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    Bancassurance & Irda Act

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    Aastha Tandon
    This document discusses bancassurance in India, which refers to the selling of insurance products through banks. It provides context on the history and regulations around bancassurance in India. Key points include: 1) Bancassurance grew in popularity starting in the 1970s and was formally allowed in India through the IRDA Act of 1999, which set guidelines for bank-insurance partnerships. 2) The IRDA Act allowed banks to sell insurance on an agency basis or through joint ventures where banks hold up to 52% equity in an insurance company. 3) Bancassurance provides opportunities for insurers to gain new customers through banks' large branch networks and customer bases, especially in rural areas

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    Bancassurance & Irda Act

    Uploaded by

    Aastha Tandon
    100 views16 pages
    This document discusses bancassurance in India, which refers to the selling of insurance products through banks. It provides context on the history and regulations around bancassurance in India. Key points include: 1) Bancassurance grew in popularity starting in the 1970s and was formally allowed in India through the IRDA Act of 1999, which set guidelines for bank-insurance partnerships. 2) The IRDA Act allowed banks to sell insurance on an agency basis or through joint ventures where banks hold up to 52% equity in an insurance company. 3) Bancassurance provides opportunities for insurers to gain new customers through banks' large branch networks and customer bases, especially in rural areas

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    Bancassurance & Irda Act[1]

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    This document discusses bancassurance in India, which refers to the selling of insurance products through banks. It provides context on the history and regulations around bancassurance in India. Key points include: 1) Bancassurance grew in popularity starting in the 1970s and was formally allowed in India through the IRDA Act of 1999, which set guidelines for bank-insurance partnerships. 2) The IRDA Act allowed banks to sell insurance on an agency basis or through joint ventures where banks hold up to 52% equity in an insurance company. 3) Bancassurance provides opportunities for insurers to gain new customers through banks' large branch networks and customer bases, especially in rural areas

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    100 views16 pages

    Bancassurance & Irda Act

    Uploaded by

    Aastha Tandon
    This document discusses bancassurance in India, which refers to the selling of insurance products through banks. It provides context on the history and regulations around bancassurance in India. Key points include: 1) Bancassurance grew in popularity starting in the 1970s and was formally allowed in India through the IRDA Act of 1999, which set guidelines for bank-insurance partnerships. 2) The IRDA Act allowed banks to sell insurance on an agency basis or through joint ventures where banks hold up to 52% equity in an insurance company. 3) Bancassurance provides opportunities for insurers to gain new customers through banks' large branch networks and customer bases, especially in rural areas

    Copyright:

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    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 16

    BANCASSURANCE & IRDA ACT 1999

    Presented By: Prof. Deepak Tandon

    What is BancAssurance ?
    It is a French term referring to the selling of insurance through a bank s established distribution channel. In other words it is a result in which a bank can offer banking, insurance, lending, and investment products to a customer.

    contd
    Bancassurance which was first started in the year 1970 encompasses terms such as Allfinanz , Integrated Financial Services and Assurebanking . Its players include:  Banks selling life, pension & other collective investment products.  Banks selling general insurance products.  Insurance company selling banking products (deposits, loans etc.)

    Models of BancAssurance
    There are basically four models of bancassurance:  Distribution alliance between the insurance company and the bank.  Joint venture between the two companies.  Mergers between a bank and insurer.  Bank builds or buys own insurance products. Most of the bancassurance operations fall in the first model.

    How does BancAssurance help?


     Every insurance company has a wants to grow quickly to reduce 
    painful start-up expense overruns. Banks with their huge networks and large customer bases give insurers an opportunity to do this efficiently. It gives the companies an opportunity to tap the rural sectors. Selling insurance through traditional methods in these sectors falls very expensive. A tie up with a bank with an appropriate customer base can give an insurer a cheap access to these areas. Banassurance enables to have a huge pool of skilled professionals. The margins of the banks in their core lending business are declining sharply. Opportunities like banassurance augment their income. Banassurance enables to develop a sales culture within the bank. It helps to change the traditional mindset of banking companies.

      

    BancAssurance in India
     Bancassurance in India is of very recent origin. The concept was rather unknown before the passage of IRDA Act 1999.  In the year 2000 Reserve Bank of India formulated guidelines for the entry of banks into the insurance sector.

    Guidelines Of IRDA Act 1999


     Any scheduled commercial bank will be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation.  Subsidiaries of banks will also be allowed to undertake distribution of insurance products on agency basis.

    contd
     Banks, that satisfy eligibility criteria shall 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 be 52 percent of the paid up capital of the insurance company.  In cases where a foreign partner contributes, the maximum equity contributed by them should be 26 percent of paid up capital.

    Industry Evolution
    Up to 1999 No. of players LIC Monopoly No Private Players allowed Agency only 800K LIC agents 1999 till 2002 Private Players allowed 12 new insurers Distribution Focus Agency model replicated Little confidence in BA Confidence in BA BA takes 20% + share among Private Players Alignment of most Banks for exclusive arrangements BA regulations become clearer. Multiple models allowed- CA, Referral, Broking 2003 onwards 12 Private Players LIC loses 12% share

    Regulatory Environme nt

    LIC of India Act Insurance Act 1938

    IRDA Act 1999 Primarily Agency driven regulations

    Regulatory Context
      Referral and Corporate Agency models Corporate Agency requires selling skills developed with Bank Referral model requires Insurer s sales force to sell Referral models may be reviewed  Current arrangements made on basis of long term continuance  Significant resources already in place  Cooperative Banks only selectively allowed

     

    contd
    Referral arrangements under review:

     Allows best advice from insurer s specialized


    advisers  Resource commitment low from Bank  Banks not able to create large insurance sales forces  Bank staff continue focus on banking activities

    BancAssurance - Indian Opportunity


    Currency 6% PF/Retirement Funds 21%

    Bank Deposits 39% Shares & Debentures 6% Mutual Funds 2%

    Insurance 13% Government Bonds 13%

    Currency Government Bonds Bank Deposits

    PF/Retirement Funds Mutual Funds

    Insurance Shares & Debentures

    Total Household Savings of Rs.2,76,831

    BancAssurance Opportunity
    market

    Indian

     India has a high Savings rate of 21% of GDP- a massive insurable  Banks are major players in the Indian Financial system:
     Command over 40% of household investments  Extensive coverage: 66000 branches (32000 rural and 14700 semi urban) Enormous retail account base of 440 mn deposit accounts Total deposit base of Rs. 11,23,393 Cr A logical opportunity for Insurers to reach such customers through Banks

    Future Trends in BancAssurance


    Stage of Polarization: Most Banks have shortterm agreements; a stage of realignments may occur Emergence of winners

    Change in regulations could impact current arrangements Some Banks yet to firm up partnerships

    Strong alignments with Banks with cross investments and exclusivity

    Broking arrangements

    Insurers partnered with Select Banks under Corp Agency or Referral

    Current scenario

    Short term2006-2007

    Middle term2007-2010

    Long term2010 onwards

    Challenges in BancAssurance
    Two of the greatest challenges facing bancassurance today:  To persuade customers to commit to regular savings plans (where most banks have been ineffective)  To provide advice and sell more complex products, especially pensions, and particularly to more affluent customers.

    THANK YOU!!

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