Bancassurance- an overview

Innovation is a baby child of three things- free thought, work pressure and necessity

World’s banking system is changing or in other words upgrading every quarter with various innovative schemes, policies. Today with financial innovations and financial liberalization has drawn the world of banking sector very close to new avenues. In these set of avenues most upcoming and growing combination is bancassurance.

In Bancassurance, i.e., banc + assurance, refers banks and insurance company tied up for selling insurance products. The concept of Bancassurance first appeared in France in 1980, to define the sale of insurance products through banks’ distribution channels. Banks are being used as an effective alternate channel to distribute insurance products either as ‘stand-alone insurance products’ or ‘add-ons to the bank products’ by way of combining the insurance with typical banking products/services. Banks deals in both type of insurance policies i.e. life term and non-life type (general).

Major success factors for bancassurance:

• Favorable legal system in country
• Strong banking infrastructure coupled with strong banking culture
• Cross selling of products
• Concept of “relationship banking”
• Fiscal factors like tax incentives

The given above are foundation stone for bancassurance in any country. In 1980’s European banking system was at the stage of maturity and diversifying their activity and optimizing the products. Bancassurance sizably contributed in banks revenue. It also helped banks to retain its customer’s loyalty by providing them right investment option at right time.

If we look at the figures given above and compare the countries in terms of ‘insurance penetration ratio’(defined as ratio of insurance premium to GDP), a key indicator of the spread of insurance coverage and insurance culture, India compares poorly by international standards. The penetration ratio was less than one per cent in 1990s and it improved to 4.8% by end-March 2006. As against this, a Survey Report of Swiss Re revealed that the penetration ratio as at end-March 2006, in respect of some of the European countries, viz., UK and Switzerland at 16.5% and 11.0%. In Asia, Taiwan and South Korea had registered their respective ratio of as high as 14.5% and 11.1%. Insurance Penetration ratio for the World was placed at 7.5% far greater than that of India.

According to survey we can say that there is huge opportunity for bancassurance in our country because India have huge banking infrastructure and satisfied other factors too which helped for success of bancassurance.