Introduction to Bancassurance
What is Bancassurance? Bancassurance is the marketing of insurance products by Banks. Banks, apart from their regular products of deposits, advances, investments etc., are also engaged in selling insurance products, both life and non life, in order to increase their fee based income, and to leverage their inherent advantages as well established financial supermarkets.
The Benefits of Bancassurance:
- Banks enjoy several advantages compared to insurance companies that make them ideal vehicles to carry the message of insurance to the masses, across a wide cross section of society, and in the process increase their business and improve their bottomline. By marketing a whole range of insurance products in the life and non life sectors, Banks, not only spread awareness of these products and facilities among the people, but also make a handsome amount of money by extending this service.
- It is felt that Banks have a more personal relationship with the public and a better understanding of their financial needs. Hence people are more responsive to their Banker’s advice.
- Bank personnel are familiar and comfortable with financial language and terminology, and so can easily learn the subject of insurance, in order to sell these products. Further they are good at number crunching and making a sales pitch that gives them a distinct advantage.
- Banking and Insurance products can often be combined to offer a better product mix to the consumer, in order to leverage the benefits of both the products and services.
- The provision of insurance products through the banking channel enables the insurance companies to depend less upon the agents to sell their products. It costs the insurance companies a lot to select, train, motivate, and remunerate the insurance agents to push their products.
- It is mutually beneficial for the Banks and the Insurance companies, when Banks cross-sell insurance products, as both of them can leverage each others’ products and services.
- Banks get an additional source of income from commissions and fees from their insurance business. Especially the excessive competition for interest based products has affected the bottomline of the Banks who are trying to build up alternative sources of income, through provision of non banking products and services.
- Banks cater to both categories of customers- the classes and the masses. Insurers can take advantage of this by pushing relevant products through these distribution channels. Simple products for the masses, and more sophisticated ones for the classes.
The Flip side of Bancassurance:
- Bancassurance is not rosy all the way for both Bankers as well as insurers. There are several issues that both of them are concerned about.
- One of the most important issues and indeed the fear of Bankers is losing business to the Insurers, in relation to similar products. For instance, a basic banking product like a fixed deposit may be placed at a disadvantage compared to a money market related insurance product that offers both growth as well as insurance cover.
- Insurers have their own perceptions of Bankers as their marketers and feel that often Bankers do not do enough to push their products.
- Banks feel that insurers gain more from Bancassurance, as they do not incur expenditure on infrastructure, manpower, etc., whereas, the returns accruing to Banks from this business are not worth the trouble taken by them.
- When Banks are trying to cut costs by providing more and more services offsite, it is felt that servicing insurance clients onsite (by Banks), may not be practicable, as it only adds to their costs.
- Banks also stand the risk of facing the wrath of the customers for poor follow up service, like claim settlement, etc., on part of the insurers.
- Bankers may not appreciate certain finer points of insurance products they sell, and consequently face administrative and legal hassles from the customers.
These are some of the issues related to Bancassurance from the angle of both the Bankers and the Insurers. The success of this service depends upon how well the concerned parties, I.e. Bankers and Insurers sort out their problems mutually, and get ahead with the business of making money, without cutting into each others’ cake.
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