Bancassurance: An Overview

Bancassurance is a term used to describe the sale of insurance policies through banking institutions. It involves a partnership between a bank and an insurance company, where the bank offers insurance products and services to its customers. The word “Bancassurance” is derived from the merger of “Banks” (Ban) and “Assurance” or “Insurance” (Assurance).

Origin of Bancassurance:

The concept of Bancassurance originated in France and was later adopted in India in 2000. Traditionally, insurance products were marketed and sold through individual agents, who were responsible for generating business in the retail segment.

Bancassurance Process:

With Bancassurance, the point of sale and contact for customers shifts from individual agents to bank staff and tellers. Bank employees are trained and supported by the insurance company through product information, marketing campaigns, and sales training. This enables them to effectively reach out to the bank’s customers and offer insurance products.

Benefits of Bancassurance:

1. Convenience: Customers can conveniently purchase insurance policies from their trusted bank, eliminating the need to approach separate insurance agents.
2. Expertise: Bank staff receives specialized training from the insurance company, ensuring that customers receive accurate information and guidance on insurance products.
3. Trust: Customers often have a higher level of trust in their bank compared to individual insurance agents, which can influence their decision to purchase insurance through Bancassurance.
4. Commission Sharing: While the insurance policies are processed and administered by the insurance company, both the bank and the insurance company share the commission generated from sales.

Bancassurance in India:

The Insurance Regulatory and Development Authority (IRDA) regulates the registration of insurance companies in India. The government of India has permitted banks to engage in insurance business under Section 6 (1) (o) of the Banking Regulation Act, 1949. However, banks must obtain prior approval from the Reserve Bank of India (RBI) before undertaking such business.

Bancassurance has become an important distribution channel for insurance products in India, offering convenience, expertise, and trust to customers. It has also enabled banks to diversify their product offerings and generate additional revenue streams. Understanding Bancassurance is crucial for candidates preparing for competitive exams such as IBPS PO, RBI, SBI, and others, as it is a frequently tested topic in Banking Awareness sections.

Bancassurance Models

Distribution Agreement

• The most common bancassurance model in India.
• The insurer leverages the bank’s infrastructure and provides fee income for banks.
• Low integration of product management and distribution channels.
• Example: Indian Overseas Bank distributes LIC of India Ltd. policies.

Strategic Alliance

• The insurer leverages the bank’s infrastructure and provides fee income for banks.
• Sharing of customer database with the insurance company.
• Low integration of product and distribution channel management.
• Example: HDFC Bank works with HDFC Life Insurance Company and HDFC ERGO general insurance company.

Joint Venture

• The bank is responsible for both product and distribution design.
• Joint decision-making and high system integration for infrastructure utilization.
• Example: India First Life Insurance Co. Ltd. is a joint venture among Bank of Baroda (44%), Andhra Bank (30%), and the UK’s financial and investment company called ‘Legal and General’ (26%).

Financial Services Group

• A one-stop shop for all financial products and services.

Mixed Models

• Marketing is conducted by the insurer’s staff, and the bank is responsible only for generating leads.
• The bank’s database is handed over to the insurance company.
• Requires very little technical investment.

Regulations for Banks to Enter into the Insurance Business

To Customers

• One-stop service: Bancassurance aims to provide customers with a convenient and comprehensive range of financial services under one roof, including insurance products.

• Builds trust: Customers can trust that they are receiving professional advice and guidance from trained staff when purchasing insurance products through their bank.

• Simple claims process: Making claims is straightforward and hassle-free, as customers can directly contact their bank for assistance.

• Easy premium payments: Customers can conveniently link their insurance premium payments to their bank accounts, ensuring timely and effortless payments.

• Access to various products: Banks offer a wide array of insurance products, allowing customers to choose the coverage that best suits their needs.

• Assured services and advice: Customers receive expert advice and guidance from trained bank staff, ensuring they make informed financial decisions.

Disadvantages of Bancassurance

• Data security concerns: There is a risk that customers’ personal and financial data may be compromised by banks or insurance companies.

• Conflict of interest: Customers may face confusion or challenges in deciding where to invest in case of a conflict of interest between bank products and insurance policies.

• Customer service concerns: Some banks in India have a reputation for poor customer service, which may extend to their bancassurance offerings.

Bancassurance FAQs

What is Bancassurance?

Bancassurance is the collaboration between banks and insurance companies to offer insurance products through banks.

Which parties are involved in bancassurance?

The parties involved in bancassurance include the bank, the insurance company, and the customers.

What are the bancassurance services?

Bancassurance services include life insurance and non-life insurance products offered by insurance companies through banks.

Which regulatory bodies regulate bancassurance in India?

The Reserve Bank of India (RBI) and the Insurance Regulatory Development Authority (IRDAI) are responsible for regulating bancassurance in India.