BANCASSURANCE IN INDIA : A SWOT ANALYSIS
Satyaswaroop Pradhan

What is Bancassurance?

One of the most significant advances in the financial services sector over the past couple of years has been the growth of Bancassurance – which, in simplest terms, means the distribution of insurance products through a bank’s distribution channels. In other words, Bancassurance is a service which can fulfill both banking and insurance needs at the same time.

Bancassurance as a concept first began in India with the opening up of the insurance industry to private sector participation in December 1999 which saw the entry of 20 new players - with 12 in the life insurance sector and 8 in the non-life sector. Bancassurance has also seen significant rise in other Asian markets. For example, bancassurance accounted for 24% of new life insurance sales by ‘weighted’ premium income in Singapore in 2002. This is a significant increase on the equivalent 2001 statistic of 15% and is as a result of growth in significant bank-centric bancassurance operations.

Although the concept of bancassurance looks simple enough, it is far from that in real life practice. Legislative differences, consumer behaviour, impact of history and culture, product complexity, employee work culture and many such other factors have contributed to significant differences in results across countries. For example, in France and Spain 60% to 80% of life insurance products are sold through bank branches compared to 10% in UK and USA.

Bancassurance Models:

Globally we have 4 kinds of bancassurance business models:
 

• Distribution alliance between the insurance company and the bank

• JV between the two

• Merger between bank and insurer

• Bank builds or buys own insurance products

Most of the bancassurance operations in India fall into the first model, which in a way is quite a prudent decision. The Indian bancassurance scene as of now looks as promising as perilous, being a vast, unexplored and uncharted expanse. As banks are quite risk averse, it is but natural for them to withhold from making any long term commitment, which would be quite costly if the bancassurance business runs into trouble. In terms of the present regulatory framework, one bank can tie-up with only one life and one non-life insurer, while insurers have the choice to  tie-up with any number of banks. We also have examples of joint ventures between the bank and insurer such as SBI Life and ICICI Prudential.

SWOT Analysis:

Strengths:

• Vast untapped market

In a country of 1 billion people there is a huge potential market for life insurance products. In India the penetration of the insurance sector in the rural and semi-urban areas is low. There is a market of 900 million for life insurance and 200 million for householder’s insurance policy. In addition to this the affluent section can be tapped for Overseas Mediclaim and Travel Insurance policies.

• Huge pool of skilled professionals

Whether it is banks or insurance companies there is no dearth of skilled professionals in India to carry out a successful bancassurance venture.

Weakness:

• Lack of networking among bank branches

In spite of growing emphasis on total branch mechanization (TBM) and full computerization of bank branches, the rural and semi-urban banks have still to see information technology as an enabler. Complete integration of branch network involves huge investments for creating IT and communication infrastructure. 

• Low savings rate

Though we have a huge market for insurance policies, the middle class who constitutes the bulk of this market is today burdened under inflationary pressures. The secret lies in inculcating savings habit but considering the amount of surplus funds available with the middle class for investing in future security, the ability to save is very nominal

Opportunities: 

• Data mining

Banks have a huge customer database which has to be properly leveraged. Target segments should be identified and tapped.

• Wide distribution networks of banks provides a great opportunity to sell insurance products through banks
   
• Another potential area of growth of bancassurance is exploiting the corporate customers and tying up for insurance of the employees of corporate clients

Threats:

• Human Resource Challenges

Success in bancassurance venture requires a change in mindset. Though we have a large talent pool, the inability to sell complex insurance products on the part of bank professionals and their reluctance to learn can be severe setback. There has to be a change in the thinking, approach and work culture. 

• Non-response from the target groups can also pose a challenge as it happened in the USA in 1980s.

Author :
Satyaswaroop Pradhan
satyaswaroop_pradhan@yahoo.co.in
Student, FMS, Delhi.