Banks enjoy the benefit of being able to provide yet another product to their customers. EY conducted a survey in 2017, surveying 1400 retail bank customers in 7 Brazilian cities. Also, one of the major reasons cited for the low interest of banks in bancassurance is the perceived low profit margin on insurance products versus banking products. Increase in profits. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. Further service aspect can also be tackled easily. Increased fee income WITH IMPORTANT CONTRASTS 1.DIFFERENT PRODUCT TYPES In any market, where the regulations allow for the bancassurance to grow, the acceptance of the customers is the foremost success factor. (Source: Marketwatch, 2018). i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc. It is a controversial idea, and many feel it gives banks too great a control over the financial industry or creates too much competition with existing insurers. EY – Rethinking the success of bancassurance, Brazil. Insurance used to be the missing piece of the puzzle which Bancassurance now completes. entering into strategic alliances/ joint ventures in 2019, up from 26% in 2017 -> COMMON OPPORTUNITY ... 92 nsurers view bancassurance as vital to sales success TOP TWO REASONS FOR BANKS TO FORGE PARTNERSHIPS 1. As the channel continues to grow, it would help to understand the different advantages of bancassurance for all the parties involved. Footnote 6 investigate the cost efficiency of large Japanese banks and find that different cost function specifications lead to different results. The following factors have mainly led to success of bancassurance (i) Pressure on banks' profit margins. C onvenience has become a major Ability to sell bank products to client base – generating additional profits. This union of the two sectors is what is known as Bancassurance. The banks in India have a client base of close to 100 million and therefore are an ideal case for carrying bancassurance forward. This includes their demographic and financial info, transactional information, spending patterns, credit repayment history (investment and purchase capability) and more. The carriers and banks can use this information to forge intelligent engagement workflows and to customize relevant insurance covers. Through bancassurance, their market penetration goals can thus be met in a much shorter timeframe than through an agency channel. Wide network of branches- Banks can Emergence of remote distribution channels: The emergence of remote distribution channels, such as PC-banking and Internet-banking, would hamper the distribution of insurance products through banks. Completion of Acquisition of Commonwealth Bank of Australia’s Life Insurance Business in New Zealand and Entry into 20-year Strategic Partnership 02 July 2018 ... (“CBA”) and to enter into 20-year strategic bancassurance partnerships in both markets. During 2001-02, the total life insurance premium collection in India rose to about Rs.50, 000 crores. Let’s start with the stakeholders who drive the growth of any marketing or sales channel anywhere – the customers. Retention of “existing” and acquisition of “new” customers. Financial products are not an exception. Multiple studies have been done in Indian bancassurance context to prove its positive impact on the bank’s profitability. Banks have a magnanimous distribution network, especially in India, with lakhs of commercial bank branches. This channel allows an insurer to effectively tap the rural sector. In India, there are a number of reasons why bancassurance could play a natural role in the insurance market. The specific goal for the Tanzania Insurance Regulatory Authority (Tira) and the Bank of Tanzania (BoT) to introduce the bancassurance scheme was to ensure that many more Tanzanians have access to insurance products and services across the board. Banks have a huge amount of data on their customers. In the first half of 2019, we recorded a growth in the number of new policies reaching about … Bancassurance represents over 65% of the premium income in life insurance in Spain, 60% in France, 50% in Belgium and Italy. As a result The “Good” culture of the bank will have a favorable impact on the life insurer. Banks ranked “appealing to customers” as the top reason to participate in bancassurance, citing the ability to improve the customer experience through more convenient one-stop shopping for financial services. In recent years, we can see that the contribution of Bancassurance in Vietnam is surging upon the fact that there are more and more banks showing interests in and entering Bancassurance. Axis Bank’s fee-based income increased by 30% in 2010-11 after taking a stake in Max Life Insurance Company. See open positions, Bank-grade security and complete data encryption, improved almost all components of CAMEL model (, except four indicators). (Minimum investment and “No” risks). Banks and insurance companies see bancassurance as the answer to the Indian retail financial industry’s future income. Generation of additional sales. Let’s discuss the other advantages that they gain by entering these partnerships with insurance carriers. And, the assurance of the best value for money. This reduces the cost of distribution for both insurers and the banks, increasing the channel’s profitability. Interest is market driven and fluctuating and quite narrowing these days. Factors that appear to be critical for the success of bancassurance are: Bancassurance is a subject of continuing interest to the financial services industry worldwide. Most of the bancassurance operations fall in the first model. The banking system has become very competitive and this intense competition has limited the profitability of the traditional banking products. Look at the graph below from EY’s survey of bancassurance customers in Brazil. Learning from the success/failures of their existing covers, insurance carriers can launch new products more likely to succeed. Bancassurance in India is a very new concept, but is fast gaining ground. Importance: Bancassurance should not be merely viewed as an add-on product but as an important aspect of the business. This encompasses the reasons why bancassurance is finding success in so many parts of the world. Capital Adequacy Ratio, (CRAR), Non-interest income (NII), Return-on-Assets. The advantage of bancassurance is just that: a) Right Product: It provides the end users a customized insurance solution. ICICI Bank on Monday announced that it has transformed its mobile banking app, iMobile, into an app that offers payments and banking services to customers of any bank… Source. This further highlights the influence of the bank and the customer’s existing relationship. Emergence of newer distribution channels: The emergence of newer distribution channels seeking a market share in the network. Tell us your use case for a personalized demo. Third, banks are … Enhanced convenience on the part of the insured. Certain life insurance products will protect or minimize their risk exposure – mortgage or other loans, key man etc. Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. New entrants in the insurance sector had no difficulty in matching their products with the customers’ needs and offering them at a price acceptable to the customer. Bancassurance will eventually take hold in the US. Bancassurance means selling insurance product through banks. Let’s look at the major advantages of bancassurance for customers in the infographic below. Bancassurance has transformed the Insurance industry in most of the developed world. Again, taking its root in trust is the belief of an easy claims process. Banks already have a relationship with their customers selling them an amalgamation of financial products. Increased fee income is another motivator for the bank participants. This magnitude of potential fee based income by banks in India from bancassurance business is the attraction for banks to be preferred vendors of insurance products, in spite of possible challenges relating to choice of insurance business (life or non-life or both), cultural issues, compensation structure and capacity building. For instance, Max Life’s partnership with Axis Bank accounted for 55% of its revenue after Axis bank acquired its shares. Second, banks can offer fee-based income for the employees for insurance sales. Ability to sell bank products to life insurer’s clients. This makes insurance through Banca channel a big draw for the customers. This is possible because of the bank’s access to data on the covers garnering most interest in specific customer segments. RBL Bank and ICICI Prudential Life Insurance have entered into a bancassurance partnership.“This alliance will enable over 87 lakh customers of RBL Bank … With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. Bancassurance appeals to banks for several reasons. Please try again after sometime. But revenues have been modest and flat in recent years, and most insurance sales in U.S. banks … This means the customers, the banks and the insurance carriers. It is really helpfull and usefull thank you…, Your email address will not be published. Bank being the front dealing with customers, handle renewals as well, making the transaction even more hassle-free. Banks do not get great margins because of the competition this is why more and more banks are getting into bancassurance … Bank already has the data and documentation of customers. The penetration of banks’ branches into the rural areas can be utilized to sell products in those areas. For instance, when customers buy something off Amazon, they don’t buy just the product. Some thing went wrong please try after some time. For example, McKillop et al. Max Bupa has entered into a bancassurance tie-up with Standard Chartered Bank to provide health insurance offerings to customers of the bank. 2. There are several reasons why banks should seriously consider Bancassurance, the most important of which is increased return on assets (ROA). Bancassurance growth differs due to various reasons in different countries. Similarly they can earn another Rs.1000 crores as commission from non-life business (the annually renewable non-life market is above Rs.10,000 crores in premium per year). The same study suggests that satisfied bancassurance customers rate the bank’s reputation highly for their satisfaction. They buy the assurance that comes with it. Therefore, the propensity to buy insurance products from their banks is higher. Bank reputation is one of the top reasons listed by the surveyed customers for buying insurance at the bank. 32/ SEOJK.05/2016 on the distribution channel of insurance products in cooperation with banks (bancassurance) (Circular 32), there are three types of business models for bancassurance cooperation: a) product reference; The growth of Bancassurance as a distribution channel can be ascribed to the following: Different Bancassurance business models as given below are prevalent in different countries: Thus banks could associate themselves with insurance companies by becoming a distributor or by being a strategic investor or developing a joint venture or by becoming a promoter. Change in culture: Bank’s culture must be transformed to sell insurance and it must be ensured that “shelf space” is adequately provided in the bank’s retail delivery system. With Bancassurance, insurance is added to the mix, diversifying the customer portfolio. Banks can leverage their distribution and processing capabilities to achieve profitable operating expense ratio. Required fields are marked *. The trust they would place on insurance carriers and independent agents is comparatively lesser. One of the most important reasons for banks to enter into the bancassurance business lies in the possibility to increase the source of revenue and diversify their activities. Furthermore, prior empirical studies mainly evaluate the efficiency of bancassurance from solely a banking perspective. A unique aspect will be predominance of rural bank branches in sales processes and the closeness of the bank staff with customers in general in the rural pockets. Sorry, something went wrong. Bank shall ensure access to information, Information Materials and Documentation before the Customer decides to enter into the Insurance Contract and submits their declaration of will concerning the Insurance Cover, in the period necessary for the Customer to … Your email address will not be published. The entire process of origination, application processing, underwriting, risk assessment, fund management, delivery, and claims is managed by the bank. This improves the overall experience of the customers. 4. In the U.S., regulatory barriers have been a major hurdle, although bancassurance has been allowed since 1999 with the signing of the Gramm-Leach-Bliley Act in 1999. Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices. They are more likely to opt for a complete financial solution from their banks, thus making bancassurance a success. I am also recommended products based on my buying pattern, thus keeping me on the site, ensuring that I spend more. Bancassurance – Meaning, Need and Advantages, The Insurance Regulatory And Development Authority (IRDA), Claims in Insurance and Claims Management, Introduction to Insurance Sector in India, Fundamental Principles of Insurance Contract, Case study- "Entry of LIC into banking: Is it a wise decision? 1. Bharti AXA Life, SBM Bank India enter into bancassurance partnership. Hopefully, now these advantages of bancassurance for customers are clear to you. Therefore the channel proves to have a much wider reach with much less investment. bancassurance model of insurance distribution. It's easy for customers to move because there are no exit or entry fees on products. Bancassurance distribution model allows the customers to get an amalgamation of other financial services under one roof. All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority. This would help the bancassurance alliances make the offering more appealing to the end users: Following are the above-listed advantages of bancassurance for customers, explained: The most important thing in B2C buying is customer experience. But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Sorry! KR Srivats New Delhi | Updated on August 18, 2020 Published on August 18, ... And it has every reason … If the average commission is 10% of the total premium, banks can earn about Rs.4300 crores per year. Something went wrong, please try after some time. Description: Bancassurance arrangement benefits both the firms. Required fields are marked *. A customized insurance product at a reduced price (because of the operational cost cutting) along with expert guidance. With increased market penetration, insurers’ motive of increasing premium turnover is also achieved using Banca as the driving force. There are 150,947 branches spread across urban and rural regions of India (according to RBI’s September 2018 data). Handling of customers: With customer awareness levels increasing, they are demanding greater convenience in financial services. Consequently, Netflix’s user base and revenue grew, while Blockbuster’s popularity declined until it finally faded away. Using Bancassurance as the driver, insurance companies use this confidence to increase their range, penetration, and premiums. The philosophy behind Bancassurance is to combine the manufacturing capability sand selling culture of insurance companies with the distribution network and large receptive client base of banks. Additional funds for investment. Banks also get an increased Return on their Assets though this (ROA). The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial services providers, thereby putting a barrier on bancassurance. The Indian insurance industry is growing fast. For the banks, income from bancassurance is the only non interest based income. 5. In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. For the banks and insurance companies, bancassurance increases revenue diversification for the bank and brings greater volume and profit for both players. Customers want a solution and not just a product. Easy access for claims, as customers visit banks regularly. It became a success because it addressed a customer problem – the high late fees of Blockbuster + easier access to entertainment. bancassurance is relatively new in the USA. Ability to sell bank products to client base – generating additional profits. This site uses Akismet to reduce spam. So, penetration is the foremost benefit that the insurance carriers gain out of a bancassurance alliance. 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