Ensure Insure Bancassure

What is Insurance and Why Insurance? What happens if we do not insure?
If there are no such questions to be answered, why are we facing these questions?

In this ever-evolving world of market opportunities and uncertainties, business organizations and individuals operate in a highly complex, increasingly uncertain and intensive competitive environment. It is imperative for them to equip themselves with requisite capabilities to survive and grow. They need to understand that 'Change', 'growth' and 'Continuous improvement' do not exist by accident but by design and commitment. The need of the hour is to take pro-active measures to ensure that they are ahead in the race and simultaneously create consistent environment for their survival.

The opening up of Indian economy and the emerging consumerism have been the critical success indicators for Industry to set appropriate quality standards and improve their service efficiency in a cost-effective manner. The criticality is more visible considering the divergent markets and the difficulty involved in collecting information on consumer spending and their decision making process.

These developments coupled with increasing pressures have compelled corporate sector to evolve innovative styles to market their products and services. These trends are no exception to any industry and have encompassed Core sectors, Infrastructure, Hospitality, Travel and tourism, Telecommunications, Health and Medical care, Banking and Insurance and a host of other industries. Further, it has resulted in new thinking among these industries to evolve strategic intent to remain competitive. The two industries that have largely benefited from this new thinking are Banking and Insurance, which is quite visible for one and all.

Some of global trends that have helped the new thinking in these two industries are:

• Closely inter-linked global financial markets, enabling effective and timely decision making.
• New approaches to styles of marketing various products and services.
• Greater integration of various aspects of products and services for achieving customer satisfaction and retention.
• Strategic alliances (forward, backward or parallel integration) with related industries to achieve convergence.

In view of these developments and trends Sectors like Banking and Insurance have few options but to seriously look into various ways and means to converge their efforts to tap the same target customers and benefit from such ways. It is imperative to understand that efforts made individually (Bank or Insurance) may have limited scope or may take a longer time to realize their goals. In addition, the emerging market needs also require innovative ways and styles of marketing specifically focussed on personalized service and customized products and services.

Startling realities:

• India, with population of over 1 billion, the life insurance premium as percentage of GDP is 1.3 whereas, the global benchmark is 4.5.
• Out of *300 million strong middle class people 20 percent of people are insured and that too covering only 25 percent of their actual need and financial capability and the rest 80 percent is not insured at all.
• With more and more new players foraying into the field of insurance the competition is getting charged up and margins are being squeezed.
• The real problem with agency force has been their reluctance to approach wider population. Since the efforts required to tap individually are high, agents tend to approach only High net worth individuals. This has created gap between insured population and potential insurable population.

These realities exemplify the vast untapped potential market in India and the traditional distribution channels of insurance companies are fast becoming costly and obsolete. The Insurance companies cannot overlook the option of establishing alternative distribution channels by forging strategic alliances for achieving greater convergence, re-designing strategies and practices for achieving competitive edge.

Alternative Distribution option - Bancassurance

There are many definitions of Bancassurance and in essence depends upon the type of model and the stage of development that insurance companies are already into.

However the most commonly used definition is:

Production and distribution of Insurance, Banking and other financial products to a common customer base.

Bancassurance does not mean just selling insurance products through banks but in full holistic form tries to exploit synergies between insurance companies and banks and thus realizes the full potential of customer database of banks to develop excellent customer centric service and generate highest quality returns for insurance companies and banks.

The Birth of Bancassurance

Bancassurance began in the European Continent in second half of the 20th century, when banks sought to capture the manufacturing income from insurance products as well to supplement the commission income earned from their sales. By doing so, they sought to leverage their customer list and the related customer information that would enhance their ability to sell insurance products to their largely mid-market customers.
These early efforts were based on the advantages that are still recognized as accruing to banks in the insurance business:

• The banks' brand name and reputation
• The productivity levels of branch staff and in-house agents, which can reach three to four times that of the traditional agency force.

The icing on the cake was seen as the improved customer retention and overall customer satisfaction associated with successful cross-selling, which led to higher profits.

The Insurance Companies, having decided to adopt Bancassurance as an option to maximize the returns from it and gain competitive advantage, should address the following issues:

• History - Brief outline (history) of the Bancassurance operation (was it set up as a joint venture, alliance, Leveraged life distribution, Leveraged Bank distribution, Brokerage driven sales, etc.?)
• Products - Are insurance products specifically designed for the Bancassurance operation? How do insurance companies decide which products were appropriate and which weren't? How are the products positioned? Has it been designed as "Enabling Service" or "Supplementary or referral service"
• Cross Selling - How effectively are insurance products sold to the bank customers? What is the number of insurance products sold per bank customer?
• Training - Are existing staff trained or are new people brought in? If companies did train existing staff, were there any lessons learnt. If training is not given to existing staff what barriers did insurance companies feel existed?
• Technology - To what extent has technology can be used to create efficiencies? Are legacy systems still an issue?
• Integration - How integrated into other parts of the operation is the Bancassurance channel, from both an internal and customer perspective? In addition, the issues pertaining to integration of culture and working pattern of Insurance companies and Banks need to be emphasized upon.
• Key Success Factors - what insurance companies believe to be the key success factors for bancassurers in the marketplace?

How, then, can the bancassurers realize their potential and beat off the competition in an emerging financial services market? One critical success factor is an integrated distribution system - one that combines the economies of non-personal selling and the advantages of face-to-face contact. The mass communication medium (toll free call centers) provides an economical medium for initial fact-finding, cross selling, and information supply. It also services low-margin, execution-only business and "pull" products. This system also enables faster call conversions and provides customers with basic information inputs for their decision making. The sales force then handles complex transactions, pursuing the qualified leads generated by the telesales force.

An integrated distribution model offers customers a choice of products via the most economic channels, maximizes the productivity of the sales force, and leverages the much higher success rates that come from personal interaction. And for the banks, integration of insurance sales into trusts and private banking businesses is crucial if banks are to penetrate the high-net-worth market.

If the results of a recent survey are any indication, both the bancassurers and traditional players still have some way to go on this score. In the years to come, this option proves critical once IRDA opens up Provident Fund Pensioners market and relaxes its policies on Insurance Brokerage areas. Hence it is imperative for every Insurance Company to explore the Bancassurance option. How Insurance Companies respond to this option is still a question that needs to be answered?

Author :
Ajay K Yaleru
yaleru@redffmail.com
Faculty - Marketing
Aurora's Post Graduate College, Hyderabad.