Bancassurance refers to selling of insurance policies through banks. Banks earn revenue through this sale. In India, the process began in 2000. IRDA came up with regulation on registration of Indian companies. Government of India also issued a Notification specifying ‘Insurance’ as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of the Banking Regulation Act, 1949. However it was clarified that any bank intending to take up the business would have to take specific approval from RBI. All scheduled commercial banks were permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. Specific rules were framed for setting up of joint venture companies for undertaking insurance business with risk participation.
Bancassurance in India
In India banking and insurance sectors are regulated by two different entities. The banking sector is governed by Reserve Bank of India and the insurance sector is regulated by Insurance Regulatory and Development Authority (IRDA). Bancassurance, being the combination of two sectors comes under the purview of both the mentioned regulators. Each of them have elaborate and descriptive rules, restrictions and guidelines
Corporate Agency Regulations
Banks can act as corporate agents for only one life and one non life insurance company for a commission, as per the current regulatory framework set up by IRDA. The banks are not eligible for any payout other than commission. It is also mandated that banks should also observe code of conduct prescribed towards both customer and the principal who is the insurer.
Broker Route
Banks cannot become brokers, as regulations require brokers to be exclusively engaged in insurance broking. RBI does not allow banks to promote separate insurance broking outfits. Even otherwise MNC banks or their parent corporations are not inclined to promote broking subsidiaries in view of FDI cap of 26%. This virtually closes all options for banks or their subsidiaries to become brokers.
BENEFITS OF BANCASSURANCE TO BANKS AND INSURANCE COMPANIES
a) The insurance company hopes to attract further business, from both existing and new policyholders, because of the fact that it can offer a wider range of services than before, i.e. it can give its customers access to banking as well as to insurance services. It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.
b) The economics of the Bancassurance operation may allow the insurer to offer products which are not feasible through the insurer’s existing channels. For example, sales costs incurred under existing channels may force premium rates for a product to be uncompetitive, sotheprouctis not sold. The costs via the Bancassurance channel may be low enough to make it feasible.
c) The insurance company can offer to carry out the administration activities of the
bancassurer’s business, if for example the bancassurer is a separate company.
Combining the bancassurer’s business with the other business of the insurer
can produce economies of scale in administration costs (including capital expenditure).
This in turn allows the insurer to improve profitability and to price future
products with narrower margins, which helps to make the insurer’s products more competitive.
d) For both bank and insurer there is a great opportunity to learn and to make improvements in their own operation. Each gets exposure to the other’s distinctive management styles, its objectives and measures and the pressures which it can exert and which it feels. The benefit comes when either company can implement changes as a result of the learning process
BENEFITS OF BANCASSURANCE TO CUSTOMERS
a) It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.
b) The people who are unaware of and/or are not in reach of insurance policies can be benefitted through widely distributed banking networks and better marketing channels of banks.
c) Increase in number of providers means increase in competition and hence people can expect better premium rates and better services from bancassurance as compared to traditional insurance companies.
Bancassurance in India
In India banking and insurance sectors are regulated by two different entities. The banking sector is governed by Reserve Bank of India and the insurance sector is regulated by Insurance Regulatory and Development Authority (IRDA). Bancassurance, being the combination of two sectors comes under the purview of both the mentioned regulators. Each of them have elaborate and descriptive rules, restrictions and guidelines
Corporate Agency Regulations
Banks can act as corporate agents for only one life and one non life insurance company for a commission, as per the current regulatory framework set up by IRDA. The banks are not eligible for any payout other than commission. It is also mandated that banks should also observe code of conduct prescribed towards both customer and the principal who is the insurer.
Broker Route
Banks cannot become brokers, as regulations require brokers to be exclusively engaged in insurance broking. RBI does not allow banks to promote separate insurance broking outfits. Even otherwise MNC banks or their parent corporations are not inclined to promote broking subsidiaries in view of FDI cap of 26%. This virtually closes all options for banks or their subsidiaries to become brokers.
BENEFITS OF BANCASSURANCE TO BANKS AND INSURANCE COMPANIES
a) The insurance company hopes to attract further business, from both existing and new policyholders, because of the fact that it can offer a wider range of services than before, i.e. it can give its customers access to banking as well as to insurance services. It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.
b) The economics of the Bancassurance operation may allow the insurer to offer products which are not feasible through the insurer’s existing channels. For example, sales costs incurred under existing channels may force premium rates for a product to be uncompetitive, sotheprouctis not sold. The costs via the Bancassurance channel may be low enough to make it feasible.
c) The insurance company can offer to carry out the administration activities of the
bancassurer’s business, if for example the bancassurer is a separate company.
Combining the bancassurer’s business with the other business of the insurer
can produce economies of scale in administration costs (including capital expenditure).
This in turn allows the insurer to improve profitability and to price future
products with narrower margins, which helps to make the insurer’s products more competitive.
d) For both bank and insurer there is a great opportunity to learn and to make improvements in their own operation. Each gets exposure to the other’s distinctive management styles, its objectives and measures and the pressures which it can exert and which it feels. The benefit comes when either company can implement changes as a result of the learning process
BENEFITS OF BANCASSURANCE TO CUSTOMERS
a) It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.
b) The people who are unaware of and/or are not in reach of insurance policies can be benefitted through widely distributed banking networks and better marketing channels of banks.
c) Increase in number of providers means increase in competition and hence people can expect better premium rates and better services from bancassurance as compared to traditional insurance companies.
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