DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

“Bancassurance: Experiences from Other

Countries and Relevance for India”
INSURANCE LAW: RESEARCH PROJECT
SUBMITTED AS PART OF THE WRITTEN ASSIGNMENT

FOR ‘BANKING & INSURANCE LAW’ FOR THE ACADEMIC YEAR 2020 .

Submitted To: Submitted By:

Dr. Aparna Singh Harsh Gautam

Assistant Professor (Law), B.A. L.L.B.(Hons.), VI Sem

Enrollment No: 170101061

 ACKNOWLEDGEMENT

It feels great pleasure in submitting this research project to Dr. Aparna Singh, Asstt. Professor
(Law), RMLNLU, without whose guidance this project would not have been completed
successfully. Secondly, I would like to express my sincere gratitude to the Librarian-in-charge of
the Madhu Limaye Library.

Next, I would like to thank my seniors, whose suggestions and guidance assisted me
throughout the entire tenure of making the project.

Last but not the least, I would like to express my heartfelt gratitude towards my parents
and friends who guided me and helped me at every possible step.

Harsh Gautam

B. A. LLB.(Hons.)

6th Semester

Roll. No. 61
 TABLE OF CONTENTS

STATEMENT OF PURPOSE ........................................................................................................ 4

RESEARCH QUESTIONS ............................................................................................................ 4

HYPOTHESIS ................................................................................................................................ 4

RESEARCH METHODOLOGY.................................................................................................... 4

INTRODUCTION .......................................................................................................................... 5

LEGAL FRAMEWORK ................................................................................................................ 6

THE DISTRIBUTION NETWORK ............................................................................................... 7

THE MARKET IMAGE ................................................................................................................. 8

BANCASSURANCE IN INDIA .................................................................................................... 9

CONCLUSION ............................................................................................................................. 11

BIBLIOGRAPHY ......................................................................................................................... 13
 STATEMENT OF PURPOSE

The reality of bancassurance is multifaceted. A clear success in many markets such as France,
Spain or Italy, it remains a marginal player in other countries. However, it is not so easy to
understand why it fails to develop in the same way everywhere. Because the keys to success are
numerous, variegated and sometimes surprising. The objective of this research project is to study
experiences of bancassurance in different countries, in light of which the researcher would seek
to evaluate that what possibly can be instrumental in promoting this sector in the Indian
subcontinent.

RESEARCH QUESTIONS

 Looking at the global picture, what all can be culled out as the key factors for the
successful sale of insurance policies through a banking network?
 To what extent do such factors hold relevance in India?
 What are the long-term drivers of bancassurance in India?

HYPOTHESIS

The researcher believes that:

 The exact reasons behind success of bancassurance in many markets while failure to
develop in many others, are not easy to determine because each country’s situation,
history and culture contributes, and sometimes runs counter, to the studies devoted to
this question. For this reason, each country needs to be looked at individually.

RESEARCH METHODOLOGY

The methodology that has been adopted for preparing the project is purely doctrinal.
 INTRODUCTION

Insurance is a protection against a future loss. The insurance neither protects asset nor life.
Insurance only tries to reduce the adverse consequences and loss to the insured. Banks are the
key players in providing services like collection of deposits and lending loans, dealing trade
finance, undertake money transfer, deal in bullion, etc. Distribution of insurance products is an
extension of these activities. “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.1
Bancassurance has developed at an unusual speed and has taken different shapes and forms in
different countries depending on demography, economy and legislations in that country. During
the last two decades, bancassurance has been well established in various countries.
Bancassurance first developed as an insurance distribution model in Europe, with the most
mature markets today including France, Italy, Spain and the UK. It is also now well established
in Latin America and Asia. Although the first Asian transactions were entered into around 15
years ago, bancassurance is now the leading distribution channel (particularly for life products)
in many Asian markets. There remains however, significant growth potential in these markets,
including China, India, Japan, and South Korea.2
The reality of bancassurance is multifaceted. A clear success in many markets such as France,
Spain or Italy, it remains a marginal player in other countries. However, it is not so easy to
understand why it fails to develop in the same way everywhere because the keys to success are
numerous, variegated and sometimes surprising. It is also difficult to establish priorities and
identify determining factors, because each country’s situation, history and culture contributes,
and sometimes runs counter, to the studies devoted to this question. The present paper seeks to
gather the key factors for the successful sale of insurance policies through a banking network by
having a cursory look over the different bancassurance experiences across the globe in different
jurisdictions and assess their relevance in the Indian context.

1
Dr. Tripti M. Gujral, “An Impact of Bancassurance Product on Banking Business in India,” Centre for Financial
Services, Gujarat Technonlogical University, pp. 351-365, 351, available at: http://gtuelibrary.edu.in/E-
Book/Repository/CCFS/38.pdf last accessed: 10/03/2017.
2
Martin Membery, Sean Keyvan, “The Global Bancassurance Market,” Sedley Austin LLP, June 2014, pp. 30-32,
30, available at: http://www.sidley.com/~/media/files/publications/2014/06/the-global-bancassurance-
market/files/view-article/fileattachment/1406-sidley-austin.pdf last accessed: 10/03/2017.
 LEGAL FRAMEWORK

Tax advantages can provide a strong incentive for consumers to invest in one life insurance or
pension product rather than another. Changes in the law providing such incentives can have a
positive or negative influence on the sales of a product. France, for instance left life insurance
products eligible for tax deductibility up till 1995. The tax advantages, comprised; exemption
from inheritance tax, absence of tax from capital gains after eight years and deductibility of taxes
up to 25 per cent of life insurance premiums. Italy and Spain showed similar tax benefits.
Though heading towards the end of the 1990s, the associated tax agreements were mainly
withdrawn.3 This change in the tax regulations made these products less attractive and sales of
this category of life insurance products was seen to fall by some 15% after 1998. To take a wider
example, it can be said that sales of life insurance policies by banks in France, Italy and Spain
have increased significantly, largely as a result of tax breaks. This factor is a real driving force in
the launch of bancassurance, still a relatively underused mechanism in most countries.

As regards legislation, it is obvious that favorable laws, which do not restrict banks’ options to
acquire stakes in insurance companies or to set up their own insurance companies, and where
there are no or few restrictions on the sale of insurance products by banking networks, will
enable bancassurance to develop more easily and more quickly. In Italy, the Amato legislation,
introduced in the 1990s, enabled banks to take equity stakes in insurance companies (and vice
versa), create joint ventures with insurers, and sell insurance products provided by partner
insurers. As a result, Italian banks, which are characterized as having high branch density and
high headcount, started pushing life insurance products. In the late 1990s, bancassurers captured
much of the incremental growth as investors sought higher returns.4

In the USA, the “Glass Steagall Act” (GSA) of 1933, one of the pillars of the banking laws, put
something of a brake on the growth of bancassurance in that country. To begin with, this law

3
O.C.W. Jongeneel, “Bancassurance: Stale or Staunch? A pan-European Country Analysis,” Erasmus School of
Economics, August 2011, p.9.
4
Lucia Bevere, Roman Lechner, Dr. Lukas Steinmann, “The Italian Insurance Market: Opportunities in the land of
the Renaissance,” Swiss Reinsurance Co. Ltd., August 2012, Switzerland, p.12, available at
http://www.argusdelassurance.com/mediatheque/4/5/8/000013854.pdf last accessed: 11/03/2017.
built a wall between retail banks and investment banks. All American banks had to choose
whether to specialize in commercial banking or investment banking. Next, in 1956, the “Glass
Steagall Act” was followed by the “Bank Holding Company Act.” This law created a clear
barrier between banks and insurance companies, emphasizing the risks of having insurance
companies underwritten by banks, which do not enjoy the necessary professional expertise in this
area. These restrictions were removed in 1999 by the passing of a new law. The post Gramm-
Leach-Bliley Act, 1999 scenario, it is stated to have increased preference for banks
conterminously dealing with other non-banking financial products, as well as the insurance
products.5 The 1999 Act, however, restricts the sharing of customer information between banks
and insurers. Ironically, the act's protection of privacy may make it harder for banks to succeed
in insurance, since it makes cross-selling more difficult.6 The regulatory legal framework of a
country, therefore, plays a quite crucial role in determining the success of bancassurance.

THE DISTRIBUTION NETWORK

A banking network with a dense and structured geographical presence is an essential factor for
success. It is obvious that a large number of points of sale, able to offer customers or prospects
geographical and human proximity, will facilitate contacts between banks and consumers and
therefore increase sales opportunities. Proximity to the customer is a factor whose importance
should not be underestimated. It is a fundamental factor in establishing a relationship and,
therefore, a sense of trust and loyalty.

In Spain, for example, the banks have a very large (probably the densest in Europe) and
extremely effective network. Banking markets are different across the Europe. In the UK, for
instance, there is relatively low bank density, with commensurately fewer opportunities to sell
life insurance products, while other countries such as Spain are characterized by very high bank
density.7 It is also worth noting that the example of Germany, where the banking network is
fragmented, banks are often organized into large number of small and regional banks, which

5
, “Bancassurance an Overview,” Money Mindz.com, available at: http://moneymindz.com/articles/Deposits-and-
Bank-Accounts/Fixed-deposits/Bancassurance-an-Overview last accessed: 12/03/2017.
6
, “Bancassurance: Life Branches?”, The Economist, April 5, 2001, available at:
http://www.economist.com/node/566276 last accessed: 12/03/2017.
7
Mark Teunissen, “Bancassurance: Tapping into the Banking Strength,” The Geneva Papers, 2008, pp. 408-417,
411, available at: https://www.genevaassociation.org/media/246969/ga2008_gp33(3)_teunissen.pdf last accessed:
12/03/2017.
impedes the rapid and widespread distribution of standardized products throughout the whole
country.8 In consequence, without banks that enjoy strong positions or a high-profile image in
the market, bancassurance has failed to penetrate to any degree.

THE MARKET IMAGE

The way consumers perceive banking in a given market and the role it pays in society are two
essential factors. This image can be a direct consequence of the way the banking network is
organized and how many branches it has in a country. In countries like France, Spain, Italy or
Belgium, perception of banks is good: customers have a special relationship of trust with their
bank or banker.9 Banks also benefit from the impression, justified or not, that they are better than
insurance companies at handling financial issues. This trusting relationship is directly
proportional to the power of the brand power and its true reputation. Customers in the countries
mentioned above believe in a face-to-face relationship with their banker.

The Anglo-Saxon countries take a different approach and most banking transactions are
conducted online or by phone. And it is precisely in these countries that bancassurance has made
no significant inroads. This also helps to explain why bancassurance is more developed in
continental Europe, which is generally more oriented to relationship banking, than in the Anglo-
Saxon countries, which are more oriented to transaction banking.10 Bancassurance tends to have
greater influence where banking habits are well entrenched. In Continental Europe, good
examples can be found in countries like France, Belgium, and the Netherlands. Customers there
visit their banks more frequently than in other countries.11

Bancassurance started in 1996 in China and gained popularity on the life insurance side after
Ping An Life Insurance Company developed “Century Dividend” in the year 2000. “Century
Dividend” was specially designed for sales via commercial banks. The employees of banks’
branch offices recommended the insurance products to their customers while doing banking

8
Oaca Sorina C, “Bancassurance Development in Europe,” International Journal of Advances in Management and
Sciences, Nov-Dec 2012, Vol.1, Issue 6, pp.64-69, 67.
9
, “Banacassurance: Success in the South,” The Economist, July 24, 2003, available at:
http://www.economist.com/node/1948115 last accessed: 14/03/2017.
10
Franco Fiordelisi, Ornella Ricci, “Bancassurance in Europe: Past, Present and Future,” Palgrave Macmillan, 1st
edn., 2012, p.15.
11
Tapen Sinha, “Bancassurance in India: Who is Tying the Knot and Why?” May 3, 2005, p. 14, available at:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=715203 last accessed: 14/03/2017.
business with them over the counter or used various direct response techniques to sell insurance
policies to their existing customers. This distribution channel proved to be cost-effective and a
great success. For example, 75 per cent of the life insurance premium income for Taiping Life
Insurance Company in 2003 came from bancassurance.12 Bancassurance has been a success in
China, because banks have advantages over insurers in customer resources and marketing.
People in China are acquainted with and have steadfast trust in banks and therefore, bank
services can be easily accepted. Bancassurance can be expected to continue to be one of the
major distribution channels for life insurance.13

BANCASSURANCE IN INDIA

Bancassurance commenced in India in the year 2000 when the Government issued notification
under Banking Regulation Act which allowed Indian Banks to do insurance distribution. It
started picking up after Insurance Regulatory and Development Authority (IRDA) notified
‘Corporate Agency’ regulations, in October, 2002. As per the concept of Corporate Agency,
banks can act as an agent of one life and one non-life insurer. 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). Bancassurance being the combination of two sectors comes under the
purview of both the regulators. Each of the regulators has come out with detailed guidelines for
banks getting into the insurance sector.

12
Mina Mashayekhi & Deepali Fernandes (Eds.), “Trade and Development Aspects of Insurance Services and
Regulatory Frameworks”, United Nations Conference on Trade and Development, United Nations, New York and
Geneva, 2007, UNCTAD/DITC/TNCD/2007/4, p. 168.
13
Id, p. 193.
In India, there are a number of reasons why bancassurance could play a natural role in the
insurance market. Firstly, banks have a huge network across the country. Secondly, banks can
offer fee-based income for the employees for insurance sales. Thirdly, banks are culturally more
acceptable than insurance companies. Dealing with (life) insurance, in many parts of India, is
believed to conjure up an image of a bad omen.14 The superstition revolves around the belief that
if you buy life insurance, the probability of your death increases. Not just India, this is believed
in many other parts of the world as well (e.g. Mexico).15. Some bank products have natural
complementary insurance products. For example, if a bank gives out a home loan, it might insist
on a life insurance cover so that in case of death of the borrower, there is no problem in paying
off the home loan.

The difference in working style and culture of the banks and insurance sector needs greater
appreciation. Insurance is a ‘business of solicitation’ unlike a typical banking service, it requires
great drive to ‘sell/ market’ the insurance products. Moreover, in India since the majority of the
banking sector is in public sector and which has been widely disparaged for the lethargic attitude

14
Supranote 11, p. 9.
15
Id, p. 2.
and poor quality of customer service, it needs to refurbish the blemished image. Else, the
bancassurance would be difficult to succeed in these banks.

Further, bancassurance is successful in countries where the products tend to be relatively simple
and have a likely resemblance with core banking products. Products must add value to customers
to create a competitive advantage. The marketing strategy should aim to capitalize on the bank’s
image and take advantage of the natural extension of existing banking relationships. As there is a
great deal of difference in the approaches of ‘selling of insurance products’ and the usual
banking services, thorough understanding of the insurance products by the bank staff coupled
with extra devotion of time on each customer explaining in detail of each product’s intricacies is
a prerequisite. To be successful, banks must properly train their staff and set clear and
meaningful incentive targets for insurance sales. Sales objectives for insurance must be set just
as for other banking products.16 Training would be needed more so in the emerging scenario due
to complex innovations in the field of insurance / pension products at a rapid pace with the entry
of a number of foreign insurance companies with vast experience in the developed countries’
framework.

CONCLUSION

The performance and business drivers of bancassurance vary according to a number of often
inter-related factors. Each country needs to be looked at individually for that matter. A
supportive regulatory environment is critically important for the successful development of
bancassurance. Liberal regulations on ownership of insurance companies by banks, and the sale
of insurance products through banking networks, are clearly a precondition for bancassurance to
develop. In Italy, for example, the 1990 Amato Law made it possible for banks to invest in
insurance companies and enabled bancassurance to take off. More recently, the relaxation of
restrictions on bancassurance in Asia, notably in India, China, Japan and South Korea, have
facilitated the growth of this channel. In Italy, France and Spain, positive tax treatment favoured
the development of bancassurance products.

16
Elisa M. Wever, “Latin America Bancassurance” in International Section News, Society of Actuaries, September
2000, Issue No. 23, p.9.
Banks’ insurance sales are high in countries where the products tend to be relatively simple and
have a natural affinity with core banking products. On the other hand, bancassurers have had
limited success where expert advice was required to sell complex products, such as pensions in
the UK. However, bancassurers in France, for instance, were diversifying into more complex
products, even independently of core banking services. Products included sophisticated life
products targeted at high net worth individuals and long-term care insurance.

A major determinant of bancassurance success is the relative strength of alternative distribution

channels. In the UK and the Netherlands, for example, product complexity and/or regulatory
requirements have favored a strong independent broker sector, which had limited the penetration
of bancassurance. The popularity of direct channels, notably the telephone and internet, had also
significantly limited the scope of bancassurance. National differences in bancassurance stem
from the varying characteristic of financial industry in each country. Bancassurance growth is
undoubtedly linked to regulatory reforms in some countries.
 BIBLIOGRAPHY

 Dr. Tripti M. Gujral, “An Impact of Bancassurance Product on Banking Business in

India,” Centre for Financial Services, Gujarat Technonlogical University, pp. 351-365,
available at: http://gtuelibrary.edu.in/E-Book/Repository/CCFS/38.pdf.
 Martin Membery, Sean Keyvan, “The Global Bancassurance Market,” Sedley Austin
LLP, June 2014, pp. 30-32, available at:
http://www.sidley.com/~/media/files/publications/2014/06/the-global-bancassurance-
market/files/view-article/fileattachment/1406-sidley-austin.pdf.
 O.C.W. Jongeneel, “Bancassurance: Stale or Staunch? A pan-European Country
Analysis,” Erasmus School of Economics, August 2011.
 Lucia Bevere, Roman Lechner, Dr. Lukas Steinmann, “The Italian Insurance Market:
Opportunities in the land of the Renaissance,” Swiss Reinsurance Co. Ltd., August 2012,
Switzerland, available at
http://www.argusdelassurance.com/mediatheque/4/5/8/000013854.pdf.
 , “Bancassurance an Overview,” Money Mindz.com, available at:
http://moneymindz.com/articles/Deposits-and-Bank-Accounts/Fixed-
deposits/Bancassurance-an-Overview.
 , “Bancassurance: Life Branches?”, The Economist, April 5, 2001, available at:
http://www.economist.com/node/566276.
 Mark Teunissen, “Bancassurance: Tapping into the Banking Strength,” The Geneva
Papers, 2008, pp. 408-417, available at:
https://www.genevaassociation.org/media/246969/ga2008_gp33(3)_teunissen.pdf.
 Oaca Sorina C, “Bancassurance Development in Europe,” International Journal of
Advances in Management and Sciences, Nov-Dec 2012, Vol.1, Issue 6, pp.64-69.
 , “Banacassurance: Success in the South,” The Economist, July 24, 2003, available at:
http://www.economist.com/node/1948115.
 Franco Fiordelisi, Ornella Ricci, “Bancassurance in Europe: Past, Present and Future,”
Palgrave Macmillan, 1st edn., 2012.
 Tapen Sinha, “Bancassurance in India: Who is Tying the Knot and Why?” May 3, 2005,
available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=715203.
 Mina Mashayekhi & Deepali Fernandes (Eds.), “Trade and Development Aspects of
Insurance Services and Regulatory Frameworks”, United Nations Conference on Trade
and Development, United Nations, New York and Geneva, 2007,
UNCTAD/DITC/TNCD/2007/4.
 Elisa M. Wever, “Latin America Bancassurance” in International Section News, Society
of Actuaries, September 2000, Issue No. 23.