Bancassurance

BANCASSURANCE

Contents:

• Bancassurance – Introduction
• History-Insurance companies of India
• Types of Insurance – Life and Non life
• Functions of Insurance
• Bancassurance – Definition
• Origin of Bancassurance
• Global Scenario
• Indian Scenario
• Types of Bancassurance
• Bancassurnace Growth Phenomenon
• Bancassurance – SWOT Analysis
• Bancassurance regulations in India
• Bancassurance models
• Bancassurance utilities
• Bancassurance tie ups
• Conclusion

Banacassurance – Introduction:

Banacassurance is a term which describes mutual relationship between insurance companies and bank and it is well known as bank insurance model (BIM).The insurance company aims to sell insurance related products with the help of bank sales channel by making agreement between bank and insurance company in order to get mutually benefitted. This would allow insurance company to sell their products to customer base of the bank.

The term Bancassurance is a combination of two words, Bank and Insurance. The term insurance (in French) represents the supply of insurance products with the help of banking channels and Bancassurance refers to “Allfinanz” in German language which describes the services are integrated and banking services are assured (‘Integrated Financial Services’ and ‘Assure banking’). The main objective is to gain profits in the form of currency and to search for distribution channels.

Insurance companies distributed their products using banks as channels considering terms of penetration, geoographical aspects and customers interest. The concept benefitted banking sector and earned huge profits. India has nearly 65000 branches of banks and majority of insurance companies considered as potential backbone in the financial market. Nearly 75 bank branches were established for million inhabitants, this clearly represents the state and private owned insurance companies will find impossible to achieve without any support. The bancassurance concept considered as most economical solution for insurance companies to sell their products through bank distribution channels and it benefitted banks, insurance companies and customers.

The insurance companies considered banks as most proficient and efficient way to meet the customer requirements by serving their financial needs and life saving patterns. Since distribution costs of banks are much lower than insurance companies and this concept would help banks to rise as fastest distribution channel. This would in turn benefit banks and insurance companies and help to get access to customers all over the country. The implementation of this concept all over the world would definitely opens new challenges and gain opportunities.

The motive of bancassurance concept is banking sectors should play effective role in providing quality banking services in order to gain profits which is considered as source for extra income. On the other hand insurance companies in order to reach customers and increase turn over targets banks as distribution channels and serve customers by delivering products and get benefitted. This ensures both banks and insurance companies get benefitted by serving quality products to the customers.

Bancassurance will allow insurance companies to sell their products through banks by using bank staff by giving training about product information, marketing strategies and training for sales people. The commission obtained will be shared by banks and insurance companies by following policy rules and regulations. This would allow insurance companies to further expand their products without seeking help from brokers or agents.

The term insurance refers to establishment by eliminating risk and it is replaced by certainity.It is considered as agreement made by insurer and insurance company to define legal and financial aspects. Insurance is considered as social device in financial terms which represents risk is transferred from one to other party to facilitate loss attained earlier. This would allow performing statistical prediction with regarding to losses obtained and payment through contributed funds. Insurance is referred to as contract in legal terms which means contract is paid to one party after considering price and ensure security that party will not suffer from damage because of occurrence of events.

Bancassurance considered as most efficient concept which allows using banks as distribution channels and it is followed in Asia, Europe and Latin America. The concept is totally different from traditional model which generally deals insurance sales by engaging agents or brokers and Hybrid insurance model which hires people for insurance sales and agents will make a deal with banks.Bancassurance is considered as legal way of selling products and it benefits banks and insurance companies and it is followed in developed countries like Spain, Austria and France.

The bankassurance concept was banned in some countries till recently and it is now legalized after Glass-Steagall act was repealed, however the revenue turnover is flat in recent years after legalization in some countries like United States.

China is another country which accepted the concept of bankassurance and stimulated the concept. Global insurers in the country believed that bankassurance would provide a gateway to sell their products and could earn them huge profits and this also further expands sales in market. Lombard international started wealth management process by application of bankassurance concept which is private and made the service can be used internationally. This would allow private banks and insurance companies to work together and sell insurance related products and benefits from financial structure that is planned and give security for families and also investors. Banks will serve as financial agents for insurance companies in order to sell products and policies and in turn both banks and insurance companies get benefitted.

History-Insurance companies of India

The insurance companies in India came into existence in 1818 with the influence of British company, oriental life insurance corporation. Since 1818 nearly thousands of insurance companies were established and competition existed in the market because of increase in number of insurance companies and this led to nationalization of companies for certain period of time and later again market is opened.

The bankassurance concept attracted insurance companies and made a way to earn huge income by generating their business by selling through bank distribution channels. In 1871, society named Bombay mutual life assurance started operations to sell insurance related products and policies and it is first insurance company to be established and introduce bankassurance concept in India with the help of banks for selling insurance related products. The insurance companies present in India together constitutes 154 insurers which are domestic based, life insurers from foreign nations and provident funds accounts upto 75 as per statistics during the year 1956.The 1938 insurance act is first legislation related leading act which provides information regarding control of insurance related business and other insurance related forms and policies.

Life insurance companies became nationalized in the year 1956.Before this, Mercantile insurance organization became first insurer and started their operations. In the year 1919,New India Assurance limited got incorporated and during the year 1972,business related with non life insurance products became nationalized and four subsidiaries were introduced along with formation of General insurance corporation of India(GIC).The four subsidiaries include-National insurance, Oriental insurance, New India assurance company limited an United India insurance.

Currently there are nearly 24 general insurance companies in India which includes Export Credit Guarantee Insurance Companies (ECGIC) and Agriculture Insurance Company of India (AICI).In addition to this there are life insurance companies which are operated and are 23 in number currently in the country. Currently insurance companies are growing rapidly in the country which increases to 15 to 20 percent along with banking sector. The insurance related services will add further 7 percent to the country’s total Gross domestic product. It is considered as boon for economic growth in the country and it can be used as source for long term funds for infrastructure and development works.

Insurance types:

Insurance in general is divided into two categories .They include-

1. Life insurance
2. Non life insurance or General insurance

1. Life insurance:

The boon for life insurance came into existence with the help of source from England. Life insurance corporation of India was first established in 1956.There are wide variety of policies which are subjected to long term and many years to take care of life insurance related business. The policies which are adopted will cover death risks which are caused due to natural calamities. A premium level is required to be paid by the insurer through the entire policy period as per terms and conditions and even during death risks or age increased the premium needs to be paid by the insurer. There are different types of policies available and insurer will be awarded considering age and time period before signing a policy with the company. The insurer required to pay premium quarterly, half yearly, monthly or annually or by doing single payment either at the beginning or the end.