Articles

Though much ado was made about bancassurance, an alternate channel to hawk risk products through banks, the channel is yet to pick up pace as of today. Most of the insurance companies have already tied up with banks to explore the potential of the channel that has been a success story in Europe and legislations are also in place. For insurance companies and banks the convergence brings about benefits for both but then what's stopping it from taking off in a big way?

Bancassurance primarily banks on the relationship the customer has developed over a period of time with the bank. And pushing risk products through banks is a cost-effective affair for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost is more than welcome.

SBI Life Insurance Company a predominant player in bancassurance is positive about the channel bringing about a transformation in the way insurance has been sold so far. The company is banking heavily on bancasurance and plans to explore the potential of State Bank of India's 9000 plus branches spread across the country and also its 4000 plus associate banks - one of the reasons why SBI Life Insurance is not laying much emphasis on increasing its agent force from the present 3000.

The company plans to appoint Certified Insurance Facilitators (CIFs) in a phased manner at its branches. For now around 320 CIFs, one from each of its bank branches have been identified for the purpose in addition to setting up insurance counters at its banking outlets. The number is expected to go up to 500. 'Out of our present business of around Rs 150-200 crore bancassurance has brought in 50 percent while corporate agency and the agent channel have contributed about 10 percent and 40 percent respectively', says Pradeep Pandey, Head, PR, SBI Life Insurance Company. The company aims at acquiring 75 percent of the total business through bancassurance and the balance through the other channels by 2007.

Various models are used by banks for bancassurance. One is the insurance salesman of the respective company being posted in the bank, the other is where a select group of wealth management people of the bank sell insurance and the third is where the bank employees are incentivised to hawk insurance products.

But the pertinent question is how far will bancassurance succeed when insurance is a product that is sold not bought in our country. Insurance needs hard selling but banks have never been aggressive about selling financial products. Says Pradeep Pandey' I agree that in our country insurance awareness is low but with falling interest rates, banks are on the look out for additional revenue and bancassurance can provide them fee based income -insurance is one outlet where income can be gained. And the cost that banks have to incur is minimal. With all the other infrastructure in place already, the cost is only about training a few individuals'.

And will products sold through bancassurance be any different? 'The products sold will be the same. In the first phase we plan to sell endowment and pension' opines Mr Pandey, SBI Life Insurance. On the contrary Shivaji Dam, CEO, OM Kotak Mahindra Life Insurance begs to differ,'Yes products will have to be different to be sold through bancassurance. They will have to be term and savings products with not much of complications. In other words products that are static and simple'

OM Kotak Mahindra Life Insurance has tied up with Dena Bank and its own Kotak Bank for bancassurance. The company is targeting around 10 percent of the business during its start up phase. Adds Shivaji Dam,' Our focus will not be the affluent class but the middle class' But in case of SBI Life there is no such emphasis on a segment of the population perhaps considering the wide reach its bank branches have even in the remotest corners of the country. Also SBI Life plans to offer its complete basket of products but OM Kotak will be selling select products.

Insurers are no doubt optimistic about the channel but it does come with a few limitations. While sale of insurance comes at a lower cost through this channel in comparison to the agency route and the insurance company gains much through the large bank network spread across the country the potential can be impeded if bank officials do not actively generate leads.

Also it is yet to be seen how far buying shelf space in a bank helps push sale of insurance. Besides the target audience is limited to those individuals who visit the bank during the working hours. And with technology changing at a rapid pace ATMs and internet banking have been reducing the individual's visit to the bank which could perhaps be a dampener for bancassurance.

Insurance companies are positive about the bancassurance channel raking in volume business at a low cost and banks have been salivating over the fee based income that it will bring. But unless products are simple, easy to understand and easy to market much of the benefits the bancassurance channel holds, may remain only on paper.