Bancassurance as a “Win-Win-Win” Model
Context:
Bancassurance is advantageous for banks, insurance companies, and customers. Banks earn commissions by selling insurance products, insurers gain access to a wider customer base, and customers (especially the uninsured population) get insurance coverage.
Relevance:
GS-03 (Economy)
What is Bancassurance?
- Bancassurance refers to the agreement between a bank and an insurance company through which the bank sells the insurance product of the concerned insurance company to its customers.
- This is an arrangement through which both the bank and the tied insurance company can gain significant profits.
Key Highlights:
- Low Insurance Penetration: According to a National Insurance Academy report, 60-70% of individuals in India remain uninsured, with insurance coverage being low among self-employed people in the unorganised sector, which accounts for over 40% of the working population.
- IRDAI’s Taskforce on Bancassurance: On October 31, 2023, the Insurance Regulatory and Development Authority of India (IRDAI) set up a taskforce to enhance the bancassurance distribution channel, aiming to achieve “Insurance for All” by 2047.
- Advantages for Insurers: Bancassurance partnerships provide insurers with a ready-made market of a bank’s customers, allowing them to reach sections of the population they might not have otherwise accessed.
- Banks’ Role in Customising Products: Banks can launch customised insurance products for their customers, such as health insurance for account holders, thus providing a holistic approach to financial solutions and better customer experiences.
- IRDAI Guidelines on Corporate Agents: Under IRDAI guidelines, a Corporate Agent (Composite) can tie up with three insurers each in the Life, General, and Health segments, allowing for diversified distribution channels.
- Exploring Telecom Partnerships: There is a suggestion for insurers to explore partnerships with telecom service providers to incorporate insurance in mobile subscription plans, leveraging the 117 crore mobile phone subscribers in India to significantly increase insurance coverage.
Advantages:
- Banks: Bancassurance offers banks a lucrative source of income with minimal investment, providing a high return on equity from a small capital outlay.
- It allows banks to expand their product range and earn additional fee income easily. Training existing employees to sell insurance products improves work efficiency and enables the bank to align advanced product sales in a customized way with supportive services.
- Banks can sell a wide range of financial services to their customers, increasing customer retention and optimizing manpower to enhance productivity.
- Insurance Companies: Bancassurance drives revenue growth and increases penetration in both rural and urban markets using the bank’s existing customer database.
- It is cost-effective as banks already have a defined route and network. Insurance companies can leverage the current rural and urban branches and offices of banks to expand their reach.
- Customers: Bancassurance aims to provide uniform service to all customers, addressing the ease of use in managing daily activities. Banks offering insurance products gain a competitive advantage, providing clients with comprehensive financial planning services under one roof.
- This increases trust, simplifies the claims process, and offers easy premium payment options linked directly to bank accounts. Customers benefit from access to a wide range of products and secure services, receiving professional advice from trained bank employees.
Disadvantages of Bancassurance:
- Customer security and creating confusion about investment options if there is a conflict of interest between the bank and insurance products, like cash-back policies.
- Better customer service approaches are needed, as many banks in India do not provide good customer service. Conversely, banks may also struggle with the responsibility of selling insurance products effectively.
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