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Home / Important Guide / Bancassurance

Bancassurance: Will it work?

Presently, there’s more activity here than anywhere else. And every one wants to jump onto the bandwagon for a piece of the action cake. The insurance industry has finally woken up from its long slumber to an altogether new awakening. It is the rise of a new dawn that has brought with it opportunities galore. From innumerable insurers, to affordable and quality covers for the consumer, from increase in distribution channels to incorporating information technology measures, from net selling to bringing about increased transparency - its all there.

The ubiquitous agent is no more the only distribution channel today for insurance products. Increase in distribution channels has among others also seen the concept of Bancassurance taking roots in India, and it is emerging to be a viable solution to mass selling of insurance products. A popular concept in the west, Bancassurance put in simple terms means selling insurance products through banks.

Wide network of branches:

Banks can prove to be a vital distribution channel due to their existing wide network of branches all over. The Insurance Regulatory Development Authority (IRDA) has permitted banks to venture into marketing insurance products on a risk participation basis. The regulator, to ensure that only the serious ones with the financial muscle enter into selling of insurance products has laid down certain prerequisites. Banks need to possess at least 500 crores of net worth and capital adequacy of a minimum of 10 per cent to make an entry.

Corporate clients: 

Banks can utilise their existing clientele, which includes corporate as also retail clients to market insurance products. Depending on the relationship with its clients it would become easier to influence the insurance purchase decisions of its clients. Customers too, having banked with a particular bank for a long period repose a sense of trust and faith in the bank.

Customer database:

Customer database - raw information on the customers spending habits, investment purchase can prove to be a goldmine. Such information channelised in the right manner can help work out marketing strategies and arrive at result-oriented decisions targeting prospects.

Personalised Service: 

Since banks have direct contacts with customers, the service area can be tackled easily. Customers, other than their day-to-day financial requirements can also get assistance for premium payment, surrender, transfer of policies and many more.

Rural penetration:

The existing wide network of banks in rural areas can be utilised for selling insurance products. Penetration into the rural areas too becomes easier for banks. Having been accustomed to the customers choices banks are in a better position to understand the needs of the customers and sell tailor made policies. Customers too, considering their long-standing relationship with banks, find them more trustworthy. Servicing of policies would also become easier.

Cross selling products:

Banks in their normal course of functions lend finance in the form of loans for cars, or for buying a house to clients. They can combine insurance products and sell as a package. In the current scenario banks can cross sell their products along with the insurance products.

Fee based service: 

Insurance products can be sold as a fee based service. In an age where banks are trying to venture into selling mutual funds and other financial products besides stock broking etc, selling insurance products could also give an additional boost to the banks bottomline.

Cheaper than agents:

Bancassurance, may work out to be cheaper compared to companies appointing agents for selling insurance products. This is particularly considering the banks’ wide network and the reach they have compared to the agents’.

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