career agents
concentrating heavily on sales at the expense of customer service, have changed their
sales forces to salaried agent status.

4. Bank employees: They can sell simple products. However, the time which they
can devote to insurance sales is limited, e.g. due to limited opening hours and to the
need to perform other banking duties. A further restriction on the effectiveness of bank

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employees in generating insurance business is that they have a limited target market, i.e.
those customers who actually visit the branch during the opening hours. In many set-
ups, the bank employees are assisted by the bank’s financial advisers. The financial
advisers either sell in the branch but some banks have also established mobile sales
forces. If bank employees only act as “passive” insurance sales staff (or do not actively
generate leads), then the bancassurer’s potential can be severely impeded. However, if
bank employees are used as “active” centres of influence to refer warm leads to salaried
agents, career agents or special advisers, production volumes can be very high and
profitable to Bancassurers.

5. Corporate Agencies or Brokerage Firms: In the US, quite a number of banks

cooperate with independent agencies or brokerage firms whilst in Japan or South Korea
banks have founded corporate agencies. The advantage of such arrangements is the
availability of specialists needed for complex insurance matters and – in the case of
brokerage firms – the opportunity for the bank clients to receive offers not only from
one insurance company but from a variety of companies. In addition, these sales
channels are more conceived to serve the affluent bank client.

6. Direct response: In this channel no salesperson visits the customer to induce a

sale and no face-to-face contact between consumer and seller occurs. The consumer
purchases products directly from the bancassurer by responding to the company’s
advertisement, mailing or telephone offers. This channel can be used for simple
packaged products which can be easily understood by the consumer without
explanation.

7. Worksite marketing: Vastly popular in the US, this channel is used to target
employees of the insurer, or a group company. In this method, the insurer launches non-
medical insurance cover for the employees of a group company and offers special
discounts to all those who propose to take the cover. There is however no obligation on
the part of the employees to buy the policy. Worksite marketing is easier to implement
if there is a perceived positive image of the parent company itself among employees.
Secondly, simple forms and simpler benefits illustration can go a long way to establish
sales growth. Cultural and social differences, coupled with a below average company
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image, may be the major hurdles for growth. Worksite marketing channel has high
chances of success, due to the trust and loyalty factor towards their ‘own’ company, as
the insurer is perceived to be their ‘own insurance company’. The premium payment
usually is monthly mode, and deducted from the salary; thus making the entire process
simple. The chance of lapsation of policy is therefore non-existent, creating win-win
positions for both, the insurer and the employee.

8. E-commerce: This channel is the fastest growing and most convenient way of
purchasing insurance cover. Internet banking is already well‐known as a successful and
profitable tool for conducting banking operations. Internet provides large and effective
source of information for selling of financial products. . Bancassurers can feel confident
that internet banking will also prove to be a qualified medium for cross selling of
insurance savings and protection products.
Online sales of insurance policies can be encouraged by designing special non-medical
term policies, which are easy to understand, and which do not warrant expert advice
from trained advisors. E-commerce sites that offer the lowest quotes from all insurers
are being introduced by entrepreneurs and they are slowly making their mark.

The functions requiring user input like check ordering, calculations; credit and account
applications should be immediately added with links to the insurer. Such an
arrangement can also provide an effective medium for insurance sales, service and
leads.
9. Seminar Selling: One last method for developing bancassurance involves
outside lead generating techniques, such as seminars, direct mail and statement inserts.
Today great opportunities are lying ahead for bancassurance partners and its success or
failure mainly depends on how the process of bancassurance is developed and handled
inside each financial institution.

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 [4.8] Cultural Issues In Distribution

The managers of banks and of life insurance companies can come from quite different
cultures. There may be differences in the way of thinking and business approaches of
bankers and managers of insurance companies. These differences create a
communication and implementation problem in bancassurance operations. Banks are
traditionally demand-driven organizations with a reactive selling philosophy. Life
insurance organizations are usually need-driven and have an aggressive selling
philosophy. It has been observed that this friction at the level of bank employees and
life insurance salespeople arises from

 Differing philosophies towards selling (push v/s pull strategy)

 The jealousies of bank employees regarding remuneration of life sales staff, and
 Fears of “cannibalization” of deposits, e.g. the bank employee fears that the
salesperson encourages withdrawal of bank deposits, putting the bank
employee’s job in greater jeopardy. As a result the team spirit is negatively
influenced and, since this is a crucial factor for the success of any operation, it
has to be confronted.

Cultural differences between the banking and the insurance industries must be
understood, respected and lived with in order for the bancassurance venture to succeed.
The development of a single culture is another possible solution but this requires a very
strong commitment from the top management. This commitment must be continuously
conveyed to all bank employees and life insurance agents. One way of achieving this is
to develop a “statement of mission” for the new organization and to get the staff to
commit to fulfilling this statement. This can help to ensure that there is a common path
for the bank and the life insurer. Many organizations try to overcome these cultural
differences through the elimination of insurance sales people and the provision of
insurance products and services exclusively through bank employees. However this
practice creates in four major problems:

Page No - 37
1. By eliminating the sales force, bank employees are forced to cross borders to a
different profession where different skills are required and where the competition
practices are different.
2. The products that bank employees offer are usually simple packaged products or
pure investment products – in many cases without a risk element. However,
simple packaged products are not always the best solution for the customer who
is undoubtedly the centre of any success. Since the insurance industry offers
tailor-made products and services to its customers, the bancassurers who are
using only bank employees to distribute their products will feel the pressure to
switch to better products or to develop the proper distribution channels. All over
the world, more and more consumers are becoming better informed and seek to
buy the most appropriate product through a preferred distribution channel.
3. Using only bank employees to sell insurance can severely limit the success of the
bancassurer. The bank’s target market is then only the customer-base of the bank
accessible to bank employees, e.g. those who come into the branch. More and
more, bank customers can manage their affairs without entering the bank branch
and are therefore inaccessible to bank employees.
4. Customer service offered in conjunction with the insurance policy is likely to be
relatively poor since it is limited to banking hours. Insurance company agents
can offer customer service at times more likely to suit the customer.

Page No - 38
 Part V

PRESENT SCENARIO OF BANCASSURANCE

Chapter 5- Relevance of Bancassurance

in The Indian Financial Sector

[5.1] Why is Bancassurance more suited to Life Insurance products?

[5.2] Long Term Drivers of Bancassurance in India

Chapter 6- Factors that appear to be critical

for the success of Bancassurance

[6.1] Remuneration and Incentives

[6.2] Training for Bancassurance
[6.3] Reasons for growing phenomena of Bancassurance
[6.4] List Of Some of The Tie-Ups of Banks with Insurance .
. Companies

Chapter 7- Open Architecture of Bancassurance

Page No - 39
Chapter 5→Relevance of Bancassurance in the Indian Financial
Sector

 Integration of the financial service industry in terms of banking, securities

business and insurance is a growing worldwide phenomenon. The Universal
Banking concept is evolving on these lines in India.
 Banks are the key pillars of India’s financial system. Public have immense faith
in banks. Share of bank deposits in the total financial assets of households has
been steadily rising.
 Indian Banks have immense reach to households. Total of 65,700 branches of
commercial banks, each branch serving an average of 15,000 people.
 Banks have enormous retail customer base. Share of ‘individuals’ as a category
in bank accounts is steadily increasing. Rural and semi urban bank constitute
close to 60% in terms of number of accounts, indicating the number of potential
lives that could be covered by insurance with the upfront involvement of banks.
 Banks have realized that offering value-added services such as insurance helps to
meet client expectations. Competition in the Personal Financial Services area is
getting `hot’ in India that Banks can retain customer loyalty by offering them a
vastly expanded and more sophisticated range of products. Insurance distribution
can also help the bank to increase the fee-based earnings to a large extent. It
helps to enhance the levels of staff productivity in banks. This is vitally
important to bring higher motivation levels in banks in India.
 Banks can put their energies into the small-commission customers’ that insurance
agents would tend to avoid. Banks’ entry in distribution can help to enlarge the
insurance customer base rapidly. This helps to popularize insurance as an
important financial protection product.
 Bancassurance helps to lower the distribution costs of insurers. Acquisition cost
of insurance customer through bank is low. Selling insurance to existing mass
market banking customers is far less expensive than selling to a group of
unknown customers.

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 [5.1] Why is Bancassurance more suited to Life Insurance
Products?

Traditionally, much fewer non-life insurance products are distributed through

bancassurance than life insurance products. There are several reasons for this:

 The main reason may be the complementary nature of life insurance and banking
products: bank employees are already familiar with financial products and quickly
adapt to selling insurance-based savings or pension products;
 On the other hand, the non-life market requires special management and selling
skills, which are not necessarily prevalent in bancassurance. In addition, such
competencies require significant investment in training and motivation, and
therefore additional costs;
 Life insurance products are generally long-term products, which require customers
to have complete confidence in the institution that invests their money. And we
now know that, in many countries, banks have a better image and are more trusted
than insurance companies;
 Bank advisers can use their knowledge of their customers’ finances to target their
advice towards specific needs. This is a major advantage in life insurance and less
important in personal injury insurance;
 Some professionals also refer to the claims management aspect of personal injury
insurance, which could have a negative impact on brand image. This would seem
to explain why for a long time bancassurance operators hesitated to offer these
types of product.

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 [5.2] Long Term Drivers of Bancassurance in India
The staffing problem has redirected some banks to bancassurance and so has the
reduction of bad loan problem. But, they are not the long term drivers of bancassurance
in India. The long term drivers in India are going to be the following.
 The culturally more acceptable banking transactions. Banking does not have the
same stigma that (life) insurance carries. This factor will diminish its importance
over time, as people become more educated.
 Banks can offer fee-based income for insurance sales. This can be attractive
under current rigid structure of wage benefits. At present, banks are prohibited
from offering commission to the bank employees for selling insurance products.
Banks have found ways to circumvent the problem. For example, they offer "car
allowance" for the employees selling insurance.
 Narrowing bank margins are another key driver.
 Banks have complementary products with insurance products such as the auto
insurance, home insurance or annuities.
 When the pension reform is undertaken (and it is in the works), banks can
become natural institutional vehicles for private pension products. In some
countries, banks are explicitly prohibited from selling pension products (e.g.,
Australia). In some other countries, banks are the leading private pension
providers (e.g., Mexico).
 Healthcare insurance sector can also benefit from bancassurance. In India, only
2.5 million people have access to healthcare facilities. On the other hand, 5% of
personal income is spent on healthcare. Banks can distribute and facilitate
administration of healthcare insurance.
 In many countries, the absence of banks from selling insurance seems to stem
from regulatory reasons. In India, privatization of the insurance sector signalled
an accommodating approach from both the insurance regulator and the banking
regulator for banks entertaining the thoughts of selling insurance

Page No - 42
 Chapter 6→ Factors that appear to be critical for the success of
Bancassurance
 Strategies consistent with the bank's vision, knowledge of target customers' needs,
defined sales process for introducing insurance services, simple yet complete
product offerings, strong service delivery mechanism, quality administration,
synchronized planning across all business lines and subsidiaries, complete
integration of insurance with other bank products and services
 Another point is the handling of customers. With customer awareness levels
increasing, they are demanding greater convenience in financial services.
 The emergence of remote distribution channels, such as PC-banking and Internet-
banking, would hamper the distribution of insurance products through banks.
 The emergence of newer distribution channels seeking a market share in the network

[6.1] Remuneration and Incentives

Compensation packages and incentive schemes are critical factors for the success of
bancassurance. The way compensation is allocated encourages the distribution channels
to act according to what the organization feels is important. Compensation objectives
should also contribute to the overall objectives of the organization. A compensation
program, therefore, must be tailored to the needs of an organization and its employees.
To raise productivity and lower costs in today’s competitive economic environment,
organizations are increasingly setting compensation objectives based on a pay-for-
performance standard. In bancassurance operations the need is to motivate each of the
following groups:
 Bank employees involved in generating leads and sales
 Sales agents (if the bancassurer uses that approach)
 Bank branch management (for their effort in managing life insurance sales
through the branch network)
 Sales agency managers (if at location)
Motivation is particularly important for the sales agents out in the field for whom self-
discipline is the key to success. The remuneration terms should be attractive to each of
the groups involved. In particular, the designer of the remuneration package should seek
Page No - 43
to develop a package which helps each one of the groups to feel that they get a fair
reward for their contribution. The possible range of benefits and incentives in a life
insurance agent’s compensation package is unlimited.

The remuneration depends on whether the bank employee or the bank’s financial
advisers are involved in the sales process or whether the bank employees are providing
warm leads. Any commission payable by the insurance company is, as a principle, to be
credited to the bank profit centre for the bancassurance operation. The bank
management sets the commission level for each manager and employee engaged in the
bancassurance operation.

 Selling in the bank’s branches (by employees or by financial advisers):

employees could be rewarded with gifts and/or salary increments based on their selling
performance in promoting both banking and insurance products. Such performance
could be quantified via the use of a points system whereby the various products are
allocated as a number of points. For compulsory products linked to banking facilities no
commission or other benefit will be offered since these do not require any selling effort
on the part of employees. The financial advisers are usually paid on a salary basis and
they receive incentive compensation based on their sales.

 Warm leads:
In return for providing warm leads, the bank will get a share, say 50%, of the normal
first year commissions. The actual split might be agreed upon the basis of the work
done by each of the agent and the bank employee in achieving the average sale, which
may vary. A possible basis would be:
Bank employees: 25%  Bank profitability: 25% - 50%
The structure shown above generates benefits as:
 Financial rewards for employees who generate warm leads
 Financial rewards for managers and other staff of the bank branch who have
supported bank activities while the assurance business was being generated
 Recognition of the branch’s contribution to bank profits (which can be reflected
in the performance rating by the bank of the branch management)

Page No - 44
 [6.2] Training for Bancassurance
Training is a critical part of overall business performance. But even before any training
starts, it is important to determine
 who needs to receive training,
 what kinds of training are required,
 who will be responsible for providing training and for testing what the student
has learned from the training.
Sales force training for bancassurers:
Sales agents and their managers in any selling organization, including insurance,
develop a range of knowledge and skills, for example
 product knowledge,
 application of selling techniques and
 motivation skills.
Here we concentrate on the types of necessary training for sales staff and sales
managers in a bancassurance operation. The bank employees will need to be trained in
the following aspects of the insurance business:
 Features of the insurance products sold
 How to identify and approach a potential customer
 Basic insurance needs
 Handling basic objections
 Other distribution channels and products
 Procedures
 Remuneration and incentive schemes
 Cultures
 Customer service
Much of this list will be new to staff used to banking transactions, so it is comparatively
long. However, proper and regular training of bank employees is a key to the success of
the operation.

Page No - 45
Continuous Training and Supervision:
Apart from initial training, there should be further training to support the development
of the agent or employee. Some ways in which this can be done are:

 Agency meetings
 Bank branch meetings
 Area banking meetings
 In-house magazine
 Training circulars
 Area sales seminars
 Company library
 Video tapes
 Certified courses
 Lectures
 Training material booklets
Quality customer service:
Quality customer service refers to every single activity that the company, its employees
and the distribution channels undertakes for its customers. In all cases the objective of
every person in the company should be to give added value to every transaction or
communication, providing additional incentives to clients and enabling the company to:
 distinguish itself from competitors,
 improve its image among customers,
 keep its existing customers,
 attract new customers, and
 create additional sales among existing customers.
Bank employees must be well informed about the customer service standards set by the
insurer when they refer them to their customers.

Page No - 46
 [6.3] Reasons for growing phenomena of Bancassurance
The opening up of the insurance industry to private sector participation in December
1999 has led to the entry of 20 new players, with 12 in the life insurance sector and
eight in the non-life insurance sector. Almost without exception these companies are
seeking to utilize multiple distribution channels such as traditional agency,
bancassurance, brokers and direct marketing. Bancassurance is seen by many to be a
significant or even the primary channel.

In other Asian markets bancassurance has made significant headway in recent times.
For example, bancassurance accounted for 24% of new life insurance sales by
‘weighted’ premium income in Singapore in 2002. This is a significant increase on the
equivalent 2001 statistic of 15% and is as a result of growth in significant bank-centric
bancassurance operations. In Hong Kong the figure for 2002 is expected to be at the
20% level for the same basic reasons.

 Life insurance premium represents 55% of the world insurance premium, and as
the life insurance is basically a saving market. So it is one of the methods to
increase deposits of banks.
 In non-life insurance business banks are looking to provide additional flow of
revenues from the same customers through the same channel of distribution and
with the same people.
 Insurers have been turning in ever-greater numbers to alternative modes of
distribution because of the high costs they have paid for agent services. These
costs became too much of a burden for many insurers compared to the returns
they generated.
 Insurers operate through bancassurance own and control relationships with
customers. Insurers found that direct relationships with customers gave them
greater control of their business at a lower cost. Insurers who operate through the
agency relationship are hardly having any control on their relationship with their
clients.

Page No - 47
 The ratio of expenses to premiums, an important efficiency factor, it is noticed
very well that expenses ratio in insurance activities through bancassurance is
extremely low. This is because the bank and the insurance company is benefiting
from the same distribution channels and people.
 One of the most important reasons of considering Bancassurance by Banks is
increased return on assets (ROA). One of the best ways to increase ROA,
assuming a constant asset base, is through fee income. Banks that build fee
income can cover more of their operating expenses, and one way to build fee
income is through the sale of insurance products. Banks those effectively cross-
sell financial products can leverage their distribution and processing capabilities
for profitable operating expense ratios.
 Another advantage banks have over traditional insurance distributors is the lower
cost per sales lead made possible by their sizable, loyal customer base. Banks
also enjoy significant brand awareness within their geographic regions, again
providing for a lower per-lead cost when advertising through print, radio and/or
television.
 Other bank strengths are their marketing and processing capabilities. Banks have
extensive experience in marketing to both existing customers (for retention and
cross selling) and non-customers (for acquisition and awareness). They also have
access to multiple communications channels, such as statement inserts, direct
mail, ATMs, telemarketing, etc. Banks' proficiency in using technology has
resulted in improvements in transaction processing and customer service.
 By successfully mining their customer databases, leveraging their reputation and
'distribution systems’ (branch, phone, and mail) to make appointments, and
utilizing 'sales techniques’ and products tailored to the middle market, European
banks have more than doubled the conversion rates of insurance leads into sales
and have increased sales productivity to a ratio which is more than enough to
make bancassurance a highly profitable proposition.

Page No - 48
 [6.4] List Of Some of The Tie-Ups Of Banks With Insurance
Companies

No. Banks Insurance Companies

1. Central Bank of India LIC
2. Dena Bank LIC
3. Bank of Maharashtra LIC
4. UCO Bank LIC
5. Corporation bank LIC
6. Centurion Bank LIC
7. Indian Overseas Bank LIC
8. ABN-Amro Aviva Life Insurance Company
9. Canara Bank Aviva Life Insurance Company
10. Lakshmi Vilas Bank Aviva Life Insurance Company
11. Punjab & Sind Bank Aviva Life Insurance Company
12. DBS Bank Aviva Life Insurance Company
13. Allahabad Bank ICICI Prudential Life Insurance
14. Citibank ICICI Prudential Life Insurance
15. ICICI Bank ICICI Prudential Life Insurance
16. SBI and Associate banks SBI Life Insurance Company
17. Bank of Rajasthan Birla Sun life Insurance Co. Ltd.
18. Deutsche Bank Birla Sun life Insurance Co. Ltd.
19. Bank of Muscat Birla Sun life Insurance Co. Ltd.
20. Standard Chartered Bajaj Allianz
21. Syndicate bank Bajaj Allianz

Page No - 49
 Chapter 7→ Open Architecture of Bancassurance

The Insurance Regulatory and Development Authority of India (IRDA) has asked
insurers to pursue an open architecture model in bancassurance. IRDA said that
guidelines to facilitate this would be issued soon.

IRDA had issued guidelines for banks as brokers in August 2013. However, the
response wasn’t there.

The call for open architecture has gathered momentum in the past couple of years, as
several late entrants did not have a bank to tie-up with.

IRDA has strongly recommended that banks work as brokers to increase the insurance
penetration. This is on the heels of the Reserve Bank of India’s (RBI) guidelines of
January 16, 2015, that banks may become insurance brokers and sell multiple products.

According to guidelines, a bank can enter insurance broking only if the capital-to-risk
(weighted) assets ratio is 10% or above and the level of net non-performing assets is 3%
or below. RBI has also doubled the net worth requirement to Rs 1,000 crores, double
the Rs 500 crores proposed earlier.

Insurance penetration has been declining steadily in recent years. Between 2009 and
2013, life insurance penetration declined from 4.6% to 3.1%. For general insurance, the
rise has been marginal, from 0.78% in 2012 to 0.80% in 2013.

At present, bancassurance follows a corporate agent structure. This allows banks to sell
insurance products of only one life, one non-life and one health insurance Company
each. Open architecture is when a single bank is allowed to sell products of multiple
insurers from the same sector.

In the recently promulgated insurance ordinance, the government has brought corporate
agents within the definition of insurance intermediary, in line with brokers. Insurance
intermediaries include insurance brokers, re-insurance brokers, insurance consultants,
corporate agents, third party administrators, surveyors and loss assessors.

Page No - 50
 Part VI
COMPARISON OF BANCASSURANCE
BETWEEN ICICI AND IDBI BANK

Chapter 8 – ICICI Bank & IDBI Bank

[8.1] About ICICI Bank
[8.2] Current Scenario in ICICI Bank
[8.3] About IDBI Bank
[8.4] Current scenario in IDBI Bank
[8.5] Field Work on ICICI and IDBI Bank
[8.6] Questionnaire
[8.7] Comparison of Bancassurance between ICICI and IDBI

Chapter 9 –Recommendations and Conclusions

[9.1] Findings
[9.2] Recommendations
[9.3] Conclusion
[9.4] Bibliography and Websites

Page No - 51
 Chapter 8→ ICICI Bank & IDBI Bank

[8.1] About ICICI bank

ICICI Bank was established by the Industrial Credit and Investment Corporation of
India, an Indian financial institution. It was formed in 1955 as a joint‐venture of the
World Bank, India's public‐sector banks and public‐sector insurance companies to
provide project financing to Indian industry. ICICI Bank started as a wholly owned
subsidiary of ICICI Limited. Four years later, when the company offered ICICI Bank's
shares to the public, ICICI's shareholding was reduced to 46%. In the year 2000, ICICI
Bank offered made an equity offering in the form of ADRs on the New York Stock
Exchange (NYSE), thereby becoming the first Indian company and the first bank or
financial institution from non-Japan Asia to be listed on the NYSE. In the next year, it
acquired the Bank of Madura Limited in an all-stock amalgamation. Later in the year
and the next fiscal year, the bank made secondary market sales to institutional investors.

With a change in the corporate structure and the budding competition in the Indian
Banking industry, the management of both ICICI and ICICI Bank were of the opinion
that a merger between the two entities would prove to be an essential step. It was in
2001 that the Boards of Directors of ICICI and ICICI Bank sanctioned the
amalgamation of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI
Bank.
ICICI Group Companies :

• ICICI Group • ICICI Prudential Life Insurance Company • ICICI Securities

• ICICI Lombard General Insurance Company • ICICI Prudential AMC & Trust

• ICICI Venture • ICICI Direct • ICICI Foundation • Disha Financial Counselling

• ICICI Bank also has banking subsidiaries in UK, Canada and Russia

Page No - 52
 [8.2] Current Scenario in ICICI Bank
Established in 1994, ICICI Bank is today the second largest bank in India and among
the top 150 in the world. In less than a decade, the bank has become a universal bank
offering a well diversified portfolio of financial services. The hallmark of this
exponential growth is ICICI Bank’s unwavering focus on technology.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$
81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for
the year ended March 31, 2010. The Bank has a network of 2,016 branches and about
5,219 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of
banking products and financial services to corporate and retail customers through a
variety of delivery channels and through its specialized subsidiaries in the areas of
investment banking, life and non-life insurance, venture capital and asset management.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts
(ADRs) are listed on the New York Stock Exchange (NYSE). Expansion and brand
recognition have come through acquisitions and mergers as well. The bank believes its
strength is constant innovation in retail products and hi-tech delivery channels. Nearly
70 per cent of its transactions take place electronically, and it was among the first banks
to go online for all services including opening and using accounts and utility payments.

Under Bancassurance business, ICICI Bank has subsidiary named ICICI Prudential Life
Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd.

ICICI Prudential Life Insurance Co. Ltd. is a joint venture between ICICI bank and
Prudential Plc, a leading international financial services group whose headquarters is in
the United Kingdom. It was established in December 2000 after receiving an approval
from Insurance Regulatory Development Authority (IRDA).

ICICI Lombard General Insurance Co. Ltd. was established in August 2001. It is a
joint venture between ICICI Bank Ltd. and Fairfax Financial Holding Ltd, Canada.

Page No - 53
 [8.3] About IDBI Bank

IDBI Bank Limited is an Indian government-owned financial service company,

formerly known as Industrial Development Bank of India, headquartered in Mumbai,
India. It was established on 1st July 1964 by an Act of Parliament as a wholly owned
subsidiary of the Reserve Bank of India to provide credit and other financial facilities
for the development of the fledgling Indian industry.

IDBI Bank is the youngest, new generation, public sector universal bank that rides on a
cutting edge core banking Information Technology platform. This enables the Bank to
offer personalized banking and financial solutions to its clients. The Bank had an
aggregate Balance sheet size of Rs.3, 28,997 crore and total business of Rs.4,33,460
crore as on March 31, 2014. IDBI Bank's operations during the financial year ended
March 31, 2014 resulted in a net profit of Rs. 1121 crore.

Vision for the Bank is “TO BE THE MOST PREFERRED AND TRUSTED BANK
ENHANCING VALUE FOR ALL STAKEHOLDERS”.

It is currently 10th largest development bank in the world in terms of reach, with 2713
ATMs, 1513 branches, including one overseas branch at Dubai, and 1013 centers,
including two overseas centres at Singapore & Beijing. IDBI Bank is on a par with
nationalized banks and the SBI Group as far as government ownership is concerned. It
is one among the 26 commercial banks owned by the Government of India.

IDBI Group of Companies :

• IDBI Capital Market Services Limited (ICMS)

• IDBI Asset Management Limited (IAML)
• IDBI Federal Life Insurance Company Limited (IDBI Federal)
• IDBI MF Trustee Company Limited (IMTCL)
• IDBI Intech Limited (IIL)

Page No - 54
 [8.4] Current Scenario in IDBI Bank

IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40 years,
IDBI Bank has essayed a key nation-building role, first as the apex Development
Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry
and thereafter as a full-service commercial Bank (October 1, 2004 onwards). As a DFI,
the erstwhile IDBI stretched its canvas beyond mere project financing to cover an array
of services that contributed towards balanced geographical spread of industries,
development of identified backward areas, emergence of a new spirit of enterprise and
evolution of a deep and vibrant capital market. On October 1, 2004, the erstwhile IDBI
Bank converted into a Banking company (as Industrial Development Bank of India
Limited) to undertake the entire gamut of Banking activities while continuing to play its
secular DFI role. Post the mergers of the erstwhile IDBI Bank with its parent company
(IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the subsequent
merger of the erstwhile United Western Bank Ltd. with IDBI Bank on October 3, 2006,
the tech-savvy, new generation Bank with majority Government shareholding today
touches the lives of millions of Indians through an array of corporate, retail, SME and
Agri- products and services.

Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business
strategy, a highly competent and dedicated workforce and a state-of-the-art information
technology platform. As a Universal Bank, IDBI Bank, besides its core banking and
project finance domain, has an established presence in associated financial sector
businesses like Capital Market, Investment Banking and Mutual Fund Business.

IDBI Bank offers Life Insurance Solutions to suit various customers segments through
IDBI Federal Life Insurance Co. Ltd. It was formed on March 2008. It is a joint
venture between three financial companies i.e. IDBI Bank, Federal Bank and European
insurer Ageas formally known as Fortis. The bank has also entered into an agreement
with Bajaj Allianz General Insurance Co. Ltd. to provide Non Life or General
insurance requirement from the year 2008.

Page No - 55
 [8.5] Field Work on ICICI Bank and IDBI Bank

The main objective of this study is the Comparative study of Bancassurance between a
Private and Public Sector Bank in India. The performance of both banks and insurance
companies inter‐depend on each other. The following study shows the impact of
bancassurance on the overall financial performance of Banks with respect to Insurance
in India. For this purpose, I have selected 2 different banks from different areas in
Mumbai.

I made a field visit to ICICI Bank of Worli Branch and IDBI Bank of Cuff Parade
Branch. There I met Mr. Raja Ramchandra working in the ICICI bank as a
Relationship Manager and Mr. Deepak Shejwal working in the IDBI Bank as
Assistant General Manager. I asked them about some relevant information on
bancassurance and they solved my queries about the same.

Bancassurance has surely paved the way for banks to grow. Although there are number
of other factors which contributed to the growth of banks, but bancassurance is one of
the factors. I asked them the following questions:

Page No - 56
 [8.6] Questionnaire

Q1) What is Bancassurance according to you?

ICICI: Bancassurance is a channel between ICICI bank and ICICI Prudential Life
Insurance and ICICI Lombard. Banks get revenue from insurance company. They sell it
along with regular transactions of the bank.

IDBI: Bancassurance is an extra transaction carried on by banks acting as an agent by

providing insurance related service. We have tied up with Bajaj Allianz for providing
general insurance and IDBI Federal Life Insurance Company Ltd for providing
insurance for life.

Q2) What is the difference between the services provided by bank and insurance
company?

ICICI: There is no difference between services provided by bank and insurance

company. It is one and the same because they both sell the same products be it in the
insurance company or the bank. The only difference is that customers regularly visit the
banks and not the insurance company.

IDBI: In today’s busy life no one really has the time to literally go to and get
themselves or their things insured. Here banks play a major role as they know their
customers quite well and can help them to choose their set of policies.

Q3) How do you sell the insurance policies?

ICICI: The insurance policies are sold in 4 ways that is: Bancassurance, Direct
marketing, Tied agency, Priority circle, etc.

IDBI: The insurance policies here are sold through bancassurance, tied agency and
direct marketing.

Page No - 57
Q4) Who will do the Branding?

ICICI: In Bancassurance case, the branding is done by our own bank for its customers.
Though the Insurance Company helps us with the Brochures and presentations, but it is
our job to make it noticeable to the customer, when he comes, i.e. walks into our Bank.
Branding is done majorly by us for the policies.

IDBI: The insurance companies do their part of branding. They don’t have to promote
our bank or per se our Banking products, but we have to. They have tie ups with various
banks, but we are allowed only 1 tie-up for Life insurance and 1 tie-up for General
insurance. So whatever of their products or policies we deal into are branded by us for
our customers, so that they may know that even we deal into such insurance policies.

Q5) Who sells the policies, bank employees or the insurance employees?

ICICI: A particular representative from ICICI prudential is appointed in our Branch to

transact in bancassurance. All the insurance products are sold through him. He acts as
an advisor to the customers who are interested in taking up insurance policies.

IDBI: Employee of IDBI bank with required qualification and who is fit for the job of
acts as a representative and sells the policies.

Q6) Are the employees trained by insurance companies or by banks?

ICICI: The employees are trained by insurance companies. They are provided with
individual or group training as the time permits.

IDBI: The employees are trained for 6 months by insurance companies thereafter they
are eligible to work as an agent for banks selling insurance policies.

Q7) Do the employees get extra salary for selling insurance policies?

ICICI: No the employees don’t get any extra salary. The overall commission is given
to the bank itself by the Insurance Company for the selling the policies. Insurance
companies do this because it gets its business from banks. They promote their policies

Page No - 58
in banks. Banks get the revenue and accordingly it gives promotions and incentives to
its employees based on their performances.

IDBI: No benefit as such in salaries are given to the employee acting as an insurance
agent in IDBI banks but some commission is given to the bank by Bajaj and IDBI
Federal Life Insurance Company. Such rates of commission differ from banks to banks.

Q8) Which kind of customers do you target?

ICICI: Bank basically offers insurance policies to its regular retail customers based on
the balances in their respective accounts. Mainly we target the NRIs and the HNIs (High
net worth individuals). Currently it is the NRI season so we are mainly targeting the
NRIs.

IDBI: We target the existing customers as well as any walk in Potential Client in need
to get insured. Also we have various attractive policies for the Business People and their
families who have their Current Accounts with us.

Q9) How do you recruit your agents?

ICICI: Agents are recruited on the basis of IRDA exams with training of 50-80 hours.
Without Proper Training, they won’t be able to handle the Customers properly.

IDBI: Bank employees have to undergo an exam kept by the IRDA. Only after
achieving the certificate approved by IRDA can the bank employee act as an agent with
our Bank.

Q10) What benefits does an insurance company get through Bancassurance?

ICICI: Bank sells more insurance policies along with their regular products. They get
more business through banks. They know the customers need and accordingly guide the
customers.

IDBI: Being a public bank, there is more assurance in the minds of the account holders
that their premiums are paid on time and that other formalities are carried on smoothly

Page No - 59
by the banks on behalf of the customers. This helps to build a strong relationship among
them proving an increased sale of insurance policies.

Q11) Do you think bancassurance is increasing customer loyalty to the bank?

ICICI: Innovative and better product ranges can be tailored according to the needs of
the customers, which otherwise would not have been possible if banks and insurers
worked independently. This increases the customer loyalty of the bank.

IDBI: Easy access for claims as banks is a regular visiting place for customers and also
due to the increase in competition, customers can expect improved premium rates and
better‐quality services from Bancassurance as compared to traditional insurance
companies. This unique quality definitely increases the customer loyalty.…………….

Q12) In your opinion is bancassurance increasing total other income of the bank?

ICICI: Bancassurance can facilitate banks to collect non‐fund income which can
increase the interest income and also profitability of the banks.

IDBI: Banks can cross sell insurance products. The concept of cross‐selling also gives
the advantage which will help them to improve the efficiency of the banks like, more
interactions with the clients, will lead to more overall sales. E.g.: Term insurance
products with loans.

Q13) How many policies are sold till now in this financial year?

ICICI: Almost 1 crore worth of policies were sold till the month of December in the
Worli branch for this financial year 2014-2015.

IDBI: Almost 50 thousand worth of policies were sold till the month of December in
the Cuffe Parade branch of IDBI bank.

Page No - 60
[8.7] Comparison of Bancassurance between ICICI and IDBI Bank
Bancassurance Sales by ICICI and IDBI Bank
ICICI ICICI
Year IDBI Federal Bajaj Allianz
Prudential Lombard
(Rs. in Crores) (Rs. in Crores) (Rs. in Crores) (Rs. in Crores)
2008-09 -780 24 6 2
2009-10 258 144 21 2
2010-11 808 -80 33 4
2011-12 1384 -416 31 3
2012-13 1496 3.06 45 4
Source: Annual reports of IDBI Bank and ICICI Bank from 2008 to 2013
Under bancassurance business, ICICI Bank has subsidiary named ICICI Prudential Life
Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd. IDBI Bank offers
life insurance solution to various customers through IDBI Federal Life Insurance Co.
Ltd and also has a corporate agent Bajaj Allianz General Insurance Co. Ltd for general
insurance.

Thus based on the above stated facts in the table, it is very much clear that here, ICICI
Bank is the clear winner. Income from life insurance business of ICICI Prudential has
increased significantly. Whereas, insurance income from IDBI Federal and Bajaj
Allianz showed a fluctuating growth trend.

Therefore, from the above statements we can conclude that bancassurance is still in its
infancy stage and gradually it is gaining recognition in the market. Insurance companies
are using banks to sell their products because of the wide network of the banks. As bank
is an instrument for insurance companies for earning income, insurance companies are
taking a huge portion from the profits of the banks for their business. This relationship
is convincing yet highly challenging. ICICI bank, through its subsidiaries, has managed
to achieve it, with its extensive marketing strategy.

Growth rate of insurance income is remarkable in some of the banks so there is very
good scope for further development in the selling of Bancassurance products by the
banks in the long run. Hence, it is too early to judge its potential today.

Page No - 61
 Chapter 9→ Findings and Recommendations

[9.1] Findings
While pursuing the research study, I have come across certain finding pertaining to the
theory of bancassurance and they are stated as under:
 Quite a few people have a reasonable idea about bancassurance and that their
banks vend various insurance products. But still few people do not know about
bancassurance as a concept.
 It has been found that banks have many prospects to cross sell insurance
products. The insurance companies may seize the advantage of bank’s wide
network and other opportunities to sell their products.
 A brand’s name and its image is a very important aspect in marketing a product
line. Hence the banks and the insurance companies must tie-up with the right
partners which will help them to generate a better image in the minds of the
customers.
 Customers have abundance of trust on the banks and because of this reliance the
customers may obtain insurance products from banks.
 Private sector banks and foreign banks have a better future in bancassurance.
However the public sector banks are also trying to give a strong competition e.g.
SBI Life Insurance Co and IDBI Bank.
 Many people in the rural parts of India are still unaware about insurance so, a
huge potential is there before them to be tapped for life insurance business.
 Currently banks are trying to offer all kinds of services to its customers. So by
providing insurance, banks can include an extra service to their catalog.

Page No - 62
 [9.2] Recommendations

 The employees of the banks must be given appropriate training to sell insurance
products so that they can respond to any queries of the clients and can supply
them with products according to their needs.
 The insurance companies need to design products specifically for distributing
through banks. Trying to sell traditional products may not work so effectively.
 Banks should also provide after sales services.
 In order to increase the sale, the public sector banks should be more rigid in
selling the insurance products.
 Banks should also do the settlement of claims which can increase the trust and
reliability of the customers on the banks.
 Public sector banks are well known for their lethargic attitude and for providing
poor quality of customer services. In order to succeed in bancassurance business
they should reconstruct their imperfect image.
 The bank’s management and the management of the insurance company should
amicably be able to resolve any conflicts arising between them in future.
 Banks and insurance companies should improve the products frequently
according to the needs of the customers.

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 [9.3] Conclusion

Today all the banks are giving importance to retain their customers as they are the
inevitable part of the business. Bancassurance income can only be raised by providing
better services. In this part, the public and private sector banks are competing with each
other which in turn influence the economy. And majority of the general public is not
giving much importance to public or private sector banks instead they are giving
priority for the convenience.

In the consolidating world of financial services, the concept of bancassurance has

taken a central role in the strategy of a growing number of financial institutions.
Insurance products distributed through the banking channel have become a natural
choice for mass-market clients looking for simple and low-cost products available
from a trusted financial institution.

The success of bancassurance greatly hinges on banks ensuring excellent customers

relationship; therefore banks need to strive towards that direction. The fact that the
banking operations in India, unlike in other developed countries, are still branch
oriented and manually operated vis-à-vis highly mechanized and automated banking
channels, viz., internet banking, ATMs, etc. are all the more conducive for flourishing of
bancassurance. Regulators could explore the possibility of allowing banks having tie-up
arrangements with more than one insurance company, giving wider choice for the
customers. In addition to acting as distributors, banks have recognised the potential of
bancassurance in India and will take equity stakes in insurance companies, in the long
run.

Adequate training coupled with sufficient incentive system could avert the banks’ staff
resistance if any. In sum, bancassurance strategy would be a ‘win-win situation’ for all
the parties involved - the customer, the insurance companies and the banks.

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The concept of bancassurance in India is still in its emerging stage. But an incredible
potential reveals that bancassurance in India has a very bright future. Recently various
innovations have taken place in the insurance sector to suit and satisfy the growing
needs of various customers. So, there is every reason to be optimistic that bancassurance
in India will play a long inning.
However, bancassurance segment is still facing many problems because of poor
manpower management, lack of call centers, less personal contact with customers,
insufficient incentive to the agents etc.

India has a potential market for insurance companies particularly in rural areas. Setting
up a network and creating infrastructure for doing business attracts a huge investment
by the insurance companies. Bancassurance is a better alternative in this area where
insurance companies without investing on advertisement, market channels,
infrastructure etc does business. The database shared by the bank in this regard help the
insurance companies to target the customers easily.

Banks are having the database of their customers and besides it the reputation and
recognition of the bank also help in the selling of insurance products by the insurance
companies. But we would like to state at this stage that bancassurance would not be
successful to the extent it should be due to the poor manpower management, untrained
bank staffs in selling the insurance products, lack of incentives to agents, lack of
accountability of bank managements for their customer complaints, ambiguity regarding
grievance redressal forum etc.

In addition to it, there are also certain issues which need to be clarified by the
authorities such as the jurisdiction and interference of RBI and IRDA. I would rather
suggest that there should be a separate regulator for regulating Bancassurance and
provide remedy for any grievances. It is very important that insurer and bankers must
have a good understanding of each other and proper strategy to capture the opportunity
and service for their customers. Finally, we appreciate the concept of Bancassurance
and feels it is an efficient and cost effective measures for the insurance companies.

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 [9.4] Bibliography

 Brahmam, R, Lokanandha Reddy Irala, Aparna Pulugundla, “Bancassurance in

India‐ Issues and Challenges”, Pratibimba. Vol. 4, No.1, Jan. 2004.
 Jyotsana Sethi & Nishwam Bhatia “Elements of Banking & Insurance”, Prentice
Hall of India Pvt. Ltd. New Delhi, 2007.
 Sathya Swaroop Debashish & Bishnupriya Mishra “Indian Banking System ‐
Development, performance & services”, Mahamaya Publishing House, New
Delhi, 2005
 Nalini Prava Tripathy & Prabir Pal “Insurance Theory & Practice”, Prentice Hall
of India Pvt. Ltd. New Delhi, May 2006.
 Santosh Kumar “Bancassurance: Distribution Channels and Strategies in an
Emerging Market” Global Vision Publishing House, June 1, 2013

Websites
 http://www.idbifederal.com
 http://www.iciciprulife.com/public/About-us/About-Us.htm
 http://www.icicibank.com
 http://www.irda.gov.in
 http://www.allbankingsolutions.com/Banking-Tutor/bancassurance.html
 http://www.idrbt.ac.in/publications/nl_october04.pdf
 http://www.einsuranceprofessional.com
 https://www.policymantra.com/blog/irdai-called-for-open-architecture-of-
bancassurance/

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