“BANCASSURANCE”

Bachelor of commerce

Banking and Insurance

Semester VI

Submitted

In partial fulfillment of the requirements For the Award of

Degree of Bachelor of Commerce – Banking & Insurance

By

SHRUTI S. PENDHARI

Roll no. 35

VIDYAVARDHINI’S

ANNASAHEB VARTAK COLLEGE OF ARTS

K.M.COLLEGE OF SCIENCE

E.S.ANDERADES COLLEGE OF SCIENCE

VASAI ROAD-401202 DIST-PALGHAR

 PROJECT ON

BANCASSURANCE

BACHELOR OF COMMERCE

BANKING AND INSURANCE

SEMESTER VI

ACADEMIC YEAR

2016-17

SUBMITTED BY

SHRUTI PENDHARI

ROLL NO. 35

VIDYAVARDHINI’S

A.V.COLLEGE OF ARTS,
K.M. COLLEGE OF COMMERCE,
E.S.A. COLLEGE OF SCIENCE,
VASAI ROAD (W), DIST-PALGHAR 401202
 VIDYAVARDHINI’S
ANNASAHEB VARTAK COLLEGE OF ARTS,
KEDARNATH MALHOTRA COLLEGE OF COMMERCE,
E.S.ANDRADES COLLEGE OF SCIENCE, VASAI
ROAD, DIST-PALGHAR-401202.

CERTIFICATE

This is to certify that MISS. SHRUTI S. PENDHARI, Roll No.35 of

B.Com. Banking & Insurance, Semester VI (2016-17) has successfully
completed the Project on BANCASSURANCE under the guidance of
PROF. JEENAL GANDHI.

_________ __________ _____________

Principal Incharge Co-ordinator

_____________ _____________ _______________

Project Incharge Project Guide/ External Examiner

Internal Examiner
 DECLARATION

I SHRUTI S. PENDHARI the student of B.COM. (BANKING & INSURANCE)

semester VI (2016-17) here by declare that I have completed the project on

BANCASSURANCE

The information submitted is true and original to the best of my knowledge.

Signature of student

Name of student:- SHRUTI S. PENDHARI

Roll No:- 35

ACKNOWLEDGEMENT
“Success is always to be found on the other side of fear”

I would like to take this opportunity to thank everybody who help

through the successful completion of this project. Many people have contributed to my
achievements during the project and take this opportunity to thank each one of them at
end of the project durations.

First I would like to thank the University of Mumbai to include this

project in the curriculum which brings out our observant analyzing and interpreting
skills to the maximum. I extend my sincere gratitude to the honorable Principal Dr.
KESHAV GHORUDE for the work that I am able to present would just not have been
possible without his guidelines.

I would also like to thank the project guide PROF. JEENAL GANDHI
and our Course Co-coordinator PROF. BHAVANA CHAUHAN LAD and the
incharge DR. ARVIND UBALE for their constant Encouragement, Intellectual
Solution and valuable suggestions throughout the making this project. I thank her for
spending their valuable time and efforts towards my cause.

I would like to thank to my friends and colleagues, librarians for

providing some valuable tips. I would also like to thank all those whose name may not
have appeared here but whose contribution have not gone unnoticed.

Last but not the least; I would like to thank my parents for helping me
in the completion of introduction.

INDEX

Chapter Topic Page No.

No.
1. Introduction to Bancassurance 1-7
1.1 Introduction 1
1.2 Meaning 2
1.3 Definition 3
1.4 Origin 3
1.5 Objective 3
1.6 Evolution 4
1.7 Key Feature 4
1.8 Birth in Bancassurance in India 5
1.9 Ways of Entering into Bancassurance 5

2. Benefit, Utilities, Business Model of Bancassurance 8-16

2.1 Benefit of Bancassurance 8
2.2 Utilities of Bancassurance 11
2.3 Business Model of Bancassurance 13

3. Distribution Channel 17-19

4. Bancassurance In India 20-25

4.1 Need for Bancassurance in India 20
4.2 Status of Bancassurance in India 21
4.3 Regulation under RBI and IRDA 22
4.4 Reason for Bancassurance Entering into 24
Insurance Business in India

5. Various Trends and Challenges 26-28

5.1 Trends 26
5.2 Challenges 27

6. SWOT Analysis 29-32

6.1 Strength 30
6.2 Weakness 31
6.3 Opportunity 31
6.4 Threats 32
 7. Case Study Of SBI Life Insurance 33-38
7.1 SBI Life Insurance 33
7.2 Product Offered by SBI 34
7.3 SBI Life Insurance Company (Perspective) 37

8. Bnacassurance Key Challenges to India 39-44

8.1 Key Challenges 39

8.2 Important Bancassurance tie-ups in India 40

8.3 Future Scope of Bancassurance 42

8.4 Success of Bancassurance 43

8.5 Measures to Improve Bancassurance in India 43

 Suggestion 45

 Conclusion 46

 Webibliography 47

EXECUTIVE SUMMARY

The aim of this project is to introduce the reader to the topic of

“THE BANCASSURANCE”. The is project deals with many banks and insurance. In
this competitive and liberalized environment everyone is trying to do better than others
and consequently survival of the fittest has come into effect. I would like to present my
project “BANCASSURANCE” (an emerging concept in India).The project flashes some
light on Bancassurance and how it is perceived by people in India. It deals with the
conceptual part of Bancassurance as well as its practical application in India. The main
focus of this project is on benefits and importance of Bancassurance in India. The
regulations governing Bancassurance areal so dealt with in this project.SWOT analysis
is also done so as to identify the various opportunities and threats for

Bancassurance in India.

Bancassurance is defined as the insurance distribution model

where insurance product are sold through bank branch network. The presence of several
banking group as promoters of insurance company is of great significance of this model.
With a network of over 80,000 branches spread across the length and breadth of the
country. Banks are having the necessary potential to make bancassurance the most
efficient way to achieve financial inclusir in insurance sector also. the bank customer
with higher average premium per capital provide quiker means to grow for insurers. The
complementary nature of insurance product towards the bank advances. eg. Credit life
provide synergies in operations to the entire financial sector. The ease to access to bank
customer reduces servicing costs contribution to lower capsation of insurance policies
and hence lower costs to the economy.

OBJECTIVE OF THE PROJECT

Primary objective of my study on

the topic “BANCASSURANCE” is that this is relatively a new concept in
India and there by I would like to enhance my understanding and improve my
knowledge regarding this topic and above all I would definitely want to apply this
information so gathered in my future carear prospects. Whereas the main objective of
making this stands to is research on the bancassurance strategy adopted by the
banking company . Today the customer is the king of market and to satisfy his wants
and needs the industry has to adopt many strategy , The customer want everything
under one roof by thinking of this point the banking industry come up with
Bancassurance.

 To understand the concept of bancassurance.

 To know about different models, utilities of bancassurance.

 To understand the marketing and distribution channel of bancassurance.

  To know about the benefit of bancassurance to bank, insurance companies and
customers.

 To know the status of bancassurance in India.

 To identified the strengths, weakness, opportunities, threats in bancassurance.

 To identified the trends and challenges in bancassurance.

RESEARCH AND METHODOLOGY

Research refers to search for knowledge. One can also define research as a scientific and
systematic search for pertinent information on a specific topic. It is an art of scientific
investigation.

The research methodology is a systematic way of studying the research problem. The
research methodology means the way in which we can complete our prospected task.
Before undertaking any task it becomes very essential for anyone to determine the
problem of study. I have adopted the following procedure in completing my report study.

Research data sources:

The data for the research was collected through sources which are as follows:

 SECONDARY DATA
 CHAPTER 1

INTRODUCTION TO BANCASSURANCE

1.1 Introduction

Bancassurance is a French term referring to the selling

of insurance through a bank’s established distribution channels. Bancassurance 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 products, 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. 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. The bank and the insurance company share the
commission. Insurance policies are processed and administered by the insurance
company.

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. Bancassurance,
the sale of insurance and pensions products through a bank, has proved to be an

1
effective distribution channel in a number of countries in Europe, Latin America, Asia
and Australia. BIM differs from classic or Traditional Insurance Model (TIM) in that
TIM insurance companies tend to have larger insurance sales teams and generally work
with brokers and third party agents. Private Bancassurance is a wealth management
process pioneered by Lombard International Assurance and now used globally. The
concept combines private banking and investment management services with the
sophisticated use of life assurance as a financial planning structure to achieve fiscal
advantages and security for wealthy investors and their families. The banks are the
agent of the insurance companies to sell them more and more policies. Bancassurance
is an efficient distribution channel with higher productivity and lower costs than
traditional distribution channel.

1.2 Meaning

Bancassurance i.e. Banc + assurance, refers to banks selling

the insurance products Bancassurance in India is defined as those banks which are
dealing in insurance products of both life and non-life type in any forms.

The term "bancassurance" was coined in the 1980"s in France.

Bancassurance is defined as the distribution of insurance products through banks. In
addition to the branches of banks, this medium of distribution also includes new
distribution systems. Such as electric banking operation, ATM's etc. Although the term
bancassurance may also be used for distribution of banking products through insurance
companies, this is sometimes termed "assurbanking" in some countries. Bancassurance
has been most successful in Europe, mainly due to the regulatory and tax environment.
Bancassurance in its simplest form is the distribution of insurance products through a
banks distribution channels. It is the provision of insurance and services through a
common distribution channel or through a common base.

Banks with their geographical spreading penetration in terms

of customer reach of all segments, have emerged as viable sources for the distribution
of insurance products, it takes various forms in various countries depending upon the
demography and economic and legislative climate of that country. This concept gained
importance in the growing global insurance industry and its search for new channels of
distribution.

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1.3 Definition
The first term appeared in France in 1980, to define, “the sale
of insurance product bank’s distribution channel (SCOR 2003)”.

The Life Insurance Marketing and Research Associations

(LIMRA’S) insurance dictionary defines, “Bancassurance as the provision of life
insurance services by banks and building societies”.

According to IRDA, ‘Bancassurance’ refers to banks acting as

corporate agents for insurers to distribute insurance products. Insurance Products
include Life or Non-Life products’.

1.4 Origin:-
The banks taking over insurance is particularly
welldocumented with reference to the experience in Europe. Across Europe in countries
like Spain and UK, banks started the process of selling life insurance decades ago and
customers found the concept appealing for various reasons. Germany took the lead and
it was called “ALLFINANZ”. The system of bancassurance was well received in
Europe. France taking the lead, followed by Germany, UK, Spain etc. In USA the
practice was late to start (in 90s). It is also developing in Canada, Mexico, and Australia.
In India, the concept of Bancassurance is very new. With the liberalization and
deregulation of the insurance industry, bancassurance evolved in India around 2002.

1.5 Objectives:-
Banking and insurance have more commonality in the basic
nature of their business. Banking and insurance relay on pulling on resources to protect
financial security (Banking) or to protect against adverse events (Insurance), Banking
and Insurance are often complimentary, as it the case of mortgages, that require both
finance and property insurance.

In Insurance, the initial expenses because of distribution costs

are high and regulatory disclosure requirements are applying additional pressure, on the
insurers to reduce the costs. Distribution expenses being a major of initial expense,
insurers are focused to think on alternate channels of distribution and banks have a lot
of common practices to integrate to achieve economies of scale.
3
1.6 Evolution
Pressures of banking sector:

• Customer retention in the face of competition.

• Staff retention and motivation
• Universal banking approach to provide all financial product under one roof a
broader relationship approach.

• Optimum utilization of infrastructure and resources maximize revenue.

Pressures of insurance sector:

• Channel diversification from traditional direct sale Access to a high quality
customer base.

• Achieve the geographical reach with in minimum time and cost.

• Ensure higher probability of success in the sales process.

1.7 Key Feature

• Selling of insurance products through the bank’s branches through
comprehensive solutions.

• Front office application for sales staff and a back office application for the
insurance company’s HQ.

• Designed in a way to cover non-underwriting users’ needs.

• Full retail production administration including proposals, quotations, policies
& endorsements.

• Banks insurance business management for premium calculation, sales

incentive & Bank commissions.

• Various payment methods support such as account transfers and cash deposit.
• Access to invoices, commission statements and reconciliations as per granted
permissions.

• Claims registration and status follow up.

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 • Presenting the history of the policies with their initiated endorsements &
claims.
• Simplified and effective functionality of Importing of risks directly into the
system.

• Wide collection of reports and print-outs.

• Powerful query tool for the issued documents and claims.
• Full control of functionality and access rights for each bank user/group.
• Integrated with Multi ESKADENIA Products.

1.8 Birth of Bancassurance in India:

As per March 2008, the number of Insurance companies in
India,

Life Insurance Companies 15 Private Insurance Companies

1 Public Insurance Company (LIC)
Non- life Insurance Companies 9 Private Insurance Companies
4 Public Insurance Company

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. Insurance industry in India for fairly a longer period relied
heavily on traditional agency (individual agents) distribution network, Therefore, the
zeal for discovering new channels of distribution and the aggressive marketing
strategies were totally absent and to an extent it was not felt necessary.

As the insurance sector is poised for a rapid growth, in terms of

business as well as number of new entrants’ tough competition has become inevitable.
Consequently, addition of new and number of distribution channels would become
necessary.

5
1.9 Ways of 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. This is the simplest form of bancassurance, but can be a “missed
opportunity”. 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 cooperation has to be
close to have a chance of success. For the bank the costs involved besides those
for basic training of branch employees are relatively low.

 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
multidistribution channels.

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 A joint venture: this is the creation of a new insurance company by an existing
bank and an existing insurance company.

 A bank wholly or partially acquires an insurance company. This is a major

undertaking. The bank 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.

 A group owns a bank and an insurance company which agree to cooperate in a

bancassurance venture. A key ingredient of the success of the bancassurance
operation here is that the group management demonstrate strong commitment
to achieving the benefit.

 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. 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

7
 vital element for a successful operation. There must be a strong commitment
from the top management to achieving the aims in the business plan
CHAPTER 2 : BENEFIT, UTILITIES, BUSINESS
MODEL OF BANCASSURANCE

2.1 Benefits of Bancassurance

The company is targeting around 10% of the business during its

startup phase. Bancassurance makes use of various distribution channels like salaried
agents, bank employees, and brokerage firms. Direct response, Interest etc. Insurance
Companies have complementary strengths. In their natural and traditional roles
Bancassurance is of great benefit to the customer. It leads to the creation of one- stop
where a customer can apply for mortgages, pensions, savings and insurance products.
The customer gains from both sides as costs get reduced. Bancassurance for the
customer is a bonanza in terms of reducing charges, a high quality product and delivery
at the doorstep. Both insurance companies and banks have certain competitive
advantages.

Benefit to Bank

 Most banks have strong brand name. The Bank's physical presence in the public
areas is an added reassurance to the people. In an old - fashioned way, people
like to see that the insurer remains within sight, over the years.

 Their relationship with their customer is based on trust.

 Banks have a wide network of branches which constitute an excellent

distribution channel.

 Banks own the financial transaction history of their customer. This allows them
to build detailed profiles of every single customer using data management
techniques. They can then devise individually tailored products to meet the
specific needs of each customer, SBI Life, for example, is planning to go in for
bancassurance. It has access to same 117 million Term Deposit holders, through
14,000 branches of the State Bank of India.

8
  Banks are also known for proving a complete range of services. A research study
conducted among insurers revealed that around 33% of the respondents felt that
retail customers were likely to buy multiple financial service product from
Banks compared to this, less than 20% of the respondents felt that retail
customer would approach insurers or brokers for purchasing such products.
Banks like Stan Chart have consolidated its retail services under a super Mail,
which takes care of personal service finance needs like mutual funds, demat
services and loans against shares. For the bank, offering insurance products
would just be another way of extending the relationship with the retail
consumer.

Benefit to Insurance Companies

 The benefits to the insurers are equally convincing. The ability to tap into banks’
huge customer bases is a major incentive. The extensive customer base
possessed by banks is considered to be ideal for the distribution of mass-market
products. On the other hand, insurers can make use of the wide reach of bank
customers to categories potential clients in detail according to their needs and
values. With increasing sophistication on bancassurance operations, some
insurers can focus on the high-net-worth segment, which offers greater potential
for wealth management business.

 Apart from the ability to tap into new customers groups, escaping from the high
cost of captive agents is another reason prompting insurers to look into
alternative channels. In some cases, teaming up with a strong bank can help to
fund new business development and booster public confidence in the insurer.

 In a nutshell, insurers are attracted to bancassurance because they can:

• Tap into a huge customer base of banks;

• Reduce their reliance on traditional agents by making use of the various

channels owned by banks;

• Share services with banks;

9
 • Develop new financial products more efficiently in collaboration with
their bank partners;
• Establish market presence rapidly without the need to build up a network
of agents;

• Obtain additional capital from banks to improve their solvency and

expand business.

 There are different organizational structures under which banks can work
together with insurers, including distribution agreements, joint ventures ore
some integrated operations. It is then only logical to presume that different
motivations will drive the choice of different organizational models

Benefit to Customers:

 Unlike with banks and insurers, where benefits of bancassurance will have to be
weighed against business risk, the positive impacts on consumers are
unequivocal. Part of the lowering of distribution costs will be passed on to
clients in the form of lower premium rates. In addition, it is likely that new
products will be developed to better suit client needs, which otherwise may not
be available if banks and insurers worked independently.

 Examples are overdraft insurance, depositors’ insurance and other insurance

covers sold in conjunction with existing bank services. The convenience offered
by bancassurance should also increase customer satisfaction, for instance, when
it is possible to pay premium as well as to withdraw and repay

 Cash loans backed by life insurance policies through bank’s ATM s. Just as
important, is more than often a strategic step of financial service providers to
shift from being product-oriented and to focus on distribution and customer
relations.

Benefit to Regulators:

 Bancassurance poses major challenges to regulators. The ability of financial

institutions to diversify into others sectors should help to lower the level of latent

10
 systemic risk. Banks will benefit from lower income volatility while insurers
could potentially obtain additional capital to bolster their solvency levels.
2.2 Utilities of Bancassurance

FOR BANK

As a source of fee income:

Banks’ traditional sources of fee income have been the fixed

charges levied on loans and advances, credit cards, merchant fee on point of sale
transactions for debit and credit cards, letter of credits and other operations. This kind
of revenue stream has been more or less steady over a period of time and growth has
been fairly predictable. However shrinking interest rate, growing competition and
increased horizontal mobility of customers have forced bankers to look elsewhere to
compensate for the declining profit margins and Bancassurance has come in handy for
them. Fee income from the distribution of insurance products has opened new horizons
for the banks and they seem to love it. From the banks’ point of view, opportunities and
possibilities to earn fee income via Bancassurance route are endless. Atypical
commercial bank has the potential of maximizing fee income from Bancassurance up
to 50% of their total fee income from all sources combined. Fee Income from

Bancassurance also reduces the overall customer acquisition cost from the bank’s point
of view. At the end of the day, it is easy money for the banks as there are no risks and
only gains.

Product Diversification

In terms of products, there are endless opportunities for the

banks. Simple term life insurance, endowment policies, annuities, education plans,
depositors’ insurance and credit shield are the policies conventionally sold through the
Bancassurance channels. Medical insurance, car insurance, home and contents
insurance and travel insurance are also the products which are being distributed by the
banks. However, quite a lot of innovations have taken place in the insurance market
recently to provide more and more Bancassurance-centric products to satisfy the
increasing appetite of the banks for such products. Insurers who are generally accused
of being inflexible in the pricing and structuring of the products have been responding
too well to the challenges (say opportunities) thrown open by the spread of

11
Bancassurance. They are ready to innovate and experiment and have setup specialized
Bancassurance units within their fold. Examples of some new and innovative

12
Bancassurance products are income builder plan, critical illness cover, return of
premium and Takaful products which are doing well in the market. The traditional
products that the

Building close relations with the customers:

Increased competition also makes it difficult for banks to retain

their customers. Banassurance comes as a help in this direction also. Providing multiple
services at one place to the customers means enhanced customer satisfaction. For
example, through bancassurance a customer gets home loans along with insurance at
one single place as a combined product. Another important advantage that
bancassurance brings about in banks is development of sales culture in their employees.
Also, banking in India is mainly done in the 'brick and mortar' model, which means that
most of the customers still walk into the bank branches. This enables the bank staff to
have a personal contact with their customers. In a typical Bancassurance model, the
consumer will have access to a wider product mix - a rather comprehensive financial
services package, encompassing banking and insurance products.

FOR INSURANCE COMPANIES

Stiff Competition:

At present there are 15 life insurance companies and

14general insurance companies in India. Because of the Liberalization of the economy
it became easy for the private insurance companies to enter into the battle field which
resulted in an urgent need to outwit one another. Even the oldest public insurance
companies started facing the tough competition. Hence in order to compete with each
other and to stay a step ahead there was a need for a new strategy in the form of
Bancassurance. It would also benefit the customers in terms of wide product
diversification.

High cost of agents:

Insurers have been tuning into different modes of

distribution because of the high cost of the agencies services provided by the insurance

13
companies. These costs became too much of a burden for many insurers compared to
the returns they generate from the business. Hence there was a need felt for a Cost-
Effective Distribution channel. This gave rise to Bancassurance as a channel for
distribution of the insurance products.

Rural Penetration:

Insurance industry has not been much successful in rural

penetration of insurance so far. People there are still unaware about the insurance as a
tool to insure their life. However this gap can be bridged with the help of
Bancassurance. The branch network of banks can help make the rural people aware
about insurance and there is also a wide scope of business for the insurers. In order to
fulfill all the needs bancassurance is needed.

Multi-channel Distribution:

Now a days the insurance companies are trying to exploit each and
every way to sell the insurance products. For this they are using various distribution
channels. The insurance is sold through agents, brokers through subsidiaries etc. In
order to make the most out of India’s large population base and reach out to a
worthwhile number of customers there was a need for Bancassurance as a distribution
model.

Targeting Middle income Customers:

In previous there was lack of awareness about insurance. The

agents sold insurance policies to a more upscale client base. The middle income group
people got very less attention from the agents. So through the venture with banks, the
insurance companies can recapture much of the underserved market. So in order to
utilize the database of the bank’s middle income customers, there was a need felt for
Bancassurance.

2.3 Business Model

I. Structural Classification:

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a) Referral Model:

Banks intending not to take risk could adopt ‘referral model’

wherein they merely part with their client data base for business lead for commission.
The actual transaction with the prospective client in referral model is done by the staff
of the insurance company either at the premise of the bank or elsewhere. Referral model
is nothing but a simple arrangement, wherein the bank, while controlling access to the
clients data base, parts with only the business leads to the agents/ sales staff 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 resorted to this strategy to begin with.
This model would be suitable for almost all types of banks including the RRBs
/cooperative banks and even cooperative societies both in rural and urban. There is
greater scope in the medium term for this model. For, banks to begin with resorts to
this model and then move on to the other models.

b) Corporate Agency:

The other form of non-risk participatory distribution channel is that

of ‘corporate agency’, wherein the bank staff is trained to appraise and sell the products
to the customers. Here the bank as an institution acts as corporate agent for the
insurance products for a fee/ commission. This seems to be more viable and appropriate
for most of the mid-sized banks in India as also the rate of commission would be
relatively higher than the referral arrangement. This, 144 RESERVE BANK OF INDIA
OCCASIONAL PAPERS however, is prone to reputational risk of the marketing bank.

There are also practical difficulties in the form of professional

knowledge about the insurance products. Besides, resistance from staff to handle totally
new service/product could not be ruled out. This could, however, be overcome by
intensive training to chosen staff packaged with proper incentives in the banks coupled
with 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 neither
there is sharing of risk nor does it require huge investment in the form of infrastructure
and yet could be a good source of income.

Bajaj Allianz stated to have established a growth of 325 per cent

during April September 2004, mainly due to bancassurance strategy and around 40%

15
of its new premiums business (Economic Times, October 8, 2004). Interestingly, even
in a developed country like US, banks stated to have preferred to focus on the
distribution channel akin to corporate agency rather than underwriting business.
Several major US banks including Wells Fargo, Wachovia and BB &T built a large
distribution network by acquiring insurance brokerage business. This model of
bancassurance worked well in the US, because consumers generally prefer to purchase
policies through broker banks that offer a wide range of products from competing
insurers (Sigma, 2006).

c) Insurance as Fully Integrated Financial Service/ Joint ventures:

A part from the above two, the fully integrated financial service
involves much more comprehensive and intricate relationship between insurer and
bank, where the bank functions as fully universal in its operation and selling of
insurance products is just one more function within. Where banks will have a counter
within sell/market the insurance products as an internal part of its rest of the activities.
This includes banks having a wholly owned insurance subsidiary with or without
foreign participation. In Indian case, ICICI bank and HDFC banks in private sector and
State Bank of India in the public sector, have already taken a lead in resorting to this
type of bancassurance model and have acquired sizeable share in the insurance market,
also made a big stride within a short span of time.

II. Product-based Classification

a) Stand-alone Insurance Products:

In this case bancassurance involves marketing of the

insurance products through either referral arrangement or corporate agency without
mixing the insurance products with any of the banks’ own products/ services. Insurance
is sold as one more item in the menu of products offered to the bank’s customer,
however, the products of banks and insurance will have their respective brands too,
e.g., Kaur Visa Bank Ltd selling of life insurance products of Birla Sun Insurance or
non-life insurance products of Bajaj Allianz General Insurance Company.

b) Blend of Insurance with Bank Products:

16
 With the financial integration both within the country and
globally, insurance is increasingly being viewed not just as a ‘stand-alone’ product but
as an important item on a menu of financial products that helps consumers to blend and
create a portfolio of financial assets, manage their financial risks and plan for their
financial security and well-being (Olson 2004). This strategy aims at blending of
insurance products as a ‘value addition’ while promoting its own products. Thus, banks
could sell the insurance products without any additional efforts. In most times, giving
insurance cover at a nominal premium/ fee or sometimes without explicit premium does
act as an added attraction to sell the bank’s own products, e.g., credit card, housing
loans, education loans, etc. Many banks in India, in recent years, has been aggressively
marketing credit and debit card business, whereas the cardholders get the ‘insurance
cover’ for a nominal fee or (implicitly included in the annual fee) free from explicit
charges/ premium. Similarly the home loans / vehicle loans, etc., have also been
packaged with the insurance cover as an additional incentive.

III) Banks Referrals

There is also another method called 'Bank Referral'. Here the

banks do not issue the policies; they only give the database to the insurance companies.
The companies issue the policies and pay the commission to them. That is called
referral basis. In this method also there is a win-win situation everywhere as the banks
get commission, the insurance companies get databases of the customers and the
customers get the benefits. As already discussed, warm leads can provide a strong
competitive advantage for a bancassurance operation. An efficient system for managing
referrals of warm leads is therefore vital. This section describes a process for managing
referrals.

17
18
 CHAPTER 3

DISTRUBUTION CHANNEL

Traditionally, insurance products were promoted and sold

principally through agency systems only. The reliance of insurance industry was totally
on the agents. Moreover with the monopoly of public sector insurance companies there
was very slow growth in the insurance sector because of lack of competition. The need
for innovative distribution channels was not felt because all the companies relied only
upon the agents and aggressive marketing of the products was also not done. But with
new developments in consumers’ behaviors, evolution of technology and deregulation,
new distribution channels have been developed successfully and rapidly in recent years.
Recently Bancassurers have been making use of various distribution channels, they are:
1) Career Agents:

Career Agents are full-time commissioned sales personnel holding

an agency contract. They 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 the contract. Many bancassurers, however 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 incentive
packages.

2) Special Advisers:

Special Advisers are highly trained employees usually belonging

to the insurance partner, who distribute insurance products to the bank's corporate
clients. The Clients mostly include affluent population who require personalized and
high quality service. Usually Special advisors are paid on a salary basis and they receive
incentive compensation based on their sales.

3) Salaried Agents:

19
 Salaried Agents are an advantage for the bancassurers because
they are under the control and supervision of bancassurers. These agents share the
mission and objectives of the bancassurers. These are similar to career agents, the only
difference is in terms of their remuneration is that they are paid on a salary basis and
career agents receive incentive compensation based on their sales.

4) Bank Employees / Platform Banking:

Platform Bankers are bank employees who spot the leads in the
banks and gently suggest the customer to walk over and speak with appropriate
representative within the bank. The platform banker may be a teller or a personal loan
assistant. A restriction on the effectiveness of bank 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.

5) Corporate Agencies and Brokerage Firms:

There are a number of banks who cooperate with independent

agencies or brokerage firms while some other banks have found corporate agencies.
The advantage of such arrangements is the availability of specialists needed for
complex insurance matters and through these arrangements the customers get good
quality of services.

6) Direct Response:

In this channel no salesperson visits the customer to induce as ale

and no face-to-face contact between consumer and seller occurs. The consumer
purchases products directly from the banc assurer 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) Internet:

Internet banking is already securely established as an effective

and profitable basis for conducting banking operations. Bancassurers can feel confident
that Internet banking will also prove an efficient vehicle for cross selling of insurance
savings and protection products. Functions requiring user input (check ordering, whatif

20
calculations, and credit and account applications) should be immediately added with
links to the insurer. Such an arrangement can also provide a vehicle for insurance sales,
service and leads.

8) 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 advantage of this
medium is scale of operation, strong brands, easy distribution and excellent synergy
with the internet capabilities.

9) Outside Lead Generating Techniques;

One last method for developing bancassurance eyes involves

"outside" lead generating techniques, such as seminars, direct mail and statement
inserts. Great opportunities await bancassurance partners today and, in most cases,
success or failure depends on precisely how the process is developed and managed
inside each financial institution.

21
 CHAPTER 4

BANCASSURANCE IN INDIA

There was a time in the past when insurance policies were

meant for a small part of public who were financially strong. Today the scenario has
completely changed wherein insurance policies reach every person in almost every
corner of our nation. This change in the financial horizon was ushered in with the birth
of bancassurance in India. Banks which were meant for deposits, loans and transactions
are allowed to provide insurance policies to people and this feature of bank is called

‘bancassurance’. However to understand how this takes place one would have to
continue reading this article. In India the banking and the insurance sectors are
regulated by two different entities. While the banking sector is governed by Reserve
Bank of India, the insurance sector is regulated by the Insurance Regulatory and
Development Authority (IRDA). Since Bancassurance, is the combination of these two
sectors, it comes under the purview of both the RBI and IRDA regulations.

4.1 Need for bancassurance in India:-

Researches and present day statistics speak about the need of
a well-equipped financial structure for a country that helps it to grow economically.
The financial resources in the hands of people should be channelized in effective
manner so as to increase the returns from the basic financial structure of nation and also
the quality of living of people. Insurance policies are instruments/products that play
major role in upholding the financial structure of developed countries. Though the
teething phase of insurance, one may say is just past, a desirable foothold is yet to be
found. With growth in number of middle class families in the country, RBI recognized
the need of an effective method to make insurance policies reach people of all economic
classes in every corner of the nation. Implementing bancassurance in India is one such
development that took place towards the cause. The need and subsequent development
of bancassurance in India began for the following reasons:

• To improve the channels through which insurance policies are sold/marketed so

as to make them reach the hands of common man.

22
 • To widen the area of working of banking sector having a network that is spread
widely in every part of the nation.

• To improve the services of insurance by creating a competitive atmosphere

among private insurance companies in the market .

4.2 Status of Bancassurance in India

Reserve Bank of India (RBI) has recognized "bancassurance"
wherein banks are allowed to provide physical infrastructure within their select branch
premises to insurance companies for selling their insurance products to the banks’
customers with adequate disclosure and transparency, and in turn earn referral fees on
the basis of premier collected. This would utilize the resources in the banking sector in
a more profitable manner.

Bancassurance can be important source of revenue. With the

increased competition and squeezing of interest rates spreads profit of the are likely to
be under pressure. Fee based income can be increased through hawking of risk products
like insurance.

There is enormous potential for insurance in India and recent

experience has shown massive growth pace. A combination of the socio-economic
factors are likely to make the insurance business the biggest and the fastest growing
segment of the financial services industry in India.

However, before taking the plunge in to this new field, banks as

insurers need to work hard on chalking out strategies to sell risk products especially in
an emerging competitive market. However, future is bright for bancassurance. Banks
in India have all the right ingredients to make Bancassurance a success story. They have
large branch network, huge customer base, enjoy customer confidence and have
experience in selling non-banking products. If properly implemented, India could take
leadership position in bancassurance all over the world

Government of India Notification dated August 3, 2000,

specified ‘Insurance’ as a permissible form of business that could be undertaken by
banks under Section 6(1) (o) of the Banking Regulation Act, 1949. Then onwards,
banks are allowed to enter the insurance business as per the guidelines and after
obtaining prior approval of Reserve Bank of India.

23
4.3 Regulations under RBI and IRDA:-
The Reserve Bank of India and the insurance development and
regulatory authority have a set of guidelines for companies that couple to form
bancassurance. Based on the equity a bank should hold in joint venture, the highest
allowable value of equity, the type of banks and insurance companies that can couple
together and th0e operation of bancassurance are all the factors that are regulated by
RBI and IRDA.

The IRDA has very recently drafted guidelines to promote open

architecture in bancassurance. Currently a bank has a tie-up with only one life insurer
and one non-life insurer. But in the new model the banks necessarily have to have
multiple tie-ups. The country is divided into zones and every bank has to choose
multiple insurers within the zones. With this the customer will have a wider range of
insurance products offered by different insurers. It will also lead to a deeper penetration
in the selling of insurance products.

RBI Guidelines for the Banks to enter into Insurance Business:

Following the issuance of Government of India 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.

 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 product on agency basis.

 Banks which satisfy the eligibility criteria given below will be permitted to set
up a joint venture company for undertaking insurance business with risk
participation, subject to safeguards. The maximum equity contribution such a
bank can hold in the joint venture company will normally be 50 per cent of the
paid-up capital of the insurance company. On a selective basis the Reserve Bank
of India may permit a higher equity contribution by a promoter bank initially,
pending divestment of equity within the prescribed period (see Note 1 below).

24
 The eligibility criteria for joint venture participant are as under:
• The net worth of the bank should not be less than Rs.500 crore;

• The CRAR of the bank should not be less than 10 per cent;

• The level of non-performing assets should be reasonable;

• The bank should have net profit for the last three consecutive years;

• The track record of the performance of the subsidiaries, if any, of the

concerned bank should be satisfactory.

 In cases where a foreign partner contributes 26 per cent of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign
Investment Promotion Board, more than one public sector bank or private sector
bank may be allowed to participate in the equity of the insurance joint venture.
As such participants will also assume insurance risk, only those banks which
satisfy the criteria given in paragraph 2 above, would be eligible.

 A subsidiary of a bank or of another bank will not normally be allowed to join

the insurance company on risk participation basis. Subsidiaries would include
bank subsidiaries undertaking merchant banking, securities, mutual fund,
leasing finance, housing finance business, etc.

 Banks which are not eligible for ‘joint venture’ participant as above, can make
investments up to 10% of the net worth of the bank or Rs.50 crore, whichever
is lower, in the insurance company for providing infrastructure and services
support. Such participation shall be treated as an investment and should be
without any contingent liability for the bank.

 The eligibility criteria for these banks will be as under :

• The CRAR of the bank should not be less than 10%;

• The level of NPAs should be reasonable;

• The bank should have net profit for the last three consecutive years.

25
  All banks entering into insurance business will be required to obtain prior
approval of the Reserve Bank. The Reserve Bank will give permission to banks
on case to case basis keeping in view all relevant factors including the position
in regard to the level of non-performing assets of the applicant bank so as to
ensure that non-performing assets do not pose any future threat to the bank in
its present or the proposed line of activity, viz., insurance business. It should be
ensured that risks involved in insurance business do not get transferred to the
bank and that the banking business does not get contaminated by any risks
which may arise from insurance business. There should be ‘arm’s length’
relationship between the bank and the insurance outfit.

IRDA norms for insurance companies

The Insurance Regulatory Development Authority has give

certain guideline for the Bancassurance they are as follows:

1.Chief insurance executive :

Each bank that sells insurance most have a chief insurance

executive to handle all the insurance manner and activities.

2. Mandotary training :

All the people included in selling the insurance should under go

mandatory training at an insuitute determined ( authorized ) by IRDA and pass the
examination conducted by the authority.

3. Corporate agent’s:

Commercial bank including co-operative bank and RRB’s may

become corporate agents for one insurance company.

4. Insurance broker’s :

Bank cannot become insurance broker’s.

26
4.4 Reason for banks entering into insurance business in India

1. Indian insurance is a hidden gold mine an estimated Rs. 1,80,000 crores is term
of annual insurance premium.

2. Sale of insurance through bank will meet an important set of consumer needs.
3. Banks branch network allows face to face cantact that is so important in the sale
of insursnce.

4. Bank channel can also boost sales productivity.

5. Banks create best qualified to sell insurance products. They have a wide
distribution reach. Because of the strong ties with the customer they are in a
better position to sell insursnce product to them.

6. Banks can provide integrated financial services under one roof to their
customers.

7. Another main advantages in tapping the banks retail distribution network is

cutting the cost of distribution by almost 30 %. As some of the studies related
that 50 % of an insurer’s cost structuring is directly or indirectly related to
distribution.

8. Though insurane companies are good underwriters of risk . they are not too well
known for their expertise in investment management on the other hand, banks
are generally perceived to be not good at manageing risk but they are perceived
to be better at investment management bancassurance is about bringing the two
attributes together.

9. According to reliable research sources, bancassurance salesman has a much

father learning curve, usually around two years as compared with four and a half
years in the insurance companies, in that sence, the cost of training is amortized
over a shorter period and therefore terms out cheaper.

10. Valid research why banks should allows insurance salesman to sell insurance
product in their premises :

a. Banks gets a royalty or a communication for every insurance policy sold.

27
 b. The banks gets an investment management fee for managing the insurer
investment .

c. Insurance product like retirement and pensions plans are growth area for
banks.

CHAPTER 5

VARIOUS TRENDS AND CHALLENGE

5.1 Trends

 In some markets, face-to-face contact is preferred, which tends to favor

bancassurance development. Nevertheless, banks are starting to embrace direct
marketing and Internet banking as tools to distribute insurance products. New
and emerging channels are becoming increasingly competitive, due to the
tangible cost benefits embedded in product pricing or through the appeal of
convenience and innovation.

 Bancassurance proper is still evolving in Asia and this is still in infancy in India
and it is too early to assess the exact position. However, a quick survey revealed
that a large number of banks cutting across public and private and including
foreign banks have made use of the banc assurance channel in one form or the
other in India.

 Though bancassurance has traditionally targeted the mass market, but

bancassurers have begun to finely segment the market, which has resulted in
tailor-made products for each segment. Some bancassurers are also beginning
to focus exclusively on distribution.

 Banks by and large are resorting to either ‘referral models’ or ‘Corporate agency
model’ to begin with. Banks even offer space in their own premises to
accommodate the insurance staff for selling the insurance products or giving

28
 access to their client’s database for the use of the insurance companies. As
number of banks in India have begun to act as ‘corporate agents’ to one or the
other insurance company, it is a common sight that banks canvassing and
marketing the insurance products across the counter.

5.2 Challenges

 Increasing sales of non-life products, to the extent those risks are retained by the
banks, require sophisticated products and risk management. The sale of nonlife
products should be weighed against the higher cost of servicing those policies.

 Bank employees are traditionally low on motivation. Lack of sales culture itself
is bigger roadblock than the lack of sales skills in the employees. Banks are
generally used to only product packaged selling and hence selling insurance
products do not seem to fit naturally in their system.

 Human Resource Management has experienced some difficulty due to such

alliances in financial industry. Poaching for employees, increased work-load,
additional training, maintaining the motivation level are some issues that has
cropped up quite occasionally. So, before entering into a bancassurance alliance,
just like any merger, cultural due diligence should be done and human resource
issues should be adequately prioritized.

 Private sector insurance firms are finding ‘change management’ in the public
sector, a major challenge. State-owned banks get a new chairman, often from
another bank, almost every two years, resulting in the distribution strategy
undergoing a complete change. So because of this there is distinction created
between public and private sector banks.

 The banks also have fear that at some point of time the insurance partner may
end up cross selling banking products to their policyholders. If the insurer is
selling the products by agents as well as banks, there is a possibility of conflict
if both the banks and the agent target the same customers.

29
 Success of bancassurance would also depends on the extent to which and how
fast technology being used for banking operation can be need for meeting the
technology requirements for insurance business otherwise banks will have to
incur large investment for putting in place the technological infrastructure for
bancassurance operation.
 In case of failure of the bancassurance operation, the bank runs the threat of
image risk and cannibalizing , deposits.

 Insurance sales being commission incentive drive banks selling insurance

product may be required to provide incentive packages in addition the regular
remuneration to drive the sales.

 Maintaining the same service levels of insurance business as that for the banking
service may be one of the biggest challenges.

 Private players in the insurance industry being new entrance are technology save
banks, especially PSB, s have to rise up to the challenges and be willing to invest
in technology.

30
 CHAPTER 6

SWOT ANALYSIS

Bancassurance In - A SWOT Analysis:-

SWOT analysis is an important tool for auditing the overall

strategic position of a business and its environment. Once key strategic issues have
been identified, they feed into business objectives, particularly marketing objectives.
SWOT analysis can be used in conjunction with other tools for audit and analysis, such
as PEST analysis and Porter's Five-Force analysis. It is also a very popular tool with
business and marketing students because it is quick and easy to learn. The Key
Distinction - Internal and External Issues Strengths and weaknesses are Internal factors.
For example, a strength could be your specialist marketing expertise. A weakness could
be the lack of a new product. Opportunities and threats are external factors. For
example, an opportunity could be a developing distribution channel such as the Internet,
or changing consumer life styles that potentially increase demand for a company's

31
products. A threat could be a new competitor in an important existing market or a
technological change that makes existing product potentially obsolete it is worth
pointing out that SWOT analysis can be very subjective - two people rarely come-up
with the same version of a SWOT analysis even when given the same information about
the same business and its environment. Accordingly, SWOT analysis is best used as a
guide and not a prescription. Adding and weighting criteria to each factor increases the
validity of the analysis.

In the mid-1990s, Dell Computer used a SWOT analysis to

create a strong business strategy that has helped it become a very strong competitor in
its industry value chain. Dell identified its strengths in selling directly to customers and
in designing its computers and other products to reduce manufacturing costs. It
acknowledged the weakness of having no relationships with local computer dealers.
Dell faced threats from competitors such as Compaq and IBM, both of which had much
stronger brand names and reputations for quality at that time. Dell identified an
opportunity by noting that its customers were becoming more knowledgeable about
computers and could specify exactly what they wanted without having Dell
salespersons answer questions or develop configurations for them. It also saw the
internet as potential marketing tool. The results of dell’s SWOT analysis are:

6.1 STRENGTH:

 Bancassurance can be a of fire way to reach a wider customer base, provide it

is made use of sensibly. In India there is an extensive bank network established
over the years. Insurance companies will have to take advantage of the
customer's longstanding trust and relationship with banks. This is mutually
beneficial situation as Banks can expand the range of their products on offer to
customers and earn more, while the insurance company profits from the
exposure at the bank branches, and the security of receiving timely payments.

 There are several untapped potential waiting to be mined particularly for life
insurance products in rural areas. Banks with their network in rural areas, help
to fulfill rural and social obligations as stipulated by the Insurance Regulatory
and Development Authority.

32
  There are several reasons why bank should seriously consider bancassurance.
the most important of which is increase Return on Assets (ROA).It offers
feebased non -interest income to the banks without involving in any amount
does not require any additional capital.
6.2 WEAKNESS:

 The bancassuance calls for a paradigm shift in the behavior of the banks, which
have to develop marketing skills. Most of the banks lack adequate marketing
skills to perform these additional responsibilities. At the same time, there is a
need for banks to be sensitive to customers of preferences.

 Bancassurance could turn out be an example channel as it requires huge

investments in Wide Area Network (WAN) and Vast Area Network (VAN) to
meet customer's needs on order to finalize a sale. Another drawback is the
inflexibility of the products that is it cannot be tailor- made to the requirements
of the customers.

 For bankassurance venture to success, it is extremely essential to have in -built

flexibility of the products that is it cannot tailor-made to the requirements of the
customers. For a bank assurance venture to succeed, it is extremely essential to
have an in-built flexibility so as to make the product attractive to the customer.

6.3 OPPORTUNITIES :

 Banks database is enormous and they have a wide branch network. Millions of
customer become accessible to insurance companies through bank branches.
This database has to be dissected variously and various homogeneous groups
are to be churned in order to position the bank assurance products.

 New private sector insurance companies are yet to become popular. They are in
existence for less than five years. In a short period, to appoint agents all over
the country and effectively follow them would be an uphill task. They are in the
process of building brand equity. Tie up with Bank will help them to boost their
image and provide great opportunity for insurance as in as Bank, in this process
is bank will also benefits.

33
  Customers have more faith in Banks and they view those Banks as more
responsible than individual agents. Moreover, agents may not be available for
further services, but customers can approach the bank at any time and paying
the premium is easier with Bank because of standing instructions.

6.4 THREATS

 Even insurance and Bank that seem ideally suited for a bank assurance
partnership can run into problems during implementation. Success of a
bancassurance venture requires change in approach, thinking and work culture
on the part of everybody involved.

 The most common obstacles to success are manpower management, lack of

sales culture within the bank, non-involvement by managers, insufficient
product promotions, failure to integrate marketing plans, marginal database
expertise, inadequate incentives, a definite threat of resistance to change,
negative attitudes towards insurance and unwieldy marketing strategy

34
 CHAPTER 7

CASE STUDY OF SBI LIFE INSURANCE

7.1 State bank of India Life Insurance

SBI Life Insurance is a joint venture between the State Bank

of India and Cardiff SA of France. SBI Life Insurance is registered with an authorized
capital of Rs 1000 crore and a paid up capital of Rs 500crores. SBI owns 74% of the
total capital and Cardiff the remaining 26%. State Bank of India enjoys the largest
banking franchise in India. Along with its 7 Associate Banks, SBI Group has the
unrivalled strength of over 14,500 branches across the country, arguably the largest in
the world. Cardiff is a wholly owned subsidiary of BNP Paribas, which is the Euro

Zone’s leading Bank. BNP Paribas is one of the oldest foreign banks with a presence
in India dating back to 1860. Cardiff is ranked 2ndworldwide in creditor’s insurance
offering protection to over 35 million policyholders and net income in excess of Euro
1 billion. Cardiff has also been a pioneer in the art of selling insurance products through
commercial banks in France and in 35 more countries.

35
 SBI Life Insurance’s mission is to emerge as the leading
company offering a comprehensive range of Life Insurance and pension products at
competitive

36
prices, ensuring high standards of customer service and world class operating
efficiency. SBI Life has a unique multi-distribution model encompassing Banc
assurance, Agency and Group Corporate.

SBI Life extensively leverages the SBI Group as a platform for

cross-selling insurance products along with its numerous banking product packages
such as housing loans and personal loans. SBI’s access to over 100 million accounts
across the country provides a vibrant base for insurance penetration across every region
and economic strata in the country ensuring true financial inclusion. Agency Channel,
comprising of the most productive force of more than 25,000 Insurance Advisors, offers
door to door insurance solutions to customers.

7.2 Products Offered by SBI

Individual Products:

A) Unit Linked products:

1) SBI Life - Horizon II:

SBI Life-Horizon II is a unique, non-participating Unit Linked

Insurance Plan in Indian Insurance Industry, where you need to beat financial market
expert. This plan offers the flexibility of Unit Linked Plan along with Automatic Asset
Allocation which provides relatively higher returns on your money where as increasing
death benefits provide higher security to your family.

2) SBI Life - Unit Plus II:

This is a non-participating individual unit linked product. It

provides unmatched flexibility to match the changing requirements. It provides choice
of 5 investments funds in a single policy

3) SBI life- Unit Plus Child Plan:

SBI LIFE understand you better and hence have developed

SBI Life - Unit Plus Child Plan to suit you and your needs best. This Plan is meant for
parents in the age group of 18-57 having a child between the age group of 0-15 years.

37
B) Pension Products;

1)SBI Life - Horizon II Pension:

A unique Unit Linked Pension Plan that will enable the

customers to build a kitty good enough to enable them to spend a peaceful and
financially sound, retired life. SBI Life - Horizon I Pension is a safe and hassle free
way to get high returns. It comes with the unique feature of Automatic Asset Allocation
by means of which you truly, don’t need to be an expert to grow your money.

2)SBI Life - Unit Plus II Pension:

SBI Life understands the basic needs for pension plan and give the
customers financial strength to maintain the life style even after the retirement.

This is a unit linked pension plan wherein the policyholder chooses

an investment period from 5 to 52 years for averting age between 50 to 70 years. They
can choose to pay either single premium or pay regular premium for the entire policy
term. Their contributions are invested into 4 fund options as per their choice.

3)SBI Life - Lifelong Pensions:

It is a pension plan wherein the policyholder gets the flexibility to

meet the post retirement financial needs. It also provides tax benefits. The policyholder
also has the option of withdrawing alum sum amount up to particular limit.

4)SBI Life - Immediate Annuity:

SBI Life - Immediate Annuity Plan is introduced for Pension

Policyholders. This product provides annuity payments immediately from payment of
purchase price. It has been specially designed to cater to the annuity needs of existing
policyholders (Belief - Lifelong Pensions, SBI Life - Horizon II Pension, SBI Life Unit
plus II Pension) at the vesting age.

C) Pure Protection Products

1) SBI Life – Swadhan;

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 This is a Traditional Term Assurance Policy with guaranteed
refund of basic premium .Life cover is provided at no cost. Tax benefits also provided.
There is also a rebate on high sum assured. There is also flexible benefit premium
paying mode.

2) SBI Life – Shield:

It offers the customers with the life insurance cover at the

lowest cost for a selected term. Tax benefit is also provided. There is also rebate on
modes of premium payment.

3) SBI Life – Shield as a Key man Insurance Policy:

A Key man insurance policy is taken to protect the organization

against the sreduction in profit resulting from the death of the Keyman. As per IRDA
circular only Pure Term Assurance Products may be used as a Key man Insurance. The
SBI Life Insurance provides “SBI Life – Shield” as a Key man Insurance Policy.

D) Protection cum Savings Products

1) SBI Life – Sudarshan:

SBI Life - Sudarshan is an Endowment Policy designed to

provide savings and protection to the policyholder and their family. They can save
regularly for the future. Thus at the end of the plan, he will receive a substantial amount
of savings along with the accumulated bonuses declared. At the same time, his family
will be protected for death risk for the full Sum Assured.

2) SBI Life - Scholar II;

Twin benefit of saving for the child's education and securing a

bright future despite the uncertainties of life. Option to receive the installments in lump
sum at the due date of first installment of Survival benefit.

E) Money back scheme products

1) SBI Life - Money Back:

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 It is a Traditional Saving Plan with added advantage of life
cover and guaranteed cash inflow at regular intervals. The plan has a number of money
back

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options especially suited to the customers needs. The cover is available at competitive
premium rates.

2) SBI Life - Sanjeevan Supreme:

It is a Traditional Saving Plan which offers a life cover for the term
of the customer’s choice at the same time does not burden him with liability to pay
premiums for the entire term and also provides cash flows at regular intervals.

7.3 SBI Life Insurance Company (perspective)

SBI Life insurance, a joint venture between State Bank of India, the
largest bank in the country and banc assurance major Cardiff of France. SBI’s stake in
the venture is 74% whereas Cardiff has 26% share. They have launched many products
so far incorporating certain features that are introduced for the first time in the country.
SBI -Life is banking on the banc assurance model on the strength of the SBI Groups

10000 plus bank branches and its vast customer base. In addition it is also tapping other.
Banks corporate agents and the traditional agency route to penetrate the insurance
market SBI Life is planning to introduce more novel and user friendly products to cater
to the requirements of the consumers in different segments.

SBI has the largest banking network in the county. The bank is
looking for business from every customer segment of the bank rural and urban
segments, upper, middle and lower income segments /groups and corporate segment.
Besides their own channels they are planning to distribute products through other
interested banking channels also. It is expected that 2/3 rd. of the premium income in
expected to come by way of banc assurance and the rest from the traditional agency
channel as well as ties up with corporate agents (Sundaram Finance). SBI has also
introduced group insurance to some well managed corporate staffs.

Technology is an integral part of this operation. Cardiff provided

the technology required. The project was initiated in April 2004,and the initial roll-out
was completed by August 2004.SBI Life has implemented an Internet-centric IT system
with browser-based front-office and back-office systems, channel management, policy
product details, online premium calculator and facility for group insurance customers

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to view their individual savings status on the Web. The organization has the facility to
pay premiums through credit cards, Net banking, standing instructions, etc. This is fully
integrated with the core systems through industry standards such as XML, EDI, etc.
Even as it plans to scale up operations shortly, SBI Life Insurance Company Ltd is
looking at tripling its gross premium income in the new financial year. In 2007-08, SBI
Life earned a total premium income of Rest 5,622 crore, of which income from new
policy sales was Rs4, 800 core. For the current financial year, their target is to achieve
a total premium income of Rs 10,500 crore and a first year premium income of Rs 8,500
crore”. The SBI Life ranks second in terms of market share among private life insurers
in the country.

SBI Life Insurance Company is the first among the 14 life

insurance companies in the private sector to post a net profit in 2005-06.There are life
insurance players much more aggressive than SBI and they have still not been able to
break the record of SBI. Their success is largely on the channel strategy and product
strategy. The aspect is their superior investment performance. They have consistently,
over the last two years, generated 11-12 per cent earnings from the investments.SBI
Life Insurance is uniquely placed as a pioneer to usher bancassurance into India. The
company hopes to extensively utilize thebe Group as a platform for cross-selling
insurance products along with its numerous banking product packages such as housing
loans, personal loans and credit cards. SBI’s access to over 100 million accounts
provides a vibrant base to build insurance selling across every region and economic
strata in the count.

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 CHAPTER 8

BANCASSURANCE KEY CHALLENGES TO INDIA

8.1 Key Challenges

At present, the bancassurance is facing problems such as poor

management, lack of call centres, no personal contract, inadequate infrastructure and
inadequate incentives to agents and in complete fulfillment of other essential
requirements, Hence following points can take into consideration for proper
implementation of bancassurance.

1. There should be involvement of top management in banks.

2. The banks should motivate and develop the skills ay the operating level.

3. If there is possible conflict of internal banker and insurer that has to be resolved.

4. Banks have to get up a consist distribution procedure with manual system in

bancassurance .

5. Service level agreement between banker and insurer should be established.

6. High capital investment in information and technological and

telecommunication.

7. Study about the low income groups, middle and upper class of the society and
their agencies to adopt insurance policies and provide favorable policies to
people.

8. Establishment of research and development cell for adopted task.

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44
8.2 Important Bancassurance tie-ups in India

1) Life Insurance Corporation of India with:-

• Corporation Bank,

• Indian Overseas Bank,

• Centurion Bank,

• Satara District Central Cooperative Bank,

• Janata Urban Co operative Bank,

• Yeotmal Mahila Sahkari Bank,

• Vijaya Bank, Oriental Bank of Commerce.

2) Birla Sum Life Insurance Co Ltd With:

• The Bank of Rajasthan,

• Andhra Bank,

• Bank of Muscat,

• Development Credit Bank,

• Deutsche Bank and Catholic Syrian Bank.

3) Dabur CGU Life Insurance Company Private Ltd:-

• Canara Bank,

• Lashmi Vilas Bank,

• American Express Bank,

• ABN Amro Bank.

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4) HDFC standerd Life Insurance Co. Ltd. With:- Union Bank of India.

5) ICICI Prudential Life Insurance Co Ltd. With:-

• Lord Krishna Bank,

• ICICI Bank,

• Bank of India,

• Citibank,

• Allahabad Bank,

• Federal Bank,

• South Indian Bank,

• Punjab and Maharashtra Co-operative Bank.

6) Met Life India Co. Ltd. With:-

• Karnataka Bank, The Dhanalakshmi Bank, Jammu & Kashmir Bank.

7) SBI Insurance Co. Ltd. With:- State Bank of India,

• Associate Banks.

8) Bajaj Allianz General Insurance with:-

• Krur Vysya Bank,

• Lord Krishna Bank

9) National Insurance Co Ltd With:-

• City Union Bank,

10) Royal Sundaram General Insurance Company with:-

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 • Standard Chartered Bank,

• ABN Amro Bank,

• Citibank Amex and Repco Bank.

8.3 Future Scope of Bancassurance

By now, it has become clear that as economy groups it not only

demands stronger and vibrant financial sector but also necessitated prevailing with
more sophisticated and variety of financial and banking products and services. The
outlook for bancassurance remain positive. While development in individual markets
will continue to depends heavily on each country’s regulatory and business
environment, bancassures could profit from the tendency of government to privatize
health care and pension liabilities.

India has already more than 200 million middle class population
coupled with vast banking network with largest depositor’s base there is greater scope
for use of bancassurance . In emerging markets new entrants have successfully
employed bancassurance to complete with inculmbent companies given the current
relatively low bancassurance penetration in emerging markets, bancassurance will
likely see further significant development in the coming year.

In India, the bancassurance models is still in its nascent stages, but

the tremendocy growth and acceptability in the three years reflects green pasture in
future. The deregulation of the insurance sector in India has resulted in a phase where
innovative distribution channel are being explored. In this phase, bancassurance has
simply outshined other alternate channel of distribution with a share of almost 25-30 %
of the premium income amongst the private players.

To be fruitful, it is vital for bancassurance to ensure that banks

remain fully committed to promoting and distribution insursnce products. This
commitment has to come from both senior management in terms of strategy inputs and
the operation staff who would provide the front end for these products. In India, the
signs of initial success are already there depositmthe fact that it is a completely. New
phenomenon. Although the concept is simple enough in theory, but in practice it has
been found to be for from straight forward . As the brand name of the banks is important

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so is the brand image if the insurance companies. So the banks and the insursnce
companies must tie-ups with the right partners. This will help them to create a better
image in the minas of the customers.The insurance business can go a long way because
ther is a large population who is still unaware abound insurance. So the insurance
companies have a huge potential markets in the years to come. There is no doubt that
banks set to become a significant distributor of insurance related product and services
in the years to come.

8.3 Success of Bancassurance

• Banking and insurance have strong similarities that might have contributed to
their rapprochement, LIC and other insurance companies have developed a
range of products, that have direct conflict with traditional bank offering or
products.

• New companies in Life Insurance sector would be looking for cost effective
channels for distribution which provide long reach. Because of the existing
extensive obviously emerged as the preferred low cost distribution channel. This
would also give the hold to, insurance companies in the rural areas, thus
providing an opportunity to tab the virgin market.

• Banks have large client base and cross selling surely provides with an
opportunity for optimum utilization of their existing customer relationship thus
effectively creating a win- win situation company and the operational
difficulties at ground level have to be managed and one of the suggested ways
is to re- structure the bank compensation structure on the lines of insurance
companies.

• Last but not the least, the issue of consumer protection will have to be suitably
addressed by Regulators and consumers themselves. Consumers though have
consumer Protection Act to inhibit banks and insurance companies to show
monopolistic properties or use them as an arm twisting techniques. Though all
said and done, Regulators both IRDA and RBI should jointly formulate a policy
and process not to avoid the conflict of interest.

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8.4 Measures to Improve Bancassurance in India:

• Factors that are critical for success include strategies consistent with Banks
vision, knowledge of target customer's defined sales process for introducing
insurance services, simplest yet complete product offerings, strong service
delivery mechanism, quality administration, synchronized planning, all
business lines and subsidiaries, complete integration of insurance with other
business products and services, expensive and high-quality training of sales
personnel.

• Another critical point to be tackled is customer service(CRM). Bank should

implement Customer Relationship Management (CRM) strategies to handle the
customers tactfully.

• Bank should act as financial adviser to the customers in the portfolio decisions
and also assist them in early claim settlement.

• Bank and insurance company should work jointly towards a model global retail
financial institution offering a wide array of products which leads to creation of
one-stop shop for mortgages, pensions, and insurance products.

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 SUGGESTION

 The insurance companies need to design products specifically for distributing

through banks trying to sell traditional products may not work so effectively.

 The employees of the banks who are selling insurance products must be given
proper training so that they can answer to ant queries of the customers and can
provide them products according to their needs.

 Banks should also provide after sales services and they should be more
aggressive in selling the insurance products.

 Banks should also do the settlement of claims which will increase the trust and
reliability of the customers on the banks.

 In India, since the majority of the bancassurance sector is in public sector which
has been widely responsible for the lethargic attitude and poor quality of
customer services, it needs to rebuild the blemished image, else the
bancassurance would be difficult so succeed in these banks.

 For banc assurance to succeed products and processes will needs to be tailored
to bank markets, rather than adjusted to insurer’s specification.

 Banks and insurance companies should apply all the skills and potential in this
area and take advantage of the same and they should improve the products from
time to time according to the needs of the customers.

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 CONCLUSION

The life Insurance Industry in India has been progressing at a

rapid growth since opening up of the sector. The size of country, adverse set of people
combined with problems of connectivity in rural areas, makes insurance selling in India
a very difficult task. Life Insurance Companies require good distribution strength and
tremendous man power to reach out such a huge customer base. The concept of
Bancassurance in India is still in its nascent stage, but the tremendous growth and the
potential reflects a very bright future for bancassurance in India.

With the coming up of various products and services tailored as

per the customers needs there is every reason to be optimistic that bancassurance in
India will play a long inning. But the proper implementation of bancassurance is still
facing so many hurdles because of poor manpower management, lack of call centers,
no personal contact with customers, inadequate incentives to agents and unfullfilment
of other essential requirements. I have experienced a lot during the preparation of the
project. I had just a simple idea about Bancassurance. But after a detailed research in
this topic, I have found how important bancassurance can be for bankers, insurers as
well as the customers. I am contented that all my objectives have been met to its fullest.
I have also experienced that though Bancassurance is not being utilized to its fullest but
it surely has a bright future ahead. India is at the threshold of a significant change in
the way insurance is perceived in the country. Bancassurance will definitely play a
defining role as alternative distribution channel and will change the way insurance is
sold in India. The bridge has been reached and many are beginning to walk those
cautious steps across it. Bancassurance in India has just taken a flying start. It has a
long way to go ……….. After all The SKY IS THE LIMIT!

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 BIBLIOGRAPHY

1. Innovations in Banking and Insurance -Romeo. S. Mascarenhas

2. Indian Banking -R. Parameswaran

3. Insurance Marketing

4. Theories and Practices in Insurance.

WEBLIOGRAPHY

• www.insuremagic.com

• www.indiainfoline.com

• www.sbilife.com

• www.wikipedia.com

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