Bancassurance: Can you Bank on it?

Abstract

Bancassurance is defined as the insurance distribution model where insurance products are sold through bank branch network. The presence of several banking groups as promoters of insurance companies is of great significance to this model. With a network of over 80,000 branches, spread across the length and breadth of the country banks are having the necessary potential to make bancassurance the most efficient way to achieve financial inclusion in insurance sector. The bank customers with higher average premium per-capita provide quicker means to grow for insurers. The complementary nature of insurance products towards the bank advances (e.g. credit life) provide synergies in operations to the entire financial sector. The ease of access to bank customers reduces servicing costs, contributes to lower lapsation of insurance policies and hence lower costs to the economy.

Banks see value in insurance business due to complementarity of products, fee income derived from the distribution of insurance and ease of recovery of advances in case of death of the borrower or destruction of properties. Several banks being promoters of the insurance companies also gain when valuation of those companies goes up due to synergies derived from bancassurance. Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment.

The need for increasing the reach of life insurance in India is pretty obvious. To increase penetration level to a higher level than the present one will require more efforts. Banks can play an effective role in this context. The untapped potential can be used with proper training of involved human resource.