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Kupdf - Net - Bancassurance Blackbook Project 2k17NEW
Kupdf - Net - Bancassurance Blackbook Project 2k17NEW
Kupdf - Net - Bancassurance Blackbook Project 2k17NEW
BANKING
Introduction
Banking has become a part and parcel of our day-to-day life. Today, banks
offer an easy access to a common man. They carry out variety of functions apart
from their main functions of accepting deposits and lending. Banking is a service
industry. Banks provide financial services to the people, business and industries.
Merchant banking, money transfer, credit cards, ATM's are some of the important
financial services provided by the modern banks.
Indian banking system, over the years has gone through various phrases after
establishment of RBI in 1935 according to RBI Act, 1934 , during British rule, to
function as Central Bank of the country. Earlier Central Bank's functions were being
looked after by the Imperial Bank of India.
The development of 'Banking’ is evolutionary in nature. There is no single
answer to the question of what is Banking. Because a bank performs a multitude of
functions and services which cannot be comprehended into a single definition. For a
common man, a bank is a storehouse of money, for a businessman it is an
institution of finance and for a worker it may be a depository for his saving.
It may be explained in brief as "Banking is what a bank does". But it is not
clear enough to understand the subject in full The Oxford dictionary defines a bank as
"an establishment for the custody of money which it pays out on a customer's order'.
But this definition is also not enough, because it considers the deposit lending and
repayment functions only. The meaning of a bank can be understood only by its
functions just as a tree is known by its fruits, As any other subjects, it has its own
origin, growth and development.
Evolution
It is interesting to trace the origin of the word ‘Bank’ in the modern sense to
the German word "Banck" which means, heap or mound or joint stock fund. From
this, the Italian word "Banco" meaning heap of money was coined.
Some people have the opinion that the words "bank” is derived from the
French words, "bancus" or "banque" which means a "bench". Initially the bankers,
the Jews in Lombardy, transacted their business on benches in the market place
and bench resembled the banking counter.
INSURANCE
Introduction
Risk is there at every walk of life, risk also endangers life itself. In the same
way all financial deals, as well as possession of money & property goods etc.
are fraught with the element of risk. For an example, money may be stolen, or
goods robbed or destroyed or an employee may misappropriate. A man may be
killed in an accident or may die of a fatal disease. The loss arising out of these
risks may be quite substantial and in extreme cases, it may be so heavy that
business may be crippled. The businessman and the owners of the property
discovered that if they got together and contributed a relatively small amount to
a common pool, the total amount so contributed would be sufficient to
compensate any of them for the loss arising due to such causes
All risks do not actually occur at all times and hence it imposable to
calculate probable chances of any particular risk materializing. It is quite that
all the people do not face risks at the same time, thus, the transfer of risk to
another
i.e. the insurer is in fact a pooling of risks. If insurance did not exist, each
individual would have to bear the losses on his own. Insurance in effect means
that each one in the pool undertakes to bear a portion of the loss. Such an
agreement has proved to be advantageous to everyone as it is uncertain as to
who suffer the loss.
Insurance is a financial service for collecting the saving of the public and
proving them with risk coverage. The main function of Insurance is to provide
protection against the possible chances of generating loss. It eliminates worries
and miseries of losses by destruction of property and death. It also provides
capital to the society as the funds accumulated are invested in productive heads
Principles of Insurance
An insurance contract made without due consideration to these principles is
treated as void, not enforceable by law these principles are as follows:-
1. Principles of Utmost Good Faith- One of the basic & primary principles of
insurance is utmost good faith. It states that insurance contract must be made
in absolute good faith on the part of both the parties. The insured must give
to the insurer complete, true & correct information about the subject matter
of the insurance
Material fact should not be hidden on any ground. This principle is
applicable to all types of insurance contracts. Insurance is for protection &
not for profit & hence correct information must be given to the insurance
company.
2. Principle of Insurable Interest- This principle suggests that the insured
must have insurable interest in the object of insurable. A person is said to
have such interest when the physical existence of the object of insurance
gives him some gain but which he is likely to lose by its non-existence
In other words, the insured must suffer some kind of financial loss by
the damage to the subject matter of insurance. Ownership is the most
important test of insurance interest. Every individual has insurable
in his own life. Insurance contracts without insurable interest are void,
Insurable interest is not a sentimental concepts but a pecuniary interest.
3. Principle of Indemnity- This is one important principle of insurance; this
principle suggests that insurance contract is a contract for affording
protection and not for profit making. The purpose of insurance is to secure
compensation in care of loss or damage
Indemnity means security against loss, the compensation will be paid
in proportion to the loss actually occurred. This amount of compensation in
the insurance contract is limited to the amount assured or the actual loss
whichever is less. The compensation will not be more or less than the actual
loss
4. Principle of Subrogation- This principle is an extension and a corollary of
the principle of indemnity. It is applicable to all the contracts of indemnity,
It is applicable to all rights and remedies which the assured would have
enjoyed regarding the said loss. When the compensation is paid for the total
loss, all the rights of the insured in respect of the subject matter of insurance
are transferred to the insurer. The assured will not realize more than the
actual loss suffered
5. Principle of Contribution- There is no restriction as to the number of times
the property can be insured. But on the occurrence of the loss can be realized
from one insurer or all the insurers together, this principle is, however, not
applicable to life insurance contract
6. Mitigation Loss- According to this principle every insured should all the
necessary steps to minimize the loss. E.g. if a trader takes out a marine
policy for the goods being shipped from Goa to Mumbai and if the storm
takes place due to which there takes might be risk of ship sinking. According
to this principle, the ship can be saved by throwing away some of the goods
in order to reduce the weight on the ship
7. Risk must Attach- The subject matter should be exposed to risk, e.g. for
goods placed in godown marine, insurance policy cannot be taken. However,
goods may be insured against fire or theft
8. Causa Proxima- The principle of causa proxima means that when a loss has
been caused by the series of causes, the proximate or the nearest cause
should be taken into consideration to determine the liability of the insurer.
The principle states that to ascertain whether the insurer is liable for the loss
or not, the proximate and not the remote cause must be looked into. For an
example, a cargo ship got a hole, due to negligence of the master and as a
result sea water entered and cargo was damaged
Introduction
Model of Bancassurance
The Bank Insurance Model (BIM), also sometimes known
as Bancassurance or Allianz, is the partnership or relationship between
a bank and an insurance company, or a single integrated organization, whereby
the insurance company uses the bank sales channel in order to sell insurance
product’s, an arrangement in which a bank and an insurance company form a
partnership so that the insurance company can sell its products to the bank's
client base.
1. BIM allows the insurance company to maintain smaller direct sales teams as
their products are sold through the bank to bank customers by bank staff and
employees as well
2. Bank staff and tellers, rather than an insurance salesperson, become the point
of sale and point of contact for the customer. Bank staff are advised and
supported by the insurance company through product information, marketing
campaigns and sales training
3. The bank and the insurance company share the commission. Insurance
policies are processed and administered by the insurance company
4. This partnership arrangement can be profitable for both companies. Banks
can earn additional revenue by selling the insurance products, while
insurance companies are able to expand their customer base without having
to expand their sales forces or pay commissions to insurance agents or
brokers
5. Bancassurance, the sale of insurance and pensions products through a bank,
has proved to be an effective distribution channel in a number of countries in
Europe, Latin America, Asia and Australia
6. BIM differs from Classic or Traditional Insurance Model (TIM) in those
TIM insurance companies tends to have larger insurance sales teams and
generally work with brokers and third party agents
7. An additional approach, the Hybrid Insurance Model (HIM), is a mix
between BIM and TIM. HIM insurance companies may have a sales force,
may use brokers and agents and may have a partnership with a bank
8. In India banking and insurance sectors are regulated by two different
entities. The banking sector is governed by Reserve Bank of India and the
insurance sector is regulated by Insurance Regulatory and Development
Authority (IRDA)
9. Bancassurance, being the combination of two sectors comes under the
purview of both the mentioned regulators. Each of them has elaborate and
descriptive rules, restrictions and guidelines
RBI has the following conditions and restriction which are as under
1. Any scheduled commercial bank would be permitted to undertake insurance
business as agent of insurance companies on fee basis, without any risk
participation. The subsidiaries of banks will also be allowed to undertake
distribution of insurance products on agency basis
2. Banks which satisfy the eligibility criteria mentioned as under would be
permitted to set up a joint venture company for undertaking insurance
business with risk participation, subject to safeguards. The criterion are net
worth being at least INR 300 Cr., CRAR being at least 10%, reasonable
NPA, performance of subsidiaries (if any) should be satisfactory and there
should have been net profit for at least 3 consecutive years
BANK INSURANCE
Customer Retention Revenue and channel diversification
Satisfaction of more financial needs Quality customer access
under the same roof
Revenue diversification Quicker geographical reach
More profitable resources Creation of brand equity
utilization
Enriched work environment Leverage service synergies with bank
Establish sales oriented culture Establish a low cost acquisition
channel
Benefits of Bancassurance
1. Benefits to Consumers-
i. Comprehensive financial advisory services under one roof. i.e., insurance
services along with other financial services such as banking, mutual
funds, personal loans etc.
ii. Enhanced convenience on the part of the insured
iii. Easy accesses for claims, as banks are a regular go
iv. Innovative and better product ranges
v. Better customer retention and stronger relationships
vi. Clear competitive advantage in the rural areas
vii. Possibility that the insurer’s account as well as the accounts from the
claimants will remain with the bank
viii. Insurance products can augment the value of the banking products and
services
ix. Banks are in better position to offer complete integrated financial
solutions Opportunity to make better informed choice in financial matters
like selection of insurance cover
x. Ease of renewals through of executing standing instructions
2. Benefits to Insurance Company-
i. Captures premium of bank financed assets
ii. Greater geographical reach through banks’ network at relatively lower
cost
iii. Access to banks customers
iv. Gaining credibility in customer mindset by associating with banks
v. Ease of renewals and lower lapse incidence
vi. Potential for cross selling
vii. Potential for up-selling including depth and width
viii. Selling personal lines of insurance products to banks, depositors and other
customers
ix. Introducing co-branded products like Fire Policy for Home Loans
x. Attracting walk-in customers in bank network
3. Benefits to Banks-
i. Banks get more non-interest income
ii. Bank gets new customers and better penetration in existing customer base
iii. Increased association with the bank
iv. Branch achieves profitability target
v. Secure an additional and more stable stream of income through
diversification into insurance and reduce their reliance on interest spreads
as the major source of income
vi. Leverage on their extensive customer bases
vii. Sell a whole range of financial services to clients and increase customer
retention
viii. Reduce risk-based capital requirement for the same level of revenue
ix. Work towards the provision of integrated financial services tailored to the
life-cycle of customers
x. Access funds that are otherwise kept with life insurers, who sometimes
benefit from tax advantages
2. Secondary Objectives-
i. To analyze the financial performance of HDFC bank in bancassurance
and its contribution to the overall progress of the bank using ratio
analysis
ii. To analyze the initiatives taken by the HDFC bank in endorsing the
HDFC Standard Life Insurance products
iii. To assess the relationship building factors of HDFC bank, this is
significant for bancassurance
iv. To know the customer preferences in selecting HDFC bank as a
distribution channel in case of their willingness to obtain HDFC
Standard Life Insurance policy in future
LIMITATIONS OF THE STUDY-
1. Time has played a biggest constraint that the research could not be
carried out comprehensively as the duration of the study was only 4
months
2. As the research contains the Secondary data for making a financial
analysis the accuracy and reliability of the analysis depends on reliability
of figures derived from financial statements
3. The sample size for collecting the primary data was meager as it includes
only 100 respondents, hence the conclusion would not be a universal one
4. Personal biases and prejudices of the customers may also affect the
study. In spite of the limitations, the study was effective in analyzing the
performance of HDFC bank in bancassurance with specific reference to
life insurance
SOME OF THE BANCASSURANCE TIE-UPS IN INDIA
HDFC Bank, Union bank of India, HDFC Standard Life Insurance co.
This is one of the biggest tie-ups announced after financial sector regulators
liberalized norms governing the sale of insurance products by banks, called
Bancassurance, under which lenders were allowed to sell products of multiple
insurance companies
In the preliminary phase, the bank will distribute LIC’s life insurance
products across its branches in West Bengal, Bangalore and Haryana – Panchkula.
Additionally, it will also provide post sales services such as premium collection
and renewal of policies.
“The coming together of the two major reputed organizations would enable
them to combine and utilize the synergies for enhancing customer satisfaction,”
LIC executive director for bancassurance Mukesh Gupta said.
In a statement, LIC said that as on June 30, 2016, Axis Bank had a network
of 3,006 domestic branches and extension counters situated in 1,882 centers
From April 1, norms have been revised under which corporate agents like
banks are allowed to tie-up with three life, three non-life and three standalone
health insurance companies.
Earlier, under the bancassurance model where banks sold insurance meant
that they could only sell products of one life, one non-life and one standalone
health insurer. Apart from LIC, Axis Bank also has a tie-up with Max Life
Insurance in the life insurance space.
Rajiv Anand, executive director and head retail banking, Axis Bank said that
banks have increased roles in insurance distribution.“Over the last five years the
life insurance business at Axis Bank has grown at a CAGR of over 25 percent. The
partnership with LIC would enable us to further expand our existing bouquet of
offerings and put forth a compelling proposition for our customers,” he said.
Experts says that this move of LIC will help them to gain momentum since over
the last few years most of LIC agents has decided to quit selling its products.
2. Private life insurer Tata AIA Life and Citibank entered into a bancassurance
partnership in India to serve insurance needs of over 18.4 million households in
the country.
Distribution Channel
1. Carrer Agents
2. Special Advisor
3. Salaried Agents
4. Bank Employess
5. Internet
6. E- Brokerage
1. 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
2. Special advisers- Special advisers are highly trained employees usually
belonging to the insurance partner, who distribute insurance products to the
bank corporate clients. Usually they are paid on a salary basis and they receive
incentive compensation based on their sales
3. Salaried agents- Salaried agents 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
4. Bank employees- Bank employees can usually sell simple products.
However, the time, which they can devote to insurance sales, is limited and 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 financial advisers. In both cases, the bank employee establishes the
contact to the client and usually sells the simple product whilst the more
affluent clients are attended by the financial advisers of the bank, which are in a
position to sell the more complex products
5. Internet- Internet banking is already established as an effective and profitable
basis for conducting banking operation. Bancassurance is confident that internet
banking will also prove an efficient vehicle for cross selling of insurance
policies by bankers. Such an arrangement can prove beneficial for both banks as
well as insurance company
6. E-Brokerage- Banks can open or acquire an E- Brokerage arm and sell
insurance products from multiple insurers. The changed legislative climate
across the world should help migration of bancassurance in this direction. The
biggest advantage of this medium is sale of policies, strong brands, easy
distribution, effective mergers, etc. with internet capabilities
Scope for Bancassurance in India-
It has become clear that as economy grows it not only demands stronger and
vibrant financial sector but also necessitates providing with more sophisticated and
variety of financial and banking products and services. As India is being
considered one of the fast developing economy among the emerging market
economies, financial sector has also grown much vibrant with the financial
reforms.
In fact, in recent years, it is surmised that even the ‘global economic growth’
hinges on growth prospects of the emerging economies like China and India to a
greater extent. Significantly, Indian economy has recorded an average growth of
over 8.5 per cent for the last four years, with macroeconomic and financial stability
(RBI, 2006) and indications are that it may grow at even better rate in the near
future provided there is good monsoon.
Moreover, as India has already more than 200 million middle class
populations coupled with vast banking network with largest depositor’s base; there
is greater scope for use of bancassurance.
In simple words, it is aptly put that bancassurance has promised to combine
insurance companies’ competitive edge in the “production” of insurance products
with banks’ edge in their distribution, through their vast retail networks.
1. Bankers’ Perspective- In the post reforms, the financial sector has more
number of players of both domestic and foreign and the dividing line between
the banks and non-banking financial institutions’ activities had considerably
thinned down
Banks’ response to these developments has been to migrate towards newer
and non-traditional areas of operations especially relating to fee based activities
/ non-fund based activities. This is reflected in the sharp increase of proportion
of non-interest income to total income in recent years.
Although this was an unprecedented achievement in the Indian banking
industry, diversification towards new areas such as bancassurance, promises
greater scope for further enhancement in earnings with no menace of increase in
NPA’s. India has a widely stretched and well established banking network
infrastructure. It is this contrasting situation to assimilate the two systems by
way of ‘bancassurance strategy’ to reap the benefits of synergy. This is an
opportune time for both banking and the insurance sectors to come closer and
forge an alliance for the mutual benefit.
Both the regulators, i.e., RBI and IRDA have already pre offered appropriate
policy guidelines and set in a congenial environment for such an endeavor.
2. Insurers’ Perspective- The success 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.
With the sweeping financial reforms in the insurance sector and the
consequent opening up of this sector, all the private entities plunged almost
simultaneously with a very little spacing of time and the entire insurance sector
has been exposed to stiff competition.
A number of foreign insurance companies in both life and non-life segment
have entered by way of joint ventures with an equity stake of up to 26 per cent
in the local companies.
The foremost advantage for insurance company 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.
For the insurance sector, it is now the most congenial policy environment to
adopt bancassurance as IRDA has been encouraging banking institutions and
the corporate sector to actively take part in the distribution system of insurance
products. Similarly RBI as the regulator of banking system had smoothened the
way for the banks to enter the insurance activities.
Survey Analysis
Gender
40%
Male Female
60%
6
6
Age Group
4
3
0
18-25 26-35 36-45 46 and above
20%
Yes
No
80%
From the survey I came to know that 80% i.e. 24 people as a life
insurance policy where as 20% i.e. 6 people don’t have the life insurance
policy.
Q2. Have you heard about bancassurance?
20%
Yes
80%
No
18
16
16
14
12
10 9
6
5
4
0
High Risk Low Risk No Risk
10
9
9
8 8
8
5
4
4
2
1
1
0
Strongly Agree Agree Not decided Disagree Strongly
Disagree
13%
30%
SBI LIFE
17% BAJAJ ALLIANZ
HDFC LIFE
KOTAK MAHINDRA
ICICI PREUDENTIAL
10% BANK OF BARODA
17%
13%
12
11
10
9
8
5000-7000
6 7001-10000
5 5 10001-15000
4 15001-20000
0
5000-7000 7001-10000 10001-15000 15001-20000
18
16
16
14
12
10
8
8
6
5
2
1
0
500-1000 1001-2500 2501-5000 5001-9000
Yes
No
28
18
16
16
14
12
12
10
4
2
2
0 0
0
Strongly Agree Agree Not decided Disagree Strongly
Disagree
Yes
No
30
All 30 people in the survey i.e. 100% think that risk coverage is as
important as return form the investment.
Q11. Do you think there is lack of interest in insurance agents? Is that a
reason for less marketing of insurance products in rural areas?
14
12
12
10
10
8
7
6
2
1
0
0
Strong Agree Agree Not decided Disagree Strong
disagree
35
30 29
25
20
15
10
5
1
0
Yes No
29 people which are around 96.67% are satisfied with their bank
that has provided the insurance services which includes life insurance as
well as general insurance. 1 person is not satisfied with the bank.
CONCLUSION
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 recognized 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. The most immediate advantage for customers is that,
in insurance business the question of trust plays a greater role, especially due to
the in-built requirement of a long term relationship between the insurer and the
insured.
1. For banks it just acts as a means of product diversification and additional fee
income
2. For insurance company it acts as a tool for increasing their market
penetration and premium turnover
3. For customer it acts as a bonanza in terms of reduced price, high quality
products and delivery to doorsteps
The success of bancassurance greatly hinges on banks ensuring excellent
customers relationship; therefore banks need to strive towards that direction.
The changing mindset is cascading through the banking sector in India and this
would be a right time for banks to resorting to bancassurance, especially in the
context of proactive policy environment of regulatory authorities and the
Government.
It is important for an insurer to understand the merits and demerits of
bancassurance channel. It helps immensely to plan the resources in accordance
with the channel requirement. In other words the contractual terms etc. can be
planned to maximize the channel effectiveness. Otherwise smooth functioning
of bancassurance channel is difficult
REFERENCES
I. BIBLOGRAPHY
1. Bancassurance: an emerging concept in India by NAVIN SETHI.
2. "Insurance Management", 11th Edition, by P.K.GUPTA Himalaya
Publication.
3. Banking Services and information Technlogy: The Indian Experience by
R.K. UPPAL
4. “Bancassurance: Taking the lead” online article by Hindu Business Line,
January 2006.
5. Bancassurance- Trends and Opportunities. by V.V. RAVI KUMAR
6. Management of Indian Financial Institution by R.M. SHRIVASTAVA and
DIVYA NIGAM
7. Principles and Practices of Banking 3rd edition of INDIAN INSTITUE OF
BANKING AND FINANCE
8. Commercial Banking and Finance by H. RAJASHEKAR.
II. WEBLIOGRAPHY
1. www.irda.gov.in
2. www.google.com
3. www.banknet.com
4. www.insuremagic.com
5. www.hdfcbank.com
6. http://www.newindianexpress.com/business/news/LIC-Axis-Bank-ink-pact-
in-largest-bancassurance-deal/2016/07/29/article3551895.ece
7. Bancassurance: an emerging concept in India by Navin Sethi.
8. http://blogs.timesofindia.indiatimes.com/business/finance/
9. http://www.bancassuranceworld.com/
10.http://www.moneycontrol.com/news/business/tata-aia-life-citibank-enter-
into-bancassurance-tie-up _1279159.html?utm_source=ref article
11.http://www.allbankingsolutions.com/Banking-Tutor/bancassurance.shtml
12.http://indianexpress.com/article/business/business-others/irda-allows-banks-
to-tie-up-with-nine-insurers/
13.https://www.rbi.org.in/scripts/PublicationsView.aspx?id=9773
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