What is Bancassurance?
Bancassurance refers to a combination of bank and insurance. It means selling life insurance products via bank. In bancassurance banks and life insurance companies come together for business partnership. It is beneficial for both parties as the insurance company can use distribution channels of the bank to sell the product and the bank, in return, receive a certain fee from the insurance company. Insurance firms increase their market share and customers without growing their sales force or paying agent and brokerage fees. The bank acts as an intermediary by helping the insurance company meet its target customers in order to expand its market reach.
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History of Bancassurance:
Bancassurance as a term was originated in France in the 1980s. The development of bancassurance can be divided into three stages:
- In the first phase, until 1980, banks were selling guarantees as insurance in the form of extension of business activities. In this phase, the bankers were not selling experience but they acquired experience in this field.
- In the second stage, after 1980, banks started offering services in the field of insurance to their clients. The first sale of life insurance by a bank was made in France. After that unit-linked and investment-linked policies were sold in European countries.
- The third phase began in 1990 in which the banks started selling non-life insurance services along with life insurance policies.
Current Scenario of Bancassurance:
- Digitalization is impacting significantly the bancassurance model and banks are slowly moving their bancassurance business online.
- Digitalization challenges banks and insurance companies to refine bancassurance agreements. They are required to transform the way they serve clients.
Bancassurance Products:
Bancassurance is a structured insurance product of insurance companies which is sold by the bank. Bancassurance products can be life insurance products or non-life insurance products.
Life Insurance Products:
- Term insurance plans
- Endowment plans
- Unit Linked Insurance Plans
Non-Life Insurance Plans/ Products:
- Health insurance
- Marine insurance
- Property insurance
- Key Men insurance
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Advantages of Bancassurance:
For Customers:
- A complete solution and not just a one-off policy: Bancassurance provides many advantages to clients, one of which is convenience, and the bank is a one-stop-shop for all financial requirements.
- Customized product: One of the key benefits of banking insurance is a customized insurance product at a reduced price, along with expert advice.
- Hassle-free transaction and ease of renewals: When the bank interacts with clients, it even manages renewals, making the process even more hassle-free.
- Reduced application and policy processing time: Accessibility of the information in real-time means that the response time is minimized – in the processing of applications and in the management of claims, which is one of the key benefits of bancassurance for customers.
For Banks:
- Diversification of customer portfolio: Banks often have a partnership with their clients, selling them a combination of financial goods, and with Bancassurance, insurance is added to the mix, looking to diversify the portfolio of clients.
- Risk-free and non-interest income: Banks can effectively produce risk-free revenues in the form of insurance carrier fees and with no increase in their operating expenses, they can cross-sell insurance.
- Customer loyalty and retention: The provision of integrated financial services enhances ties between customers and increases customer satisfaction and retention.
- Cost-effective use of existing resources: Banks may use the experience of the insurance firm in educating bank staff and packaging insurance products, which lowers both the insurers and banks’ distribution costs.
For Insurance carriers:
- The high market penetration rate: Banks with lakhs of commercial bank branches have a wide distribution network. Therefore, the key advantage of insurance companies reaps from a banking partnership is penetration.
- Increased turnover of premium: The motive of the insurers to raise premium revenues are also being done through the Banca as a driving force of rising market penetration.
- Customer trust due to existing banking relationships: Banks already have gained trust among their clients, and insurance companies use Bancassurance as their driver to increase their scope and distribution.
- Better Customer Experience: The entire process of origination, processing of applications, risk evaluation, management of funds, distribution, and claims is handled by a bank that ensures that the customer experience is seamless.
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Disadvantages of Bancassurance:
- Compromising on data security: Data management of the identification and contact information of customers can enable the insurance provider to use details to advertise their goods and thereby breach the security of their data.
- Possibility of conflict of interest: There is a risk that there may be a conflict of interest between other banking products and insurance plans that could mislead customers with their investments.
- Risk transfer: The threat that the insurance company’s deposits in bank accounts would create an overflow risks from the banking sector to the insurance sector.
Final Thoughts:
Bancassurance is a good idea of combining both, banks and insurance companies as it is beneficial for both. It is a two-way business because a bank can sell insurance products and also offer their bank products to insurance clients. Consideration should be given to the need for both financial institutions to reach an agreement on certain organizational, financial, and management issues for the conduct of collaborative initiatives.
Author: Hetvi Shah
About the Author: Hetvi is a BBA(Finance) graduate. She is currently pursuing an MBA with Finance specialization. She has a keen interest in Financial Market, Financial Management, and Financial Analysis.
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