'BANCASSURANCE' as term itself tells us what does it means. It's a combination of the term 'Bank' and 'Insurance'. It means that insurance have started selling there product through banks. It's a new concept to Indian market but it is very widely used in western and developed countries. It is profitable both to Banks and Insurance companies and has a very bright future to be the most develop and efficient means of distribution of Insurance product in very near future. Insurance company can sell both life and non-life policies through banks. The share of premium collected by banks is increasing in a decent manner from the time it was introduce to the Indian market. In India Bancassurance in guide by Insurance Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank of India . All banks and insurance company have to meet particular requirement to get into Bancassurance business.
It is predicted by experts that in future 90% of share of premium will come from Bancassurance business only. Currently there are more and more banking and Insurance Company and venturing into Bancassurance business for better business prospect in future.
The banking business is also generating more profit by more premium collected by them and they also receive commission like normal insurance agent which increase there profits and better reputation for the banks as there service base also increase and are able to provide more service to customers and even more customer are attracted toward bank.
It is even profitable for Insurance Company as they receive more and more sales and higher customer base for the company. And they have to directly deal with an organization which reduce there pressure to deal with each customer face to face. In all Bancassurance has proved to be boom in whole Banking and Insurance arena
What is bank assurance?
Bancassurance is the distribution of insurance products through a bank's distribution channels. It is a service that can fulfill both banking and insurance needs at the same time. Bancassurance as a concept first began in India when the insurance industry opened up to private participation in December 1999. There are basically four models of bancassurance:
- Distribution alliance between the insurance company and the bank.
- Joint venture between the two companies.
- Mergers between a bank and insurer.
- Bank builds or buys own insurance products.
Most of the bancassurance operations fall in the first model.
The concept of bancassurance was evolved in Europe . Europe leads the world in Bancassurance market penetration of banks assurance in new life business in Europe which ranges between 30% in United Kingdom to nearly 70% in France . However, hardly 20% of all United States banks were selling insurance against 70% to 90% in many Western European countries. In Spain , Belgium , Germany and France more than 50% of all new life premiums is generated by banks assurance. In Asia , Singapore , Taiwan and Hong Kong have surged ahead in Bancassurance then that with India and China taking tentative step forward towards it. In Middle East , only Saudi Arabia has made some feeble attempts that even failed to really take off or make any change in the system.
Why should banks enter insurance?
There are several reasons why banks should seriously consider Bancassurance, the most important of which is increased return on assets (ROA). One of the best ways to increase ROA, assuming a constant asset base, is through fee income. Banks that build fee income can cover more of their operating expenses, and one way to build fee income is through the sale of insurance products. Banks that effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios.
By leveraging their strengths and finding ways to overcome their weaknesses, banks could change the face of insurance distribution. Sale of personal line insurance products through banks meets an important set of consumer needs. Most large retail banks engender a great deal of trust in broad segments of consumers, which they can leverage in selling them personal line insurance products. In addition, a bank's branch network allows the face to face contact that is so important in the sale of personal insurance.
Another advantage banks have over traditional insurance distributors is the lower cost per sales lead made possible by their sizable , loyal customer base. Banks also enjoy significant brand awareness within their geographic regions, again providing for a lower per-lead cost when advertising through print, radio and/or television. Banks that make the most of these advantages are able to penetrate their customer base and markets for above-average market share.
Other bank strengths are their marketing and processing capabilities. Banks have extensive experience in marketing to both existing customers (for retention and cross selling) and non-customers (for acquisition and awareness). They also have access to multiple communications channels, such as statement inserts, direct mail, ATMs, telemarketing, etc. Banks' proficiency in using technology has resulted in improvements in transaction processing and customer service.By successfully mining their customer databases, leveraging their reputation and 'distribution systems' (branch, phone, and mail) to make appointments, and utilizing 'sales techniques' and products tailored to the middle market, European banks have more than doubled the conversion rates of insurance leads into sales and have increased sales productivity to a ratio which is more than enough to make Bancassurance a highly profitable proposition
Banking on Bancassurance
Though much ado was made about bancassurance, an alternate channel to hawk risk products through banks, the channel is yet to pick up pace as of today. Most of the insurance companies have already tied up with banks to explore the potential of the channel that has been a success story in Europe and legislations are also in place. For insurance companies and banks the convergence brings about benefits for both but then what's stopping it from taking off in a big way?
Bancassurance primarily banks on the relationship the customer has developed over a period of time with the bank. And pushing risk products through banks is a cost-effective affair for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost is more than welcome.
SBI Life Insurance Company a predominant player in bancassurance is positive about the channel bringing about a transformation in the way insurance has been sold so far. The company is ba RBI guideline for banks entering into insurance sector provides three options for banks. They are: nking heavily on bancasurance and plans to explore the potential of State Bank of India's 9000 plus branches spread across the country and also its 4000 plus associate banks - one of the reasons why SBI Life Insurance is not laying much emphasis on increasing its agent force from the present 3000.
Lodin, Sven-Olof; Lindencrona, Gustaf; Melz, Peter; Silfverberg, Christer, Inkomstskatt – en läro- och handbok i skatterätt. Part 2, Studentlitteratur, 10nd ed., Lund, 2005
Norberg, Claes, Har kopplingen mellan redovisning och beskattning förstärkts? from Festskrift till Gustav Lindencrona