Of the various insurance distribution channels, Bancassurance has helped insurance companies immensely to expand their customer base.
The insurance industry in India was opened for private participation in December 1999. This led to the entry of 20 new players, 12 in the life insurance and 8 in the non-life insurance sectors. Since then, due to tough competition, most of the companies have been striving hard to cope with innovative ideas to stay ahead. Their success is quite evident as the markets are flooded with various products comprising of attractive premiums, unit-linked products and various other innovative schemes. To promote the sale of these products, insurance companies were making use of various distribution channels such as direct selling, brokers, corporate agents, cooperative societies and insurance agents. Nevertheless, in a huge country like India, the required level of penetration into the rural areas is much higher than compared to other countries. Also, setting up a distribution network on par with the standards of established players will be expensive both in terms of time and money. So what is the solution? Probably, a distribution channel which can reduce the cost, benefit customers and boost banks' income will help. And the answer is Bancassurance.
Bancassurance is the distribution of insurance products by banks and it depends on the relationship that is established between the bank and the customer over a period of time. The bank network established in India is vast and has expertise about the financial needs, and saving patterns of their customers. Banks with their huge networks and large customer bases provide insurers an opportunity to grow fast, helping them cut their start-up costs. This situation is mutually beneficial to both the banks and the insurance companies. In non-monetary terms, the banks get an opportunity to extend a wide range of products that are available with them to the customer, while the insurers benefit from the wide network and customer database that the bank has built over time. On the other hand, in monetary terms, the banks receive a fee-based income on the policies they sell, while the insurance companies will receive timely-payments. Professor Rahul Singh, Birla Institute of Management Technology, Noida, says, "The reasons for a company to consider a new model like Bancassurance are: To the banks- protection umbrella against NPA, additional cash flow through premium deposits, and potential for getting new customers by offering special deals; to insurance companies-financial gain through bank's database, gaining credibility in customers, introduction of co-branded products, ease of operations, etc." Furthermore, with the introduction of this channel, the insurers are able to fulfill their rural and social obligations as per the norms laid down by the Insurance Regulatory and Development Authority (IRDA). |
