VIEWS: 382 PAGES: 18 POSTED ON: 3/17/2011
Meaning The Bank Insurance Model (BIM), also sometimes known as Bancassurance, is the term 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. BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff. Bank staff and tellers, rather than an insurance salesperson, become the point of sale/point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training. In Other words, The Bancassurance is the distribution of insurance products through the bank's distribution channels. It is a phenomenon where in insurance products are offered through the distribution channels of the banking services along with a complete range of banking & investment products & services. In simple term we can say Bancassurance tries to exploit synergies between both the insurance companies & banks. Bancassurance in India: • Bancassurance in India is a very new concept, but if past gaining ground. In our country the banking & insurance sectors are regulated by two different entries. They are: - * Banking is fully governed by RBI & * Insurance sector is by IRDA Guidelines given by RBI 1. Any commercial bank will be allowed to undertake insurance business as the agent of insurance companies & this will be on fee basis with no-risk participation 2. The second guideline given by the RBI is that the joint ventures will be allowed for financial strong banks wishing to undertake insurance business with risk participation. 3. The third guideline is for banks which are not eligible for this joint venture option, an investment option of (1) up to 10% of the net worth of the bank or (2) Rs. 50 crores. Whichever is lower is available. Guidelines given by IRDA 1) Chief Insurance Executive: Each bank that sells insurance must have a chief Insurance Executive to handle all the insurance matters & activities. 2) Mandatory Training: All the people involved in selling the insurance should under-go mandatory training at an institute determined (authorized) by IRDA & pass the examination conducted by the authority. 3) Corporate agents: Commercial banks, including co- operative banks and RRBs may become corporate agents for one insurance company. 4) Banks cannot become insurance brokers EXAMPLE LIC: The insurance company LIC of India have tie up with the following bank for Bancassurance. They are: - (A) Corporation Bank (B) Indian Overseas Bank (C) Centurion Bank (D) Sahara District Central Co-operative bank (E) Janta Urban Co-operative bank (F) Yeotmal Mahila Sahakari Bank (G) Vijaya Bank & (H) Oriental Bank of Commerce Issues to be keep in mind while tie-up: (1) Do not depend upon traditional Method: For example: - a complex unit-linked life insurance product is better sold through brokers & agents, while a standard term product or simple products like auto Insurance, home loan and accident Insurance cover can be handled by bank branches. (2) Clarity on operational activities : There is need to be clarify on the operational activities of Bancassurance that :- (a) Who will do branding? (b) Will the Insurance Company prefer to place a person at the branch of the bank? Or (c) Will the bank branch train and keep its own people? (d) Who will pay remuneration of above-mentioned people bank or Insurance Company or both in some ratio? (3) Required Good Training: Even though the banks are in personal contact with its client, a high degree of active marketing skill is required to sell the insurance products. These can be possible through proper training only. Advantages of Banassurance: Bancassurance is a tool, which is beneficial to bank, customer & Insurer (E) For the banks, income from bancassurance is the only non interest based income. Interest is market driven and fluctuating and quite narrowing these days. Banks do not get great margins because of the competition This is why more and more banks are getting into bancassurance so as to improve their incomes. (F) Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. (G) Providing multiple services at one place to the customers means enhanced customer satisfaction From the banks point of view: (A) By selling the insurance product by their own channel the banker can increase their income. (B) Banks have face-to-face contract with their customers. They can directly ask them to take a policy. And the banks need not to go any where for customers. (C) The Bankers have extensive experience in marketing. They can easily attract customers & non-customers because the customer & non-customers also bank on banks. (D) Banks are using different value added services life-E. Banking tele banking, direct mail & so on they can also use all the above-mentioned facility for Bankassurance purpose with customers & non-customers. From the Insurer Point of view The Insurance Company can increase their business through the banking distribution channels because the banks have so many customers. By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification. The insurance company gets improved geographical reach without additional costs. In India around 67,000 branches are there for PSU banks alone. If all 67,000 branches sell the insurance products one can see the reach. This is one method of penetrating the market. There is also another method called 'Bank Referral'. Here the banks do not issue the policies, they only give the database to the insurance companies. The companies issue the policies and pay the commission to them. That is called referral basis. From the customers' point of view: Product innovation and distribution activities are directed towards the satisfaction of needs of the customer. Bancassurance model assists customers in terms of reduction price, diversified product quality in time and at their doorstep service by banks. Conclusion Over the past three years, around 40 companies have expressed interest in entering the sector and many foreign and Indian companies have arranged anticipatory alliances. The threat of new players taking over the market has been overplayed. As is witnessed in other countries where liberalization took place in recent years we can safely conclude that nationalized players will continue to hold strong market share positions, but there will be enough business for new entrants to be profitable. Opening up the sector will certainly mean new products, better packaging and improved customer service. Both new and existing players will have to explore new distribution and marketing channels. Potential buyers for most of this insurance lie in the middle class. New insurers must segment the market carefully to arrive at appropriate products and pricing. Recognizing the potential, in the past three years, the nationalized insurers have already begun to target niches like pensions, women or children.
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