Advantages and Disadvantages of Bancassurance - Banking terms for Exams

What Is Bancassurance?

Bancassurance simply means selling of insurance products by banks. Bancassurance is used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.  

In this arrangement, insurance companies and banks undergo a tie-up, thereby allowing banks to sell the insurance products to its customers. By selling insurance policies bank earns a revenue stream apart from interest. It is called as fee-based income. This income is purely risk-free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company. Insurers see it as a tool to increase penetration and market share and bankers use it to augment their fee income and to smoothen the volatility of interest income. Bancassurance is a package of banking and insurance services under one roof.The introduction of Bancassurance has broadened the scope of retail banking.

Advantages of Bancassurance

Advantange for the banks

• Revenue diversification
• Satisfaction of more financial needs under the same roof.
• Customer retention-Increase in customer loyalty
• More profitable resources utilization
• Enriched customer environment
• Establish sales oriented culture
• Advantage for the insurance companies
• Revenue and channel diversification
• Quality customer access
• Increase in volume and profit
• Improved brand equity
• The insurance company can establish itself more quickly in a new market ,using a local existing bank channel.

Advantage for the consumers

• Enhanced conviniency
• One stop shop for all financial needs
• Innovative and better products range
• More credible solutions

Disadvantages of bancassurance

• Data management of an individual customer’s identity and contact details may result in the insurance company utilizing the details to market their products, thus compromising on data security.
• There is a possibility of the conflict of interest between the other products of bank and insurance policies (like money back policy). This could confuse the customer regarding where he has to invest.
• Better approach and services provided by banks to the customer is a hope rather than a fact. This is because many banks in India are known for their bad customer service and this fact turns worse when they are responsible to sell insurance products. Work nature to market insurance products requires submissive attitude, which is a point that has to be worked on by many banks in India. 

Bancassurance companies in India

• SBI life insurance Company
• LIC is tied up with Vijaya bank, Oriental bank of commerce, Corporation bank
• ICICI Lombard
• Barclays – MetLife India
• Axis bank – MetLife India
• Aviva Life
• Kotak Mahindra
• ICICI Pru - ICICI Pru Life Insurance has tied up with 18 banks
• HDFC Standard Life - HDFC Bank, Indian Bank and Bank of Baroda and many co-operative banks
• Birla Sun Life - The first bancassurance policy in India was sold by Birla Sun.

Various Models for Bancassurance

Various models are used by banks for bancassurance.  

(a)  Strategic Alliance Model: Under this Model, there is a tie-up between a bank and an insurance company. The bank only markets the products of the insurance company. Except for marketing the products, no other insurance functions are carried out by the bank. 

(b) Full Integration Model: This model entails a full integration of banking and insurance services. The bank sells the insurance products under its brand acting as a provider of financial solutions matching customer needs. Bank controls sales and insurer service levels including approach to claims. Under such an arrangement the Bank has an additional core activity almost similar to that of an insurance company.

(c) Mixed Models: Under this Model, the marketing is done by the insurer's staff and the bank is responsible for generating leads only. In other words, the database of the bank is sold to the insurance company. The approach requires very little technical investment.