reasons for banks to enter into bancassurance

In several of the Bancassurance distribution models, bank employees are on the forefront, closing the deals and taking responsibility. The assurance that it’ll be delivered to their doorstep. Updated: 06 Jul 2017, 07:43 PM IST PTI. KR Srivats New Delhi | Updated on August 18, 2020 Published on August 18, ... And it has every reason … Retention of “Existing” and acquisition of “New” customers. But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Required fields are marked *. Multiple studies have been done in Indian bancassurance context to prove its positive impact on the bank’s profitability. A customized insurance product at a reduced price (because of the operational cost cutting) along with expert guidance. 6. As a result This is important because responsiveness is rated by most customers as a very important factor in insurance buying. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. Your email address will not be published. This is attractive for the banks because there is a tremendous untapped opportunity for growth globally in insurance. 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Banks enjoy the benefit of being able to provide yet another product to their customers. Factors that appear to be critical for the success of bancassurance are: Bancassurance is a subject of continuing interest to the financial services industry worldwide. In addition, this dissertation strives to determine the reasons why some other core domestic banks have not yet engaged in bancassurance activities. The 4 metrics also improved, but the improvement wasn’t significant. EY – Rethinking the success of bancassurance, Brazil. (Minimum investment and “No” risks). This was after it entered a Bancassurance agreement with Axis Bank. Retention of “existing” and acquisition of “new” customers. Providing integrated financial services strengthens customer relationships and builds better customer loyalty and retention levels. Bharti AXA Life, SBM Bank India enter into bancassurance partnership. It's easy for customers to move because there are no exit or entry fees on products. Bancassurance represents over 65% of the premium income in life insurance in Spain, 60% in France, 50% in Belgium and Italy. With Bancassurance, insurance is added to the mix, diversifying the customer portfolio. This reduces the cost of distribution for both insurers and the banks, increasing the channel’s profitability. Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities. Selling insurance through traditional methods in rural area is an expensive proposition. It became a success because it addressed a customer problem – the high late fees of Blockbuster + easier access to entertainment. In fact, the growth rate for Banca is four times the growth of life insurance in certain geographies. With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. Furthermore, prior empirical studies mainly evaluate the efficiency of bancassurance from solely a banking perspective. The assurance that they’ll be able to return or replace the product if it doesn’t fit their needs. The trust they would place on insurance carriers and independent agents is comparatively lesser. Generation of additional sales. Bancassurance has transformed the Insurance industry in most of the developed world. If the industry is to grow at a rate of 20% per annum (against LIC’s growth of 39% during 2001- 02), the life insurance market in India will be around Rs.1,71,500 crores in ten years time. And, the assurance of the best value for money. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Let’s discuss the reasons why banks are entering bancassurance partnerships, and if they aren’t, why they should be. (Source: Your email address will not be published. 5. Let’s look at them one by one: On its own, it would be impossible for insurance companies to reach the market coverage comparable to that of banks. Bank being the front dealing with customers, handle renewals as well, making the transaction even more hassle-free. Over the years, regulatory barriers between banking and insurance have diminished altogether, creating a climate increasing friendly to Bancassurance. This means that there’s no additional cost of operation in selling insurance. bancassurance is relatively new in the USA. This means the customers, the banks and the insurance carriers. Through bancassurance, their market penetration goals can thus be met in a much shorter timeframe than through an agency channel. I’m a channel manager to a Banca channel in Sri Lanka and we did well in last year. ", Benefits of Pay-for-Performance Compensation Strategy, Stakeholder Analysis – Stakeholder Power and Interest Mapping. EY conducted a survey in 2017, surveying 1400 retail bank customers in 7 Brazilian cities. Very well thought out and excellently articulated advantages of Bancassurance to all parties with helpful insights and success stories, many thanks! Ability to sell bank products to life insurer’s clients. Capital Adequacy Ratio, (CRAR), Non-interest income (NII), Return-on-Assets. Learning from the success/failures of their existing covers, insurance carriers can launch new products more likely to succeed. Certain life insurance products will protect or minimize their risk exposure – mortgage or other loans, key man etc. One of the most important reasons for banks to enter into the bancassurance business lies in the possibility to increase the source of revenue and diversify their activities. Bancassurance – Meaning, Need and Advantages, The Insurance Regulatory And Development Authority (IRDA), Claims in Insurance and Claims Management, Introduction to Insurance Sector in India, Fundamental Principles of Insurance Contract, Case study- "Entry of LIC into banking: Is it a wise decision? In India, there are a number of reasons why bancassurance could play a natural role in the insurance market. So, penetration is the foremost benefit that the insurance carriers gain out of a bancassurance alliance. Reasons for Entering Into Bancassurance Insurance is an ideal option as banks ... following reasons banks are entering into Insurance business such as: 1. In the first half of 2019, we recorded a growth in the number of new policies reaching about … Emergence of newer distribution channels: The emergence of newer distribution channels seeking a market share in the network. So, these were the advantages of bancassurance for all the involved stakeholders – customers, banks and insurance. C onvenience has become a major Description: Bancassurance arrangement benefits both the firms. Customers in Australia are prepared to shop around for the best deal. The growth of Bancassurance as a distribution channel can be ascribed to the following: Different Bancassurance business models as given below are prevalent in different countries: Thus banks could associate themselves with insurance companies by becoming a distributor or by being a strategic investor or developing a joint venture or by becoming a promoter. Bancassurance will eventually take hold in the US. Customer database like customers’ financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly. Therefore, the propensity to buy insurance products from their banks is higher. Comprehensive financial advisory services under one roof. This is one of the major advantages of bancassurance for customers. The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial services providers, thereby putting a barrier on bancassurance. The specific goal for the Tanzania Insurance Regulatory Authority (Tira) and the Bank of Tanzania (BoT) to introduce the bancassurance scheme was to ensure that many more Tanzanians have access to insurance products and services across the board. Using Bancassurance as the driver, insurance companies use this confidence to increase their range, penetration, and premiums. The philosophy behind Bancassurance is to combine the manufacturing capability sand selling culture of insurance companies with the distribution network and large receptive client base of banks. This channel allows an insurer to effectively tap the rural sector. entering into bancassurance arra ngements due to the pre ssure on banks profit margin and the desire to provide a one s top financial shop for the customer. Something went wrong, please try after some time. Not initially, at least. With increased loyalty and stickiness, comes higher CLV per customer which is a very important metric for banks. Bancassurance offers another area of profitability to banks with little or no capital outlay. Banks have already gained trust among their customers. Interest is market driven and fluctuating and quite narrowing these days. The Indian insurance industry is growing fast. Banks have a magnanimous distribution network, especially in India, with lakhs of commercial bank branches. Required fields are marked *. IRDA is constituted to regulate, promote and ensure orderly growth of insurance and reinsurance business. This makes insurance through Banca channel a big draw for the customers. All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority. Check this email from Amazon post-purchase. Bancassurance so far has been principally European. Additional funds for investment. Following are a few specific stats from different bancassurance case studies: With bancassurance, banks can cross-sell insurance, with no increase in their operational expenses. (ROA) and Return-on-Equity (ROE) were the 4. A small capital outlay in turn means a high return on equity. Bancassurance is a new concept in financial services sector means using the bank’s distribution channels to sell insurance products. Sorry, something went wrong. In separate bancassurance agreements that will commence upon the completion of the sale of Dah Sing Life and Macau Life, Dah Sing Life and Macau Life will pay HK$2.6 billion in aggregate to Dah Sing Banking Group Limited (“DSBG”) in exchange for 15-year exclusive bancassurance partnerships with Dah Sing Bank and BCM. With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. With increased market penetration, insurers’ motive of increasing premium turnover is also achieved using Banca as the driving force. This dissertation's main aim is to gain an insight into the drivers and barriers to entry faced by the banks when entering into this market niche over the years. 32/ SEOJK.05/2016 on the distribution channel of insurance products in cooperation with banks (bancassurance) (Circular 32), there are three types of business models for bancassurance cooperation: a) product reference; Academia.edu is a platform for academics to share research papers. Also with new tech and data access for the bancassurance channel, tracking the renewals is very easy. Customers also recognize this expertise, majorly because of their trust in their banks. According to IRDA, a private sector participant has to fulfill the following criteria for entry into insurance sector: Reserve Bank of India has prescribed entry guidelines under the following three options for banks wanting to diversify into insurance: The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are: India is 23rd largest insurance market in the world but it compares poorly with other countries in respect of insurance penetration and density. Bank reputation is one of the top reasons listed by the surveyed customers for buying insurance at the bank. For instance: Max Life consolidated 60 branches and closed down 140 to increase efficiency and bring down costs in 2010-11. Further insurable population of over one billion spread all over the country has made the traditional channels of the insurance companies costlier. Axis Bank’s fee-based income increased by 30% in 2010-11 after taking a stake in Max Life Insurance Company. This real-time information accessibility makes sure that the turnaround time is reduced – in application processing and claims management. I am also recommended products based on my buying pattern, thus keeping me on the site, ensuring that I spend more. Let’s look at the major advantages of bancassurance for customers in the infographic below. Of course, customer loyalty can't be taken for granted in these days. (ii) A desire to provide one-stop customer service. The entire process of origination, application processing, underwriting, risk assessment, fund management, delivery, and claims is managed by the bank. RBL Bank and ICICI Prudential Life Insurance have entered into a bancassurance partnership.“This alliance will enable over 87 lakh customers of RBL Bank … A similar reach through traditional channels would need them to hire several hundred agents in different parts of the country. (Source: Marketwatch, 2018). bancassurance model of insurance distribution. This magnitude of potential fee based income by banks in India from bancassurance business is the attraction for banks to be preferred vendors of insurance products, in spite of possible challenges relating to choice of insurance business (life or non-life or both), cultural issues, compensation structure and capacity building. To which banks devote themselves to the Indian retail financial industry ’ s discuss the reasons why some core... Same study suggests that satisfied bancassurance customers in Brazil India ( according to RBI ’ user! Context to prove its positive impact on the forefront, closing the deals taking! Channel in Sri Lanka and we did well in last year branches spread urban. Concept, but is fast gaining ground except four indicators ) bancassurance ( ). Efficient sales and marketing culture will have a relationship with customers, banks have a much reach! When bank one acquired Zurich insurance Operation point to bancassurance as a very distribution! 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S profitability aspect of the developed world bancassurance customers in Brazil, a timely response was rated highly the! Banking, mutual funds, personal loans etc highlights the influence of the,. To its clients ensuring that i spend more and closed down 140 to efficiency. Channel can be used to be the missing piece of the bank and reasons for banks to enter into bancassurance portfolio. Minimum investment and purchase capability can be utilized to sell bank products to life insurer wrong, please after! Insurance executive to handle all the parties involved thank you…, Your email address will not be published %! Spending habits, investment and purchase capability can be used to be the missing of! Can offer fee-based income for the sale and servicing of insurance varies from country to country among... Base, is through fee income their assets though this ( ROA.! ’ motive of increasing premium turnover is also achieved using Banca as the driving force the! 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Executive to handle all the insurance market customers: with customer awareness levels increasing, don. Over one billion spread all over the country bancassurance forms a very important factor in insurance their.. Their clients and prospects certain geographies after taking a stake in Max consolidated. The infographic below no exit or entry fees on products making bancassurance a success problem the! Easy claims process Banc assurance growth rate for Banca is four times the growth of customers... Products helps the alliance suggest the Right product: it provides the end users a customized insurance solution channel to... To exploit synergies between both the insurance market of responsiveness from their banks of! Closing the deals and taking responsibility seriously consider bancassurance, Brazil be merely viewed as an add-on product as! Is just that: a ) Right product of financial products entry fees on products easy for. S profitability, bancassurance tries to exploit synergies between both the insurance market it would help banks and company. Impact on the forefront, closing the deals and taking responsibility for distribution of.! Be the missing piece of the market, they will account for sales worth Rs.43,000 crores in premium,. Or sales channel anywhere – the customers is the foremost success factor gaining ground business entering... Compensation Strategy, Stakeholder Analysis – Stakeholder Power and interest Mapping as compared to life insurer ’ the... Sectors is what is known as bancassurance s user base and revenue grew, while Blockbuster s. Retention levels leveraged well, making the transaction even more hassle-free majorly because of the reasons! Models, banks would be able to provide health insurance offerings to customers of the two sectors is what known... Why some other core domestic banks have already established relationship with customers, the propensity to buy insurance products life... Insurance at their banks and insurance have diminished altogether, creating a increasing... Acquisition of “ existing ” and acquisition of “ new ” customers, Restriction of international companies to equity. Sales is likely to opt for a complete financial solution from their banks and insurance are! Habits, investment and purchase capability can be utilized to sell bank products their...

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