Vol . V : Issue. 20
ISSN:0975-9999 (Print) 2349-1655 (Online) Available online at www.selptrust.org SELP Journal of Social Science ISSN : 0975-9999 (Print) 2349-1655 (Online) Vol V : Issue. 20 April - June 2014
A STUDY ON ROLE OF BANCASSURANCE IN INDIAN LIFE INSURANCE BUSINESS Dr. C Paramasivan Assistant Professor of Commerce Periyar EVR College , Tiruchirappalli
C. Kalpana Naidu Research Scholar, Bharathiar University, Coimbatore Assistant Professor,Women’s Christian College, Chennai
ABSTRACT The banking and insurance industry have changed rapidly in the changing economic environment throughout the world. Together Banking and Insurance Industry contributes about seven percent GDP of our economy. The increased pace of market competition due to liberalization and privatization forced life insurers to be competitive by cutting cost and serving in a better way to the customers. In view to reach huge untapped market, the concept of Bancassurance was introduced by the IRDA. Banc assurance is a new and an emerging model of channel of distribution adopted by almost all the life insurance players to increase the market share and insurance penetration. .The present empirical based study was conducted with an objective to understand the role of banc assurance in Indian life Insurance Industry and to measure customer awareness, satisfaction and perception towards buying life insurance products from banks.
Key words: bancassurance, life Insurance market, customer awareness, untapped market Introduction
pr ivatization have bought phenomenal changes in the financial sectors, particularly in life Insurance. Huge untapped population provides unlimited scope to life insurance companies for mar ket expa nsion and pr emium gr owth. T he succes s of life Insurance companies largely depends on the effectiveness of distribution channel. The appr opr ia te selection of channel of distribution helps to increase the volume of sales, brand promotion and brand building by pr oviding quality ser vices to the customers. In spite of presence of multiple
A sound financial sector is the backbone of healthy economy. The Insurance Industry as a financial service is considered as one of the important segments in an economy for its growth and development. Life Insurance Cor por ation of India has a complete monopoly over the life Insurance business for a very long period i.e. from 1956 to 1999, a period prior to the liberalization. In 1999, the Insurance sector was opened up for private par ticipa tion to incr ease insur ance penetration. The winds of liberalization and SELP Journal of Social Science
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distribution channels and wide range of new products; the performance of life Insurance companies is unsatisfactor y. Hence to impr ove insur ance gr owth a nd mar ket penetration of life Insurance business a new concept called “ Banc assurance “ were introduced by IRDA in late 2002 where insurance companies have tie –ups with different bank through joint-ventur e for selling Insurance products. The concept of banc assurance is based on win-win situation where both banks and insurers get benefited with the business partnership.
Bank Of India
Concept & Meaning of Bancassurance
Banc assurance is a type of agreement or partnership between bank and insurance company wher e banks get a fixed per centage or pr opor tion of pr ofit incentives depending on the volume of business. Most of the insurance company found banc assur ance as a low cost attr active distr ibution channel as comparison to other channels. Reasons for Entering Into Bancassurance
ICICI Prudential ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, and Punjab and Maharashtra Cooperative bank LIC Corporation Bank, Overseas Bank of India, Vijaya Bank, Bank of Commerce. SBI Life SBI, BNP Paribas Tata AIG HSBC, United Bank of India. Bajaj Allianz Syndicat e Bank, Centurion Bank and Standard Charted bank.
It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian Banks to do insurance distribution. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on ‘Corporate Agency’ r egulations. Banc assur ance accounts for a share of almost 35-40% of the premium income amongst the private players in India. It is a phenomenon where insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. Banc assurance tries to exploit synergies between both the insurance companies and banks. Some of the examples of Bancassurance are given below:
Insurance is an ideal option as banks feel they fulfill the thr ee major requirements for a successful Insurance business that is asset ma nagement, investment skills and capital adequacy. Banks would also like to fulfill all the financial needs of their customers. For the following reasons banks are entering into Insurance business such as: 1. Wide network of branches- Banks can prove to be a vital distribution channel due to their existing wide network of branches all over. 2. Customer database- Banks can utilize their existing clientele, which includes corporate as well as retail clients to market insurance products.
Birla Sun Life Insurance Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank Aviva Life Insurance Canara Bank, Lakshmi Vilas Bank, American Express Bank and ABN AMRO Bank HDFC Standard Life Insurance Union SELP Journal of Social Science
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3. Cross-selling products- In the current scenar io banks can cr oss s ell their pr oducts along with the insur ance products. For example SBI Bank selling SBI life products along with their own core financial products. 4. Fee based service- Insurance products can be sold as a fee based service. It means by selling insurance products banks earn risk free fixed income which will be an additional source of r evenue for the banks. 5. Rural Penetration- The existing wide network of banks in rural areas can be utilized for selling insurance products. It is easier for banks to tap rural market as the rural people have more awareness and faith over banks as compared to Insurance companies.
4. Introduction of new technology and speedy customer services. 5. Help in expansion of banking sector with additional r evenue fr om insurance business. Threat 1. Difficult to sell insurance products. 2. Not suitable for complex products. 3. Incr ea sed wor k pr essur e on bank employees. 4. Availability of multiple Investment options. Benefits of Bancassurance to Banks, Insurers and Customers: An Analysis For banks : The first and the foremost benefit is that the banks get an additional product in their basket to reduce their risk of regular income. Secondly, by selling the insurance products, they tend to gain additional income in the form of fees. Thirdly, the banks will get to retain the customers with wider relationship with them by pr oviding them a comprehensive service of banking and insurance at a single window.
Banc Assurance in India - A SWOT Analysis Strength 1. Huge untapped population of India. 2. Product development & Innovation by insurance companies. 3. Large middle class households and trust on banks. 4. Cheaper mode of distribution channel.
For insurance company :
Weakness
Selling their products through banks gave them access to the wide rural market. Many public sector banks have branches in the remote rural areas, these acts as a ready untapped mar ket for the insur ance companies at a nominal cost. The insurance companies could reach out to the highly endowed and growing middle class section of the society through the banks distribution network.
1. Low consumer awareness 2. Inflexibility of products. 3. Heavy premiums. 4. Considered as an Investment not protection tool. Opportunity 1. More than 70% population is uninsured. 2. People faith on banks which help in selling of insurance products. 3. Rising demand for new insurance products like ULIPS, Pension and Health plans. SELP Journal of Social Science
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terms of reduction price, diversified product quality in time, all services under one-roof and service at their doorstep service by banks. Innovative and better product ranges and products designed as per the needs of customers. Customers could also get a share in the cost savings in the form of reduced premium rate because of economies of scope, besides getting better financial counseling at single point.
Future Prospects of Bancassurance in India Insurance is basically a customerfocused concept selling business where a policy is being sold to the customer through appropriate channel of distribution. In the present days, agents and banks are the two widely and important source of distribution to sell Insurance products. The shape of the Insurance Industry is being changed by developments in distribution. It is the distributor who makes the differences in terms of product quality, customer services in terms of after-sale and claim settlement. Multi-channel distribution and marketing of insurance products will be the smart strategy for the Indian market. Alternative channels like corporate agents, brokers and banks will play a greater role in insurance distribution. Bancassurance is one such distribution channel that offers huge source of untapped opportunities. Bancassurance is a costeffective and more customer-friendly than other sources of distribution. In Insurance, nearly 35-40% premium income is generated through bancassurance and second most important channel after agents. In India around more than 67,000 branches are there for PSU banks alone and if all branches sell insur ance pr oducts than the r each of insurance can be significantly increased at the lowest possible cost. Huge uninsured Indian market offers abundance future scope for the gr owth and expa nsion of bancassurance.
Suggestions to Overcome Problems and Challenges of Bancassurance 1. High emp hasis need to laid on performance appraisal and sales training of bank managers which will help to actively promote the insurance products in banc assurance. 2. Insurance companies need to come up with simple IT solutions to enable the bank staff to record sales details at the branch itself. 3. Attr active incentives and pr oper motivation should be given to the marketing personnel of the bank in order to sell insurance products in a bigger way. 4. Insurance companies should come out with more customized products for banc assurance. 5. Banks should improve the quality of services and need to be more aggressive in selling the insurance products. 6. To offer best product to the customers in a low cost effective way. 7. Banks should also do the settlement of claims which will increase the trust and reliability of the customers on the banks.
Conclusion Insurance is basically a customer-focused concept selling business where a policy is being sold to the customer thr ough appropriate channel of distribution. In the present days, agents and banks are the two
8. Need to spread awareness among the customers about banc assurance and its benefits. SELP Journal of Social Science
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widely and important source of distribution to sell Insurance products. Bancassurance was a completely unknown insurance distribution channel in India when the insurance sector opened up a decade ago. Today, it is expected to generate 40 per cent of private insurers premium income , which is significantly a higher percentage. The shape of the Insurance Industry is being changed by developments in distribution. It is the distributor who makes the differences in terms of product quality, customer services in terms of after-sale and claim settlement. Multi-channel distribution and marketing of insurance products will be the smart strategy for the Indian market. The size of the country, a diverse set of people combined with problems of connectivity in rural areas, makes insurance selling in India a very difficult proposition. Life insurance companies r equire immense distr ibution strength and tremendous manpower to reach out to such a huge customer base. Huge
uninsured Indian market offers abundance future scope for the growth and expansion of bancassurance. References 1. Andhra Business Bureau (April 2010), “Bancassurance to touch 40 percent of premium income by 2012”, Hyderabad 28th April 2010. 2. Pandey.N (2008),” Bancassurance as a strategic management tool”, Dissertation SMS Management College Varanasi, Page no.51-62 3. Kumar, R (2006) “Bancassur anceOpportunities and Challenges in India”, Bancassur ance: Tr ends and Opportunities, First Edition, Hyderabad, ICFAI publication, 2006, pp-176-178. 4. Anuja Baner jee (Apr il 2009), “Bancassurance: a major para-banking activity”, ICFAI Insurance chronicle magazine.
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