As per the memorandum of Understanding, SBI will become the corporate Agent of New India after completing the formalities prescribed by IRDA. First, banks have a huge network across the country. In the last financial year, India has experienced a substantial growth in the life insurance business. Insurance company can sell both life and non-life policies through banks. They are generally considered to be independent contractors. Here you can order a professional work. An agency may be a corporation, partnership or sole proprietorship. In fact, all these characteristics combined can explain the marked differences in bancassurance across the globe. variable annuity product. This is not an example of the work written by professional academic writers. Besides regulatory authorities for both – banks and insurance companies are different. The financial advisers either sell in the branch but some banks have also established mobile sales forces. The share of premium collected by them has increased in constant and decent manner. In banking terminology if any bank sell insurance then that type of insurance is known as Bankassurance. It helps to change the traditional mindset of banking companies. Selling personal-lines insurance company products such as auto and homeowner's will be far more difficult and expensive. In India Bancassurance in guide by Insurance Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and insurance company have to meet particular requirement to get into Bancassurance business. The only way in which banks can be associated with the insurance business in India is by becoming a corporate agent, for remuneration.bankc a ndo so for a particular life The insurer and/or particulars non insurer. Estimating the potential of the Indian insurance market from the perspective of macro-economic variables such as the ratio of premium to GDP, Assocham Papers reveals that India’s life insurance premium, as a percentage of GDP is 1.8% against 5.2% in the US, 6.5% in the UK or 8% in South Korea. However, this high growth rate is not specifically due to bancassurance, rather the whole of the life insurance market, which has sustained a 30% increase per annum on average in the past fifteen years. LIC chairman S B Mathur said things were really happening with the opening up of the insurance sector, and achieving and retaining customers was high on the agenda. The changed legislative climate across the world should help migration of bancassurance in this direction. It is well known in the financial services industry that customers who sign up for multiple products and services are typically more loyal and, therefore, can bring organizations more revenue in the long run. Direct marketing and more recent innovation such as internet marketing constitute only a minor fraction of the total distribution effort. Adds Shivaji Dam,’ Our focus will not be the affluent class but the middle class’ But in case of SBI Life there is no such emphasis on a segment of the population perhaps considering the wide reach its bank branches have even in the remotest corners of the country. TPP becomes attractive when the cost of acquiring clients, selling products and completing the transaction is low. Functions requiring user input (check ordering, what-if calculations, credit and account applications) should be immediately. State Bank of India, HDFC, ICICI and Vysya Bank are example. Table. ‘Out of our present business of around Rs 150-200 crore bancassurance has brought in 50 percent while corporate agency and the agent channel have contributed about 10 percent and 40 percent respectively’, says Pradeep Pandey, Head, PR, SBI Life Insurance Company. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels; build consumer awareness and confidence. Banking institutions and insurance companies have found bancassurance to be an attractive and profitable complement to their existing activities. Banks are well advised to make their new websites as interactive as possible, providing more than mere standard bank data and current rates. The new business premium growth rate for the financial year 2004-05 over the previous financial year is 36%. • Quicker Geographical reach. The platform banker may be a teller or a personal loan assistant and the representative being referred to may be a tarined bank employee or a representative from the partner insurance company. Europe is a major contributor to the growing global Bancassurance market due to increasing investment from European banks. People is India have more faith in banks than insurance agents. insurance business in India), 2 refers Bancassurance as “banks acting as Corporate Agents for insurers to distribute insurance products”. If you want to buy an existing business you have to pay some extra money to recognise the work done by the previews owners, the existing costumer base and the reputation of the business. While sale of insurance comes at a lower cost through this channel in comparison to the agency route and the insurance company gains much through the large bank network spread across the country the potential can be impeded if bank officials do not actively generate leads. Bancassurance is a partnership between a bank and an insurance company, whereby the insurance company is allowed to sell its products to the bank's clients. The commitment of senior management is crucial to the success of the persons deputed for the insurance work. There are about 200 Million households waiting to be approached for a householder’s insurance policy. You must cite our web site as your source. Investopedia uses cookies to provide you with a great user experience. For New India, the tie up with SBI will enable it to tap into SBI’s huge network and customer base. Our other strength lies in a huge pool of skilled professionals whether it is banks or insurance companies who may be easily relocated for any Bancassurance venture. Also it is yet to be seen how far buying shelf space in a bank helps push sale of insurance. Selling insurance through traditional methods in these sectors falls very expensive. it can not be tailor made to the requirements of the customer. Mergers between a bank and insurer. A late awakening seems to have dawned upon but it is a case of too late and too little. Opportunities, Banks’ database is enormous even though the goodwill may not be the same as in case of their European counterparts. However, hardly 20% of all United States banks were selling insurance against 70% to 90% in many Western European countries. • Revenue diversification • More Profitable resources utilization. Banks that make the most of these advantages are able to penetrate their customer base and markets for above-average market share. Second, banks can offer fee-based income for the employees for insurance sales. This can take the form of merger or acquisition or setting up a joint venture or. Similarly, SBI Credit Cards are also sold through SBI’s branch network. Personal selling is a face-to-face sales presentation to a prospective customer. You can also compare the coverage offered by other insurance products, such as term life and health insurance. “Our endeavour is not only for selling products, but to go for a strategic alliance with LIC,” UCO Bank chairman and managing director V P Shetty said after signing the MoU in Kolkata. Banks can straightaway leverage their existing capabilities in terms of database and face to face contact to market insurance products to generate some income for themselves which hitherto was not thought of. Adding this technique to his/her lead generation repertoire, an insurance counselor often cannot help but be successful. The world consumption of soluble ... Nescafe. You owe more over time. The Advantages and Disadvantages of Bancassurance. Progress has definitely been made as can be seen by the number of advanced products flooding the market today – products with attractive premiums, unitized products, unit-linked products and innovative riders. It cannot do both: Therefore, the banks in India cannot have the advantages, which are available in the European context. The IT culture is unfortunately missing completely in all of the future collaborators i.e. Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products. They also act as brokers or agents for the customers, but not take responsibility for risks and assets. 108 The Importance of Personal Selling . But the 1916 National Bank Act limited banks’ sale of insurance, except in small towns. In fact, even a company registered, insurer has to choose an as between life and non-life business. They are: Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation; For banks which are not eligible for this joint-venture option, an investment option of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is available; Finally, any commercial bank will be allowed to undertake insurance business as agent of insurance companies. But this has proven to be a boom for the Insurance and Banking companies together and both the different sector of the industry has shown better result and improvement in their own field due coming of the whole new concept of BANCASSURANCE. Let’s talk about what cross-selling is, in the simplest of terms. Currently banks are not just lending organizations but are emerging as more diverse financial institutions. Nonetheless, bancassurance will surely form an important component of the Asian insurance landscape. This type of distribution is predominant in markets such as France, Spain and Portugal, followed by Italy and Belgium. Bancassurers make use of various distribution channels: -Career Agents -Special Advisers -Salaried Agents -Bank Employees / Platform Banking -Corporate Agencies and Brokerage Firms -Direct Response -Internet -e-Brokerage -Outside Lead Generating Techniques. When establishing cross-selling strategies, banks must remember that the ultimate goal is improving the bottom line. Although it is clearly a predominant feature on some markets, representing over two thirds of the premium income in Life Insurance, other markets do not appear to have chosen it as their model. Benefits and value proposition in bancassurance. • Possibility that the insurer’s account as well as the accounts from the claimants will remain with the bank. This means that there’s no additional cost of operation in selling insurance. These factors are contributing to the growth of bancassurance across the world. Talking of retail clients the lower end and middle-income group customers constitute a major chunk who have over a period of time built a good rapport with the bank staff and thus hold big potential for bancassurance. Cross selling opportunities should help a customer solve a problem. Like most of the advice on this page, building relationships is the key ingredient in your agency marketing strategy and this will be a fantastic way to do so. Compare insurance coverage and cost with the coverage you may have through an individual plan or your employer in case of death, critical illness, disability, or job loss. There are five key approaches to forming insurance partnerships that form a continuum from complete outsourcing to complete ownership: list rental, working with a third party marketer, agency purchase, integrated alliance, and ownership. An effective and successful specified person might perhaps find it more remunerative to branch off as an insurance agent on his own, instead of being tied to the bank. • Leverage service synergies with Bank. Two Asian markets of great interest for their potential size are China and India. The bank benefits from improved customer satisfaction and additional revenues from sales of insurance products. The Volcker Rule separates investment banking, private equity and proprietary trading sections of financial institutions from lending counterparts. In the US, the banks were earlier not allowed to sell insurance due to the restrictions imposed by Glass-Stegall Act of 1933, which acted as a Chinese wall between banking and insurance. “All bank customers have insurance needs,” notes Daily, echoing Jennifer Glendale’s point, “and all insurance agency customers have banking needs. Since interest rates have been falling and profit on offtake of credit has been low all banks have been able to do is sustain themselves but not profit much. And will products sold through bancassurance be any different? Benefits of Cross-Selling and Up-Selling for banks and Non bank financial institutions. However, they don't always face the same risks and are regulated by different authorities. Banks are seeking ways to raise additional earnings without commitment of additional capital in a low interest rate environment; increased competition; reducing margin. If the progress in insurance is not important criterion, the support to the insurance activities may be reduced. Over the years, regulatory barriers between banking and insurance have diminished and has created a climate increasingly friendly to bancassurance. By using Investopedia, you accept our. The company plans to appoint Certified Insurance Facilitators (CIFs) in a phased manner at its branches. For insurance companies and banks the convergence brings about benefits for both but then what’s stopping it from taking off in a big way? only episodic rather than on 24/7 basis as typically provided by traditional insurers (e.g. ICICI Bank provides a variety of banking products for all its customers. The agent can play a major role in creating awareness, motivating purchase and rendering insurance services. SBI Life Insurance Company a predominant player in bancassurance is positive about the channel bringing about a transformation in the way insurance has been sold so far. Although bancassurance ventures in Latin America and Asia have followed different paths, they share the same objectives and requirements for success. Internet: Internet banking is already securely established as an effective and profitable basis for conducting banking operations. The bank is a one-stop-shop for all financial needs. Product in the marketing mix of ICICI bank. Use of Customer Relation Management Tools and Techniques. The main characteristics of each of these channels are: Career Agents: Career Agents are full-time commissioned sales personnel holding an agency contract. A tie up with a bank with an appropriate customer base can give an insurer a cheap access to these areas. 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. also need to be given tax exemption to further the cause of insurance and to increase domestic revenue for the country. Let’s look at the major advantages of bancassurance for customers in the infographic below. Through tie-ups some insurers plan to buy shelf space in banks and sell insurance to those who volunteer to purchase them. While it is true that banks have access to many customers, they have not done a great job of selling protection life insurance. Today, it represents over 65% of life insurance premium income compared with 43% in 1992. This would help the bancassurance alliances make the offering more appealing to the end users: Following are the above-listed advantages of bancassurance for customers, explained: According to insurance experts, allowing banks to be insurance broker not only means more options for customers but also better products offerings. This is because penetration is already good and companies receive good services. India opened to private competition only two years ago, and so far 12 life insurers have entered to compete with the Life Insurance Corporation of India. The consumer purchases products directly from the bancassurer by responding to the company’s advertisement, mailing or telephone offers. Our work force at every level are so well entrenched in their classical way of working that there is a definite threat of resistance to any change that Bancassurance may set in. In Asia, Singapore, Taiwan and Hong Kong have surged ahead in Bancassurance then that with India and China taking tentative step forward towards it. A number of insurers have already tied up with banks and some banks have already flagged off bancassurance through soft launches of select risk products. Sales jobs range from salesclerks at clothing stores to engineers with MBAs who design large, complex systems for manufacturers. Published on August 31, 2015 August 31, 2015 • 54 Likes • 17 Comments For New India a tie up with SBI, the country’s largest bank with a 9000 strong branch network is a major boost. Should We Bring Back the Glass-Steagall Act? A rush of joint ventures took place between banks and insurance companies and all these failed due to the non-response from the target customers. Therefore, over time, we will see other factors that have played important roles in other countries will also play out in India. Though much ado was made about bancassurance, an alternate channel to hawk risk products through banks, the channel is yet to pick up pace as of today. Banks’ proficiency in using technology has resulted in improvements in transaction processing and customer service. The insurance firm's annuity arm, New York Life Insurance and Annuity Corp., has contracted with the investment marketing firm Bankmark to sell the annuity, dubbed LifeStages. while selling the insurance or MF-SIP product many times under pressured employee miss-sale it. The banking business is also generating more profit by more premium collected by them and they also receive commission like normal insurance agent which increase there profits and better reputation for the banks as there service base also increase and are able to provide more service to customers and even more customer are attracted toward bank. Although their insurance markets are relatively young, bancassurance is now emerging in both countries. Bancassurance primarily banks on the relationship the customer has developed over a period of time with the bank. 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