Introduction

With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. New entrants in the insurance sector had no difficulty in matching their products with the customers' needs and offering them at a price acceptable to the customer.

But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Further insurable population of over 1 billion spread all over the country has made the traditional channels of the insurance companies costlier. Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices.

With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. This union of the two sectors is what is known as Bancassurance.

What is Bancassurance?

Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, Bancassurance, tries to exploit synergies between both the insurance companies and banks.

Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the customer.

Advantages to banks

• Productivity of the employees increases.
• By providing customers with both the services under one roof, they can improve overall customer satisfaction resulting in higher customer retention levels.
• Increase in return on assets by building fee income through the sale of insurance products.
• Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products.
• Banks can cross sell insurance products Eg: Term insurance products with loans.

Advantages to insurers

• Insurers can exploit the banks' wide network of branches for distribution of products. The penetration of banks' branches into the rural areas can be utilized to sell products in those areas.
• Customer database like customers' financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly.
• Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily.

Advantages to consumers

• Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.
• Enhanced convenience on the part of the insured
• Easy access for claims, as banks are a regular go.
• Innovative and better product ranges








Issues to be tackled

Given the roles and diverse skills brought by the banks and insurers to a Bancassurance tie up, it is expected that road to a successful alliance would not be an easy task. Some of the issues that are to be addressed are:

1. The tie-ups need to develop innovative products and services rather than depend on the traditional methods. The kinds of products the banks would be allowed to sell are another major issue. For instance, a complex unit-linked life insurance product is better sold through brokers or agents, while a standard term product or simple products like auto insurance, home loan and accident insurance cover can be handled by bank branches
2. There needs to be clarity on the operational activities of the bancassurance i.e., who will do the branding, will the insurance company prefer to place a person at the bank branch, or will the bank branch train and put up one of its own people, remuneration of these people.
3. Even though the banks are in personal contact with their clients, a high degree of pro-active marketing and skill is required to sell the insurance products. This can be addressed through proper training.
4. There are hazards of direct competition to conventional banking products. Bank personnel may become resistant to sell insurance products since they might think they would become redundant if savings were diverted from banks to their insurance subsidiaries.


Conclusion

With huge untapped market, insurance sector is likely to witness a lot of activity - be it product innovation or distribution channel mix. Bancassurance, the emerging distribution channel for the insurers, will have a large impact on Indian financial services industry. Traditional methods of distributing financial services would be challenged and innovative, customized products would emerge.

Banks will bring in customer database, leverage their name recognition and reputation at both local and regional levels, make use of the personal contact with their clients, which a new entrant cannot, as they are new to the industry.

In customer point of view, a plethora of products would be available to him. More customized products would come into existence and that too all within a hands reach.

Finally Success of the bancassurance would mostly depend on how well insurers and banks understand each other's businesses and seize the opportunities presented, weeding out differences that are likely to crop up.