UNIVERSITY OF MUMBAI

PROJECT REPORT ON
“ A STUDY ON BANCASSURANCE AMONGS MIDDLE
CLASS SALARIED PERSON ”

IN PARTIAL FULFILMENT OF
BACHELORS OF FINANCIAL MARKET
SEMESTER V – 2017-18

PROJECT GUIDE
PROF. BHAVANA PARAB

SUBMITTED BY: RAHUL D SHARMA

ROLL NO: 3243

MAHATMA EDUCATION SOCIETY’S

PILLAI COLLEGE OF ARTS, COMMERCE & SCIENCE
NEW PANVEL

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 DECLARATION
I, RAHUL D SHARMA student of T.Y.B.COM. FINANCIAL
MARKETS, 3243, MAHATMA EDUCATION SOCIETY’S PILLAI
COLLEGE OF ARTS, COMMERCE & SCIENCE, hereby declare that I
have completed the project report on “A STUDY ON
BANCASSURANCE AMONGS MIDDLE CLASS SALARIED
PERSON ” in the academic year 2017-18. The information submitted by
me is true and original to the best of my knowledge.

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 ACKNOWLEDGEMENTS

I am very thankful to Mahatma Education Society’s, Pillai College of

Arts, Commerce & Science and also I am thankful to the College Principal
Dr. Gajanan Wader for giving me an opportunity to work on this important
project and also for the support and guidance. This project “ A STUDY ON
BANCASSURANCE AMONGS MIDDLE CLASS SALARIED
PERSON ” would just not have been complete without the able support of
my Project Guide Prof. BHAVANA .PARAB , who provided me valuable
advice throughout this project work. I thank her immensely for her guidance.
I would also extend my thanks my teachers, friends, librarian and all those
who guided and helped me in the completion of this project. I am also grateful
to my Parents who always stood by me to see me complete this project.

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 INDEX
Chapt CONTENTS PG. NO.
er No.
EXECUTIVE SUMMARY
1. INTRODUCTION
1.1 Objectives of The Study
1.2 Research Methodology
2. PROFILE OF THE COMPANY:
2.1 Saraswat bank
2.2
2.3
3. CONCEPTUAL FRAMEWORK
3.1 Introduction To Bancassurance
3.2 History Of Bancassurance
3.3 Present Distribution Channels For Insurance Product In
India
3.4 Various Models Of Bancassurance
3.5 Status Of Bancassurance In India
3.6 Problems Faced By Bancassurance In India
3.7 Rbi Guidelines For The Banks To Enter Into Insurance
Business
4. CONCLUSION
APPENDICES
BIBLIOGRAPHY

EXECUTIVE SUMMARY
The bank insurance model (BIM), also sometimes known as bancassurance or all
finance, is the partnership or relationship between Saraswat bank a bank and an insurance

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company, or a single integrated organization, whereby the insurance company uses the
bank sales channel in order to sell insurance products, an arrangement in which a bank
and an insurance company form a partnership so that the insurance company can sell its
products to the bank's client base.
Bancassurance is an arrangement in which a bank and an insurance company form a
partnership so that the insurance company can sell its products to the bank's client base.
This partnership arrangement can be profitable for both companies. Banks can earn
additional revenue by selling the insurance products, while insurance companies are able
to expand their customer bases without having to expand their sales forces or pay
commissions to insurance agents or brokers.
Insurance thus plays a role in stimulating access to bank facilities by supporting
economic activity in general, remedying financial disasters; providing financial stability;
stimulating economic progress, supporting the banking industry.
The Banking and Insurance industries have changed rapidly in the changing and
challenging economic environment throughout the world. In this competitive and
liberalized environment everyone is trying to do better than others and consequently
survival of the fittest has come into effect. This has given rise to a new form of business
wherein two big financial institutions have come together and have integrated all their
strength and efforts and have created a new means of marketing and promoting their
products and services.
The project evaluates a detail study about the concept of bancassurance along with
the detail analysis of leads & problems of bancassuarance sector in India. This project
consist of both primary & secondary data.

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 1. INTRODUCTION
With the opening up of the insurance sector and with so many players entering the
Indian insurance industry, it is required by the insurance companies to come up with
innovative products, create more consumer awareness about their products and offer them
at a competitive price. Since the banking services, insurance and fund management are
letter related activities and have inherent synergies, selling of insurance by banks would
be mutually beneficial for banks and insurance companies.With these developments and
increased pressures in combatingcompetition, companies are forced to come up with
innovative techniques to market their products and services. At this juncture, banking
sector with it's far and wide reach, was thought of as a potential distributionchannel,
useful for the insurance companies. This union of the two sectors is what is known
asBancassurance.
The banks taking over insurance is particularly Saraswat bankll-documented
withreference to the experience in Europe. Across Europe in countries likeSpain and UK,
banks started the process of selling life insurance decadesago and customers found the
concept appealing for various reasons.Germany took the lead and it
wascalled“ALLFINANZ”.Thesystemof bancassurance was Saraswat bankll received in
Europe. France takes the lead, follow Saraswat bank by Germany, UK, Spain etc. In USA
the practice was late tostart(in 90s). It is also developing in Canada, Mexico
andAustralia.In India, the concept of Bancassurance is very new. with theliberalization
and deregulation of the insurance industry, bancassuranceevolved in India around 2002.
Bancassurance is an arrangement in which a bank and an insurance company form a
partnership so that the insurance company can sell its products to the bank's client base.
This partnership arrangement can be profitable for both companies. Banks can earn
additional revenue by selling the insurance products, while insurance companies are able
to expand their customer bases without having to expand their sales forces or
pay commissions to insurance agents or brokers.
Bancassurance, otherwise known as allfiz, was prohibited in the United States until
the repeal of the Glass-Steagall Act in 1999, and still hasn't caught on as a practice for
most forms of insurance. The Glass-Steagall Act of 1933 prohibited banks in the United

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States from entering into business with a firm that provides another type of financial
service.
Bancassurance arrangements, however, are very common in Europe, where the
practice has a long history. The global bancassurance market is dominated by European
banks such as Credit Agricole (France), ABN Amro (Netherlands), BNP Paribas (France)
and ING (Netherlands). For instance, in December of 2015, Allianz and Philippine
National Bank (PNB) formed a joint venture through which Allianz gains access to over
660 commercial bank branches and 4 million customers located in the Philippines.
Allianz SE is an insurance and asset management company based in Munich, Germany,
with a market cap of 64.67 billion Euros as of June 24, 2016.
Bancassurance arrangement benefits both the firms. On the one hand, the bank earns
fee amount (noninterest income) from the insurance company apart from the interest
income whereas on the other hand, the insurance firm increases its market reach and
customers. The bank acts as an intermediary, helping insurance firm reach its target
customer in order to increase its market share.

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 1.1 OBJECTIVE OF STUDY
1. To study about concept of Bancassurance
2. To study about leads & problems of Bancassuranc
3. To study about current status of Bancassurance in India
4. To study about present distribution channel for insurance products

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1.2RESEARCH METHODOLOGY
Primary Data: Data which has not been previously published i.e. the data is
derived from a new or original research study & collected directly from first hand sources
by means of surveys observation or experimentation is known as Primary Data.
Secondary Data: Data which has already been collected by someone or an
organization for some other purpose or research study is known as Secondary Data.

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Method of Data Collection:

Secondary Data: Secondary Data was collected from various sources such as
books, internet, and newspapers.

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 2. COMPANY PROFILE

2.1 SARASWAT BANK

2.1 About us
The Bank has a very humble but a very inspiring beginning. On 14th September
1918, "The Saraswat Co-operative Banking Society" was founded. Mr. J.K. Parulkar
became   its first Chairman, Mr. N.B. Thakur, the first Vice-Chairman, Mr. P.N.
Warde, the first Secretary and Mr. Shivram Gopal Rajadhyaksha, the first Treasurer.
These were people with deep and abiding ideals, faith, vision, optimism and
entrepreneurial skills. These dedicated men in charge of the Society had a
commendable sense of service and duty imbibed in them. Even today, our honorable
founders inspire a sense of awe and respect in the Bank and amongst the
shareholders. 

The Society was initially set up to help families in distress. Its objective was to
provide temporary accommodation to its members in eventualities such as weddings

10
of dependent members of the family, repayment of debt and expenses of medical
treatment etc. The Society was converted into a full-fledged Urban Co-operative
Bank in the year 1933.

 In 1988, the Bank was conferred with "Scheduled" status by Reserve Bank of
India. The Bank is the first co-operative bank to provide Merchant Banking services.
The Bank got a permanent license to deal in foreign exchange in 1978. Presently the
Bank is having correspondent relationship in 45 countries covering 9 currencies with
over 125 banks. In 1992, the Bank completed 75 years. Platinum Jubilee
Celebrations were inaugurated on 14th September, 1992 and the Bank also crossed
the business level of Rs. 700 Crores.

The beginning of the 21st century has been a giant leap forward for the Bank. The
Bank chose a path of organic/inorganic growth and our pace of growth
accelerated .The Bank's total business which was around Rs.4000 Crore in 2000
almost tripled to Rs.15295 Crore in 2007.

In the year 2008, the Bank launched a Branding Initiative . The purpose of such an
exercise was to reconfirm the thrust of the Bank on its core values, which can be
summed up as a "Sense of Belonging". The name of the Bank should always inspire
a Sense of Belonging in all its stakeholders and the Bank continues to  fulfill the
changing needs and expectations of the customer with unflinching gusto and
aplomb.

2.2 History of the company

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 Saraswat Bank  pronunciation (help·info) is an urban co-operative banking institution
based in Maharashtra, India and operating as a co-operative bank since 1918. [2]

In 1988, the bank was conferred with "Scheduled" status by Reserve Bank of India. It is the
first co-operative bank to provide merchant banking services. The bank got a permanent
license to deal in foreign exchange in 1978. Presently the bank has a correspondent
relationship in 45 countries covering nine currencies with over 125 banks.

The Board of Saraswat Bank gave a special dividend of 15 per cent for the fiscal 2016-17 in
view of the bank entering its centenary year on September 14, 2017.

The beginning of the 21st century has been a giant leap forward for the bank. The bank
chose a path of organic/inorganic growth and its pace of growth accelerated. The bank's total
business which was around Rs.4000 crore in 2000 almost tripled to Rs.15295 crore in 2007.

In the year 2008, the bank launched a branding initiative to reconfirm the thrust of the bank
on its core values, which can be summed up as a "sense of belonging".

In the last two decades the bank has witnessed a steady growth in business and also taken
several Strategic Business Initiatives such as undertaking Business Process Reengineering
initiative, merging seven cooperative banks and then consciously nurturing them. The bank
tied up with VISA International for issuance of debit cards. The bank has also successfully
launched the RuPay EMV debit card in 2013-14. The bank was the first to achieve this
milestone in respect of RuPay EMV card along with the Bank of Baroda.

In 2011, the bank was granted permission for All India Area of Operation by Reserve Bank of
India. The bank has an ambitious business expansion plan in place to have a presence in all
major cities of the country, and to reach a business levels of Rs. 50,000 crores by 2016 and
Rs. 1,00,000 crores by 2018 respectively.

The bank has a network of 282 fully computerized branches as on 31 March 2017 covering
six states viz. Maharashtra,Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi. The bank
provides 24-hour service through ATMs at 205 locations.

As of 31 March 2017 the bank's business had surpassed Rs. 55,400 crores. It received The
Best Cooperative Bank Award in 2016.[3][4]

2.3 Products of the company

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 Insurance Saraswat bank earnest Endeavour to offer suites of new and competitive
financial products and services. Saraswat bank have for this purpose tied up with various
insurance companies. The details of tie-up and products offered are given below:

1. LIFE INSURANCE-Saraswat bank are the Corporate Agents for the distribution
of Life Insurance products, of M/S HDFC Standard Life Insurance Co Ltd. Under
this tie up arrangement, saraswat bank offer following life insurance products:

2. Protection Plans- Protection Plans help to shield your family from uncertainties
in life due to financial losses in terms of loss of income that may dawn upon them
incase of your untimely demise or critical illness. Protection Plans go a long way
in ensuring your family’s financial independence in the event of your unfortunate
demise or critical illness. They are all the more important if you are the chief
wage earner in your family. No matter how much you have saved or invested over
the years, sudden eventualities, such as death or critical illness, always tend to
affect your family financially apart from the huge emotional loss.

3. Children’sPlan- Children’s Plans help to save so that you can fulfill your child’s
dreams and aspirations. These plans go a long way in securing your child’s future
by financing the key milestones in their lives even if you are no longer around to
oversee them. Children’s Plans help you save steadily over the long term so that
you can secure your child’s future needs, be it higher education, marriage or
anything else. A small sum invested by you regularly can help you build a decent
corpus over a period of time and go a long way in providing your child a secured
financial future alongwith .

4. Retirement Plans- Retirement Plans provide you with financial security so that
when your professional income starts to ebb, you can still live with pride without
compromising on your living standards. By providing you a tool to accumulate
and invest your savings, these plans give you a lump sum on retirement, which is

13
 then used to get regular income through an annuity plan. Given the high cost of
living and rising inflation, employer pensions alone are not sufficient. Pension
planning has therefore become critical in today's world.

5. SavingsandInvestment Plans- You have always given your family the very best.
And there is no reason why they shouldn’t get the very best in the future too. As a
judicious family man, your priority is to secure the saraswat bank being of those
who depend on you. Not just for today, but also in the long term. More
importantly, you have to ensure that your family’s future expenses are taken care,
even if something unfortunate saraswat banker to happen to you. Our Savings &
Investment Plans provide you the assurance of lump sum funds for your and your
family’s future expenses. While providing an excellent savings tool for your short
term and long term financial goals, these plans also assure your family a certain
sum by way of an insurance .

6. HealthPlans- Health plans give you the financial security to meet health related
contingencies. Due to changing lifestyles, health issues have acquired completely
new dimensions becoming more complex in nature. It becomes imperative then to
have a health plan in place, which will ensure that no matter how critical your
illness is, it does not impact your financial independence

Above products are available through all our branches with expert personalised
advice. Future General India Life Insurance and Saraswat Bank foray into its
Bancassurance Partnership

Future General India Life Insurance (FGILI) and Saraswat Bank today entered into
its bancassurance partnership. MunishSharda, Managing Director & CEO, FGILI and
S.K. Banerji, Managing Director, Saraswat Bank signed an agreement to this effect in
Mumbai today. Under this agreement, Saraswat Bank will offer FGILI’s customised

14
solutions to its customers, through its extensive network of over 250 branches, its sales
force across the country as saraswat bankas through their digital platforms. The objective
of this partnership is to reach out to their customers, thereby improving the insurance
protection gap and strengthening the distribution network of FGILI.
Speaking on this alliance, MunishSharda, Managing Director & CEO, Future General
India Life Insurance said, “Saraswat bankare extremely excited with our partnership with
Saraswat Bank. This partnership is in line with our strategy to grow our business on the
back of simple, customer-centric solutions and need-based sales process. Saraswat Bank
through its 283 branches enjoys excellent relationships with its clients, and saraswat bank
are looking forward to be a solid partner with them in their growth endeavour.”
Mr. S.K. Banerji, Managing Director, Saraswat Bank said, "Saraswat bankare glad to
have Future Generali as our Life Insurance Partner offering life insurance solutions. Their
offer to work closely with the Bank in ensuring that the customers have very competitive
terms and best possible service, shall benefit the customers immensely”.
This bancassurance partnership will be extended across all bank branches covering
six major states - Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi.
Future General India Life Insurance Company Ltd. is a joint venture bet Saraswat
bank Future Group - the leading retailer of India, Assicurazioni General - a global
insurance group and one of the world’s 50 largest companies* and IITL - a leading
NBFC.
The General Group is one of the largest global insurance providers with 2014 total
premium income exceeding €70 billion. With 78,000 employees worldwide serving 72
million insured persons in more than 60 countries, the Group occupies a leadership
position on Saraswatbank European markets and an increasingly important place on
markets in Central Eastern Europe and Asia. In Asia, the Group operates in 10 markets:
China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, Thailand
and Vietnam. General ranked among the world’s 50 smartest companies in 2015
according to the MIT Technology Review. General is the only insurer to be listed.
Future Group operates some of India’s most popular retail chains including Central,
Big Bazaar, Food Bazaar, Home Town and e-Zone. Apart from its allied businesses in
Life and General insurance, the Group is also present in the domain of logistics

15
infrastructure and supply chain and brand development. The group operates over 17
million square feet of retail space in over 90 cities and towns and 60 rural locations
across India. The group’s retail formats connect over 300 million customers to over
30,000 small, medium and large enterprises that supply products and services to its retail
chains. Future Group believes in developing strong insights on Indian consumers and
building businesses based on Indian ideas, as espoused in the group’s core value of
‘Indianness.’ The group’s corporate credo is, ‘Rewrite rules, Retain values’.
Saraswat Bank, the No.1 Co-operative Bank in India, has achieved a Total Business
(Deposits plus Advances) of Rs. 50,000 crore on 31st March, 2016 and is the first Bank
in the Urban Co-operative Banking Sector in India to cross the landmark of the total
business level of Rs. 50,000 crore.
Saraswat Bank is the premier and largest among the 1579 Urban Co-operative Banks
in India, established in 1918. The Bank has received a pan-India permission and presently
has branches spread across six states. The Bank has a permanent license to deal in foreign
exchange. It is an authorized dealer in foreign exchange since 1979.
The Bank has matched strides with India’s digital revolution through a varied range
of user-friendly technological products like mobile banking, internet banking,
international VISA EMV and RuPay chip cards, etc. The Bank offers third party products
such as mutual funds, insurance schemes, demat accounts, etc. The Bank is the first co-
operative bank to offer online broking services to itsdemat account holders through a 3-
in-1 account.

Protecting Your Policy – Do’s & Don’ts

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 It is important to protect your life insurance policy from any unscrupulous /
unauthorised elements posing as company representatives. Here are a few do's and don'ts
that will guide you in safeguarding your policy.
1. Do's-
• Check identification / licence- Only speak to authorised representatives of the
life insurance company. Ensure you check their identification card or licence.
• Evaluate the different policy options- It is essential to identify your
requirements and make an informed decision while buying a policy that meets
your needs.
• Understand the policy- Ensure that you have understood all the details
explained by your advisor before signing the form.
• Review the policy at regular intervals- Reviewing your coverage periodically
is a must. You can make amendments as per the circumstances.
• Be clear- It is important to state facts especially about medical history to
avoid any dispute during claim.

2. Don'ts
• Don't respond to hoax messages and calls- Do not respond to any messages or
calls from unauthorised entities claiming to be IRDA, RBI or Government
officials. You may receive lucrative offers that promise opportunities to cash
in on benefits or provide higher returns from your existing policy. Check with
your life insurance company before accepting such offers.
• Don't take a hasty decision- Surrendering or cancelling a policy should be a
thoughtful decision depending on your financial plans. Do not make a hasty
decision based on any false information.
• Don't share confidential information- Do not share any personal or financial
details of your existing policy/policies like premiums, fund value, policy
number, benefits or your username, password, date of birth, credit or debit
card number etc., on a call or with an unknown person. If required,
confidential information should only be shared with the authorised insurance
personnel.

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 3. CONCEPTUAL FRAMEWORK

3.1 INTRODUCTION TO BANCASSURANCE

‘BANCASSURANCE’ as term itself tells us what does it means. It’s a combination

of the term ‘Bank’ and ‘Insurance’. Bancassurance, i.e., banc + assurance, refers to banks
selling the insurance products. Bancassurance term first appeared in France in 1980, to
define the sale of insurance products through banks’ distribution channels (SCOR 2003).
It means that insurance have started selling there product through banks. It’s a new
concept to Indian market but it is very widely used in western and developed countries. It
is profitable both to Banks and Insurance companies and has a very bright future to be the
most develop and efficient means of distribution of Insurance product in very near future.

Insurance company can sell both life and non-life policies through banks. The share
of premium collected by banks is increasing in a decent manner from the time it was
introduce to the Indian market. In India Bancassurance in guide by Insurance Regulatory
and Development Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and
insurance company have to meet particular requirement to get into Bancassurance
business.

It is predicted by experts that in future 90% of share of premium will come from
Bancassurance business only. Currently there are more and more banking and Insurance
Company and venturing into Bancassurance business for better business prospect in
future.

The banking business is also generating more profit by more premium collected by
them and they also receive commission like normal insurance agent which increase there
profits and better reputation for the banks as there service base also increase and are able
to provide more service to customers and even more customer are attracted toward bank.

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 In concrete terms bancassurance, which is also known as Allfinanz - describes a
package of financial services that can fulfill both banking and insurance needs at the
same time.

The usage of the word picked up as banking and insurance companies merged
together and banks sought to provide insurance, in the market which has been liberalized
recently.
But it is a controversial issue as many experts feels that this ides gives banking sector
too great a control over financial market in that country. Therefore it has also been
restricted in many countries too.

But, still which countries have permitted Bancassurance in their market has seen a
tremendous boom in that sector. The share of premium collected by them has increased in
constant and decent manner. This success coincided with a favorable taxation for life
insurance products, as well as with the consumers' growing needs, in terms of middle and
long term savings, which is due to an inadequacy of the pension schemes in India.

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 With the opening up of the insurance sector and with so many players entering the
Indian insurance industry, it is required by the insurance companies to come up with
innovative products, create more consumer awareness about their products and offer them
at a competitive price. Since the banking services, insurance and fund management are all
interrelated activities and have inherent synergies, selling of insurance by banks would be
mutually beneficial for banks and insurance companies.With these developments and
increased pressures in combating competition, companies are forced to come up with
innovative techniques to market their products and services. At this juncture, banking
sector with it's far and wide reach, was thought of as a potential distribution channel,
useful for the insurance companies. This union of the two sectors is what is known as
Bancassurance.
Bancassurance is the distribution of insurance products through the bank's
distribution channel. It is a phenomenon wherein insurance products are offered through
the distribution channels of the banking services along with a complete range of banking
and investment products and services. To put it simply, Bancassurance, tries to exploit
synergies between both the insurance companies and banks.
Bancassurance can be important source of revenue. With the increased competition
and squeezing of interest rates spread, profits are likely to be under pressure. Fee based
income can be increased through hawking of risk products like insurance.
Bancassurance if taken in right spirit and implemented properly can be win-win
situation for the all the participants' viz., banks, insurers and the customer.

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 3.2 HISTORY OF BANCASSURANCE

World over the idea of separation of roles between banks and other financial
activities has become redundant. Even in the United States which was known for strict
separation of banking and non- banking activities during the Glass-Steagall Act regime
broke the dividing wall. The post Gramm-Leach-Bliley (GLB) Act, 1999 scenario, it is
stated to have indicated increased preference for banks conterminously dealing with other
non-banking financial products, including the insurance products. In Asian countries
(e.g., Taiwan, Singapore, Japan, etc.) to the trend has been set towards financial
supermarket. The financial liberalization and financial innovations have drawn the worlds
of banking and insurance closer together, de segmenting the financial industry and
spurring competition (Knight, 2005). Therefore, banks dealing in insurance products have
increasingly become accepted norm rather than exception.
In India, ever since espousing of financial reforms following the recommendations of
First Narasimham Committee, the contemporary financial landscape has been reshaped.
Banks, in particular, stride into several new areas and offer innovative products, viz.,
merchant banking, lease and term finance, capital market / equity market related
activities, hire purchase, real estate finance and so on. Thus, present-day banks have
become far more diversified than ever before. Therefore, their entering into insurance
business is only a natural corollary and is fully justified too as ‘insurance’ is another
financial product required by the bank customers.
The Reserve Bank of India being the regulatory authority of the banking
system, recognizing the need for banks to diversify their activities at the right time,
permitted them to enter into insurance sector as well. Furtherance to this line, it issued a
set of detailed guidelines setting out various ways for a bank in India to enter into
insurance sector (Annex I sketches out the guidelines). In the insurance sector, the
Insurance Regulatory and Development Authority (IRDA), despite its recent origin in
2000, avowed to regulate and develop the insurance sector in India through calibrated
policy initiatives. Given India’s size as a continent it has, however, a very low insurance
penetration and low insurance density. As opposed to this, India has a well-entrenched
wide branch network of banking system which only few countries in the world could

21
match with. It is against this backdrop an attempt is made in this paper to explore the
‘bancassurance strategy’ which integrates banking and insurance sector to harness the
synergy and its allied problems and prospects in the Indian context. This paper is
presented in four sections purely on pedagogic basis. Section I includes introduction, and
a snap shot of reforms in insurance sector in India, Section II focuses on the status of
insurance penetration in India, vis-à-vis select countries, the concept of ‘bancassurance’
as a distribution strategy and draws attention to the international experience. Section III
analyses the scope for bancassurance in the Indian context from bankers and insurers’
perspectives. Section IV dwells on different bancassurance models, present trend of
bancassurance models in India, while it also highlights some issues in general as well as
regulatory and supervisory related. Concluding remarks are presented in Section V.

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 3.3 PRESENT DISTRIBUTION CHANNELS FOR INSURANCE
PRODUCTS IN INDIA

Insurance industry in India for fairly a longer period relied heavily on traditional
agency (individual agents) distribution network IRDA (2004). As the insurance sector
had been completely monopolised by the public sector organisations for decades, there
was slow and rugged growth in the insurance business due to lack of competitive
pressure. Therefore, the zeal for discovering new channels of distribution and the
aggressive marketing strategies were totally absent and to an extent it was not felt
necessary. The insurance products, by and large, have been dispensed mainly through the
following traditional major channels:
(1) development officers,
(2) individual agents and
(3) direct sales staff.
It was only after IRDA came into existence as the regulator, the other forms of
channels, viz., corporate agents including bancassurance, brokers (an independent agent
who represents the buyer, rather than the insurance company, and tries to find the buyer
the best policy by comparison shopping2), internet marketing and telemarketing were
added on a professional basis in line with the international practice. As the insurance
sector is poised for a rapid growth, in terms of business as well as number of new
entrant’s tough competition has become inevitable. Consequently, addition of new and
number of distribution channels would become necessary.

Traditionally, insurance products have been promoted and sold principally through
agency systems in most countries. With new developments in consumers’ behaviours,
evolution of technology and deregulation, new distribution channels have been developed
successfully and rapidly in recent years. Bancassurers make use of various distribution
channels:
-Career Agents
-Special Advisers
-Salaried Agents

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 -Bank Employees / Platform Banking
-Corporate Agencies and Brokerage Firms
-Direct Response
-Internet
-E-Brokerage
-Outside Lead Generating Techniques
 
The main characteristics of each of these channels are:
 Career Agents:
Career Agents are full-time commissioned sales personnel holding an agency
contract. They are generally considered to be independent contractors. Consequently an
insurance company can exercise control only over the activities of the agent which are
specified in his contract. Despite this limitation on control, career agents with suitable
training, supervision and motivation can be highly productive and cost effective.
Moreover their level of customer service is usually very high due to the renewal
commissions, policy persistency bonuses, or other customer service-related awards paid
to them.
Many Bancassurers, however avoid this channel, believing that agents might oversell
out of their interest in quantity and not quality. Such problems with career agents usually
arise, not due to the nature of this channel, but rather due to the use of improperly
designed remuneration and/or incentive packages. 

 Special Advisers:
Special Advisers are highly trained employees usually belonging to the insurance
partner, who distribute insurance products to the bank's corporate clients. Banks refer
complex insurance requirements to these advisors. The Clients mostly include affluent
population who require personalised and high quality service. Usually Special advisors
are paid on a salary basis and they receive incentive compensation based on their sales.

24
  Salaried Agents:
Having Salaried Agents has the advantages of them being fully under the control and
supervision of Bancassurers. These agents share the mission and objectives of the
Bancassurers. Salaried Agents in Bancassurance are similar to their counterparts in
traditional insurance companies and have the same characteristics as career agents. The
only difference in terms of their remuneration is that they are paid on a salary basis and
career agents receive incentive compensation based on their sales. Some Bancassurers,
concerned at the bad publicity which they have received as a result of their career agents
concentrating heavily on sales at the expense of customer service, have changed their
sales forces to salaried agent status. 

 Platform Bankers:
Platform Bankers are bank employees who spot the leads in the banks and gently
suggest the customer to walk over and speak with appropriate representative within the
bank. The platform banker may be a teller or a personal loan assistant and the
representative being referred to may be a trained bank employee or a representative from
the partner insurance company.
Platform Bankers can usually sell simple products. However, the time which they can
devote to insurance sales is limited, e.g. due to limited opening hours and to the need to
perform other banking duties. A further restriction on the effectiveness of bank
employees in generating insurance business is that they have a limited target market, i.e.
those customers who actually visit the branch during the opening hours.
In many set-ups, the bank employees are assisted by the bank's financial advisers. In
both cases, the bank employee establishes the contact to the client and usually sells the
simple product whilst the more affluent clients are attended by the financial advisers of
the bank which are in a position to sell the more complex products. The financial advisers
either sell in the branch but some banks have also established mobile sales forces.
If bank employees only act as "passive" insurance sales staff (or do not actively
generate leads), then the Bancassurers potential can be severely impeded. However, if
bank employees are used as "active" centres of influence to refer warm leads to salaried

25
agents, career agents or special advisers, production volumes can be very high and
profitable to Bancassurers.

 Set-up / Acquisition of agencies or brokerage firms:

In the US, quite a number of banks cooperate with independent agencies or brokerage
firms whilst in Japan or South Korea banks have founded corporate agencies. The
advantage of such arrangements is the availability of specialists needed for complex
insurance matters and -in the case of brokerage firms - the opportunity for the bank
clients to receive offers not only from one insurance company but from a variety of
companies. In addition, these sales channels are more conceived to serve the affluent
bank client.

 Direct Response:
In this channel no salesperson visits the customer to induce a sale and no face-to-face
contact between consumer and seller occurs. The consumer purchases products directly
from the Bancassurers by responding to the company's advertisement, mailing or
telephone offers. This channel can be used for simple packaged products which can be
easily understood by the consumer without explanation.

 Internet:
Internet banking is already securely established as an effective and profitable basis
for conducting banking operations. The reasonable expectation is that personal banking
services will increasingly be delivered by Internet banking. Bancassurers can also feel
confident that Internet banking will also prove an efficient vehicle for cross selling of
insurance savings and protection products. It seems likely that a growing proportion of
the affluent population, everyone's target market, will find banks with household name
brands and proven skills in e-business a very acceptable source of non-banking products.
There is now the Internet, which looms large as an effective source of information for
financial product sales. Banks are well advised to make their new websites as interactive
as possible, providing more than mere standard bank data and current rates. Functions
requiring user input (check ordering, what-if calculations, and credit and account

26
applications) should be immediately added with links to the insurer. Such an arrangement
can also provide a vehicle for insurance sales, service and leads.

 E-Brokerage:
Banks can open or acquire an e-Brokerage arm and sell insurance products from
multiple insurers. The changed legislative climate across the world should help migration
of Bancassurance in this direction. The advantage of this medium is scale of operation,
strong brands, easy distribution and excellent synergy with the internet capabilities.

 Outside Lead Generating Techniques:

One last method for developing Bancassurance eyes involves "outside" lead
generating techniques, such as seminars, direct mail and statement inserts. Seminars in
particular can be very effective because in a non-threatening atmosphere the insurance
counsellor can make a presentation to a small group of business people (such as the local
chamber of commerce), field questions on the topic, then collect business cards. Adding
this technique to his/her lead generation repertoire, an insurance counsellor often cannot
help but be successful.
To make the overall sales effort pay anticipated benefits, insurers need to also help
their bank partners determine what the “hot buttons” will be for attracting the attention of
the reader of both direct and e-mail. Great opportunities await Bancassurance partners
today and, in most cases, success or failure depends on precisely how the process is
developed and managed inside each financial institution. This includes the large regional
bank and the small one-unit community bank.

27
3.4 VARIOUS MODELS OF BANCASSURANCE

Various models are used by banks for bancassurance.

(a) Strategic Alliance Model : Under this Model, there is a tie-up between a bank
and an insurance company. The bank only markets the products of the insurance
company. Except for marketing the products, no other insurance functions are carried out
by the bank.
(b) Full Integration Model : This model entails a full integration of banking and
insurance services. The bank sells the insurance products under its brand acting as a
provider of financial solutions matching customer needs. Bank controls sales and insurer
service levels including approach to claims. Under such an arrangement the Bank has an
additional core activity almost similar to that of an insurance company.
(c) Mixed Models: Under this Model, the marketing is done by the insurer's staff and
the bank is responsible for generating leads only. In other words, the database of the bank
is sold to the insurance company. The approach requires very little technical investment
1. Structural Classification

a) Referral Model

Banks intending not to take risk could adopt ‘referral model’ wherein they purely part
with their client data base for business lead for commission. The actual transaction with
the prospective client in referral model is done by the staff of the insurance company
either at the premise of the bank or somewhere else. Referral model is nothing but a
simple arrangement, wherein the bank, while scheming access to the clients data base,
parts with only the business leads to the agents/ sales staff of insurance company for a
‘referral fee’ or commission for all business lead that was passed on. In fact a number of
banks in India have already resorted to this approach to begin with. This model would be
suitablefor almost all types of banks including the RRBs /cooperative banks and even
cooperative societies both in rural and urban. There is larger scope in the medium term
for this model. For, instance banks to begin with resorts to this model and then move on
to the other models.

28
 b) Corporate Agency

The other form of non-risk participatory distribution channel is that of ‘corporate

agency’, wherein the bank staff is trained to appraise and sell the products to the
customers. Here the bank as an institution acts as corporate agent for the insurance
products for a fee/ commission. This seems to be more practical and appropriate for most
of the mid-sized banks in India as also the rate of commission would be reasonably
higher than the referral arrangement. This, However, is prone to reputational risk of the
marketing bank. There are also realistic difficulties in the form of professional knowledge
about the insurance products. Besides, confrontation from staff to handle totally new
service/product could not be ruled out. This could, however, be overcome by severe
training to chosen staff packaged with proper incentives in the banks coupled with selling
of simple insurance products in the initial stage. This model is best suitable for majority
of banks including some major urban cooperative banks because neither there is sharing
of risk nor does it involve huge investment in the form of infrastructure and yet could be
a good source of income. Bajaj Allianz stated to have established a growth of 325 per
cent during April-September 2004, mainly due to bancassurance strategy and around 40%
of its new premiums business (Economic Times, October 8, 2004). Interestingly, even in
a developed country like US, banks stated to have preferred to focus on the distribution
channel similar to corporate agency rather than underwriting business. Several major US
banks including Wells Fargo, Wachovia and BB &T built a great distribution network by
acquiring insurance brokerage business. This model of bancassurance worked well in the
US, because consumers generally prefer to purchase policies through broker banks that
offer a wide variety of products from competing insurers (Sigma, 2006).

c) Insurance as Fully Integrated Financial Service/ Joint ventures

Apart from the above two, the fully integrated financial service involves much more
inclusive and intricate relationship between insurer and bank, where the bank functions as
entirely collective in its operation and selling of insurance products is just one more
function within. Where banks will have a counter within sell/market in the insurance

29
products as an internal part of its rest of the actions. This includes banks having wholly
owned insurance subsidiaries with or without foreign participation. In Indian case, ICICI
bank and HDFC banks in private sector and State Bank of India in the public sector, have
already taken a lead in resorting to this type of bancassurance model and have acquired
considerable share in the insurance market, also made a big stride within a short span of
time. The great advantage of this approach being that the bank could make use of its full
potential to reap the advantage of synergy and therefore the economies of scope. This
may be suitable to comparatively larger banks with sound financials and has better
infrastructure. Internationally, the fully integrated bancassurance have demonstrated
advanced performance (Krishnamurthy, 2003). Even if the banking company forms as a
subsidiary and insurance company being a holding company, this could be classified
under this category, so long as the bank is selling the insurance products alongside the
normal banking services. As per the present regulation of insurance sector the foreign
insurance company could enter the Indian insurance market merely in the form of joint
venture, therefore, this type of bancassurance seems to have emerged out of necessity in
India to an extent. There is great scope for further improvement both in life and non-life
insurance segments as GOI is reported have been actively considering to increase the
FDI’sparticipation to the upto 49 per cent.

1. Product-based Classification

a) Stand-alone Insurance Products

In this case bancassurance involves marketing of the insurance products through

either referral arrangement or corporate agency without mixing the insurance products
with any of the banks’ own products/services. Insurance is sold as one more item in the
list of products offered to the bank’s customer, however, the products of banks and
insurance will have their relevant brands too, e.g., Karur Vysya Bank Ltd selling of life
insurance products of Birla Sun Insurance or non-life insurance products of Bajaj Allianz
General Insurance Company.

30
3.5 STATUS OF BANCASSURANCE IN INDIA

As per IRDA, the major driver of Bancassurance has been the private sector
companies both in the bank as well as in the insurance gamut. Cooperative banks and
regional rural banks are seen by private insurance companies as a cost-effective vehicle
for insurers to tapinto rural communities and fulfill their rural sector obligations. Certain
Facts from IRDA Annual Report of 2010-11 insurers. The same was 8.67 per cent during
the previous financial year. This fact is for group insurance policies.
All would appreciate thefact that the figures mention i.e. 13.30% in individual policies is
substantial. We shall look at another statistics to drive the
a) Among the various corporate channels, the share of banks in total new business
(Life Insurance) underwritten increased from 10.60 per cent in 2009-10 to 13.30 per cent
in 2010-11. The figures are for individual life policies.
b) During the year 2010-11, bancassurance contributed 11.51 per cent of the total
group business of the private point of growing importance of bancassurance.
Reserve Bank of India (RBI) has recognized "bancassurance" wherein banks are
allowed to provide physical infrastructure within their select branch premises to
insurance companies for selling their insurance products to the banks’ customers with
adequate disclosure and transparency, and in turn earn referral fees on the basis of premia
collected. This would utilize the resources in the banking sector in a more profitable
manner.Bancassurance can be important source of revenue. With the increased
competition and squeezing of interest rates spreads profit of the are likely to be under
pressure. Fee based income can be increased through hawking of risk products like
insurance. There is enormous potential for insurance in India and recent experience has
shown massive growth pace.
A combination of socio economic are likely to make the insurance business the biggest
and the fastest growing segment of the financial services industry in India.However,
before taking the plunge in to this new field, banks as insurers need to work hard on
chalking out strategies to sell risk products especially in an emerging competitive market.
However, future is bright for bancassurance . Banks in India have all the right ingredients
to make Bancassurance a success story. They have large branch network, huge customer

31
base, enjoy customer confidence and have experience in selling non-banking products. If
properly implemented, India could take leadership position in bancassurance all over the
world.

Government of India Notification dated August 3, 2000, specified ‘Insurance’ as a

permissible form of business that could be undertaken by banks under Section 6(1)(o) of
the Banking Regulation Act, 1949. Then onwards, banks are allowed to enter the
insurance business as per the guidelines and after obtaining prior approval of Reserve
Bank of India.

Guidelines for Banks for Entry of banks into Insurance business

1.Scheduled commercial bank would be permitted to undertake insurance business as
agent of insurance companies on fee basis, without any risk participation. The
subsidiaries of banks will also be allowed to undertake distribution of insurance product
on agency basis.

2. Banks which satisfy the eligibility criteria given below will be permitted to set up a
joint venture company for undertaking insurance business with risk participation, subject
to safeguards. The maximum equity contribution such a bank can hold in the joint
venture company will normally be 50 per cent of the paid-up capital of the insurance
company. On a selective basis the Reserve Bank of India may permit a higher equity
contribution by a promoter bank initially, pending divestment of equity within the
prescribed period (see Note 1 below). The eligibility criteria for joint venture participant
are as under:-
(a) The net worth of the bank should not be less than Rs.500 crore;
(b) The CRAR of the bank should not be less than 10 per cent;
(c) The level of non-performing assets should be reasonable;
(d) The bank should have net profit for the last three consecutive years;
(e) The track record of the performance of the subsidiaries, if any, of the concerned
bank should be satisfactory.

32
1. In cases where a foreign partner contributes 26 per cent of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign Investment
Promotion Board, more than one public sector bank or private sector bank may be
allowed to participate in the equity of the insurance joint venture. As such participants
will also assume insurance risk, only those banks which satisfy the criteria given in
paragraph 2 above, would be eligible.

4. A subsidiary of a bank or of another bank will not normally be allowed to join the
insurance company on risk participation basis. Subsidiaries would include bank
subsidiaries undertaking merchant banking, securities, mutual fund, leasing finance,
housing finance business, etc.

5. Banks which are not eligible as joint venture participant as above, can make
investments up to 10% of the networth of the bank or Rs.50 crore, whichever is lower, in
the insurance company for providing infrastructure and services support. Such
participation shall be treated as an investment and should be without any contingent
liability for the bank. The eligibility criteria for these banks will be as under.
(i) The CRAR of the bank should not be less than 10%;
(ii)The level of NPAs should be reasonable;
(iii) The bank should have net profit for the last three consecutive years.

6. All banks entering into insurance business will be required to obtain prior approval
of the Reserve Bank. The Reserve Bank will give permission to banks on case to case
basis keeping in view all relevant factors including the position in regard to the level of
non-performing assets of the applicant bank so as to ensure that non-performing assets do
not pose any future threat to the bank in its present or the proposed line of activity, viz.,
insurance business. It should be ensured that risks involved in insurance business do not
get transferred to the bank and that the banking business does not get contaminated by
any risks which may arise from insurance business. There should be ‘arms length’
relationship between the bank and the insurance outfit.
Notes: -

33
 1. Holding of equity by a promoter bank in an insurance company or participation in
any form in insurance business will be subject to compliance with any rules and
regulations laid down by the IRDA/Central Government. This will include compliance
with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for
divestment of equity in excess of 26 per cent of the paid up capital within a prescribed
period of time.
2. Latest audited balance sheet will be considered for reckoning the eligibility
criteria.
3. Banks which make investments under paragraph 5 of the above guidelines, and
later qualify for risk participation in insurance business (as per paragraph 2 of the
guidelines) will be eligible to apply to the Reserve Bank for permission to undertake
insurance business on risk participation basis.

34
3.6 PROBLEMS FACED BY BANCASSURANCE IN INDIA

Problems of Bancassurnce:
In the last financial year, India has experienced a substantial growth in the life
insurance business. The new business premium growth rate for the financial year 2004-05
over the previous financial year is 36%. This growth is primarily due to the
aggressiveness witnessed in the private life insurance sector, which grew by 129%.
One of the drivers for this substantial growth is the contribution of the banking
industry. The private life insurers have been instrumental in building strong relationships
with established banks for bancassurance. The bancassurance model, in simple terms
means distribution of insurance products by banks to their customers. Apart from having
the advantage of reaching out to the potential customers at the remotest of places, it offers
a complete basket of financial advice to customers under one roof.
Bancassurance has been a successful model in the European countries contributing
35% of premium income in the European life insurance market. It contributes over 65%
of the life insurance premium income in Spain, 60% in France, 50% in Belgium and Italy.
In the US, the banks were earlier not allowed to sell insurance due to the restrictions
imposed by Glass-Stegall Act of 1933, which acted as a Chinese wall between banking
and insurance. As a result of this life insurance was primarily sold through individual
agents, who focused on wealthier individuals, leading to a majority of the American
middle class households being under-insured. With the repealing of this Act in 1999, the
doors were opened for banks to distribute insurance and cater to the large middle class
segment
In the Asian markets, bancassurance has a limited share of the total sales primarily
because of the near monopoly of the life agents in Japan, which is the largest life market.
But there is a shift in stance with markets like Japan, South Korea and the Philippines
where bancassurance was previously prohibited, taking a more accommodating stance
towards this channel. It has been estimated that bancassurance would contribute almost
16% of the life premium in the Asian markets in the year 2006 primarily due to the
growth expected in India and China.

35
 In India the bancassurance model is still in its nascent stages, but the tremendous
growth and acceptability in the last three years reflects green pasture in future. The
deregulation of the insurance sector in India has resulted in a phase where innovative
distribution channels are being explored. In this phase, bancassurance has simply
outshined other.

Any bank getting into business of selling insurance cannot afford to have casual
approach to it. The staff, if deputed from within the existing bank staff, will have to be
specially trained in the intricacies of insurance and the art of salesmanship. These skills
will be required at levels different from the requirements in banking operations. They will
have to be persons who have an external orientation.

The amount of business acquired through the banks depends entirely on the personal
skills of specified persons and the corporate insurance executives. An effective and
successful specified person might perhaps find it more remunerative to branch off as an
insurance agent on his own, instead of being tied to the bank. The options available to the
bank to prevent this may lie in developing attractive compensations packages. The
relevant issues will be the restrictions imposed by insurance Act as well as relative
pressures within the unions of banks of employees.

The commitment of senior management is crucial to the success of the persons

deputed for the insurance work. The priorities for the managers may depend on the
criteria by which they will be appraised at the end of the year. If the progress in insurance
is not important criterion, the support to the insurance activities may be reduced. They
would see mainstream banking activities as more important for their own future growth.
The appraisal and reward systems of the bank have to be appropriately aligned.
The difference in working style and culture of the banks and insurance sector needs
greater appreciation. Insurance is a ‘business of solicitation’ unlike a typical banking
service, it requires great drive to ‘sell/ market the insurance products. It should, however,
be recognized that ‘bancassurance’ is not simply about selling insurance but about
changing the mindset of a bank. Moreover, in India since the majority of the banking

36
sector is in public sector and which has been widely disparaged for the lethargic attitude
and poor quality of customer service, it needs to refurbish the blemished image. Else, the
bancassurance would be difficult to succeed in these banks. Studies have revealed that the
basic attitudinal incompatibility on the part of employees of banks and insurance
companies and the perception of customers about the poor quality of banks had led to
failures of bancassurance even in some of the Latin American countries.
There are also glitches in the system of bancassurance strategy in the form of
‘conflict of interests’, as some of the products offered by the banks, viz., ‘term deposits’
and other products which are mainly aimed at long term savings/ investments can be very
similar to that of the insurance products. Banks could as well feel apprehension about the
possibility of substitution effect between its own products and insurance products and
more so, as a number of insurance products in India come with an added attraction of tax
incentives.
In case the Bancassurance is fully integrated with that of the banking institution, it is
suitable only for larger banks; however, it has other allied issues such as putting in place
‘proper risk management techniques’ relating to the insurance business, etc.
As there is a great deal of difference in the approaches of ‘selling of insurance
products’ and the usual banking services- thorough understanding of the insurance
products by the bank staff coupled with extra devotion of time on each customer
explaining in detail of each product’s intricacies is a prerequisite. Moreover, insurance
products have become increasingly complex over a period of time, due to improvisation
over the existing products as well as due to constant innovation of new products,
emanating from the excessive competition adding to even more difficulties in
comprehension of the products and marketing by the bank staff. These can result in
resistance to change and leading to problems relating to industrial relations.
Unlike, the banking service, there is no guarantee for insurance products that all
efforts that a bank staff spends in explaining to a customer would clinch the deal due to
the very nature of the insurance products. This frustration of the bank staff has the danger
of spillover effect even on their regular banking business.
Bankers in India are extremely naïve in insurance products as there were no
occasions in the past for the bankers to deal in insurance products; therefore they require

37
strong motivation of both monetary and non-monetary incentives. This would be more so
in the emerging scenario due to complex innovations in the field of insurance / pension
products at a rapid pace with the entry of a number of foreign insurance companies with
vast experience in the developed countries’ framework.
In view of the above, reorientation of staff in the public sector banks in particular, to
be less bureaucratic and more customers friendlier would indeed be a challenging task,
albeit it is a prerequisite for the success of bancassurance.
With the financial reforms and technological revolution embracing the financial
system, there has been a great deal of flexibility in the mind set of people to accept
change. The above outlined problems need not, however, deter the banking sector to
embark on bancassurance as any form of resistance from the bank employees could be
tackled by devising an appropriate incentive system commensurate with intensive
training to the frontline bank staff.
Regulatory and Supervisory Issues
With the increased structural deregulation within the financial system and
globalization the banking system in India has been exposed to tough competition
compelling them to move towards not only new vistas of business activity under one roof
by moving towards the ‘universal banking framework’ and eventually the emergence of
financial conglomerate. Such developments bring along some regulatory and supervisory
concerns. Banks have all along been functioning strictly on a ‘traditional banking style’
with highly compartmentalized manner. Now that the banking system enjoys more of
‘structural freedom’ exposing themselves to non-traditional activities such as insurance,
derivatives, investments banking, etc., there is possibility of migration of risks from the
rest of the activities to the banking system. Thus, the increased market integration and
globalization are demanding new realism on the part of the regulator and supervisor for
stricter prudential regulation and supervisor on ‘inter-sector’ activities especially,
considering the pace with which the system is moving. This process is referred in the
literature as ‘structural deregulation’ and ‘supervisory re-regulation’. While it is
inevitable that Indian banks entering into insurance sector, given the size of the
transactions in ‘general insurance transactions’, coupled with the type of built-in risks on
the one side and that the banking system being the focal point of the payment and

38
settlement on the other, any migration from the former to the latter will have a greater
systemic implications. Therefore adequate and appropriate checks and balances are
required to be put in place in time by all regulatory authorities concerned. Going by the
international experience and specificity of the Indian system, the likely problem areas are
being enumerated here:
● The problem of ‘conflict of interest’ would also arise in a different form; as banks
are privy to a lot of information about the customer, especially in the context of know
your customer (KYC) system being in place, these information could be used by the
insurers for their unfair advantage.
● With more integration between and among various constituents of financial sector,
there is greater possibility for ‘contagion effect’.
● In India all insurance companies in private sector of recent origin and are in the
process of stabilizing, also highly aggressive due to tough competition. The over
ambitiousness should not smack their own limitation, especially in the case were
insurance business is an internal organ of the universal banking system. Especially in a
situation such as large scale natural calamities, viz., Tsunami, earthquake, floods, etc.,
would have a serious debilitating impact on the banking system, via insurance business.
Therefore, the regulation and supervision needs to address the institution as a ‘financial
conglomerate’ rather than each institution individually.
● The regulator of the insurance sector is of very recent origin unlike the banking
sector regulatory authority, viz., RBI. Although IRDA has done appreciable work within
the short period, the regulation itself is a learning experience; any major migration of risk
from insurance to banking would be more devastating if that was not handled
appropriately at the right time.
● In the absence of a unified regulator or a single regulator, the possibility for
‘regulatory arbitrage’ could not be ruled out. Presently there is no statutory compulsion
that the regulators should part with each other the sensitive information relating to their
respective regulatory areas in order to read the signal, if any, which has systemic
implications.

39
 ● Differences in the risk characteristics in banking and insurance will persist,
relating, in particular, to the time pattern and degree of uncertainty in the cash flows and
that has to be recognized and appropriately handled.
● The insurers’ internal risk management and control systems for managing their
asset market activities, and credit risk seems to be relatively less transparent unlike the
banking system as also the prudential regulatory and supervisory system towards
insurance is relatively recent one and less rigor as compared with the banking system,
especially in the context of the banking system moving towards the Basel II framework.
● Conflicts of interest between different regulators also could not be ruled out.
● Ensuring transparency and disclosure on activity-wise may be difficult task for the
regulators, albeit it is essential.
● Possibility of abuse of consumers by bankers from being coerced to buy insurance
products against their will need to be guarded, which RBI has been already emphasizing
in its circular.
● Risk of ‘double gearing’ also possible as pointed out by Gently and Molyneux
(1998).
● Possibility of banks using the long term insurance funds to meet their short term
liquidity and the problem of asset - liability management also could not be ruled out.
● Recognizing the value of sound risk management practices and hence also
valuations on an aggregate portfolio basis - rather than individual instrument basis –
would become essential to achieve alignment of underlying economic realities with
financial statements, as the system is moving towards higher integration of varieties of
activities including insurance.

40
 3.7 RBI GUIDELINES FOR THE BANKS TO ENTER INTO
INSURANCE BUSINESS

Following the issuance of Government of India Notification dated August 3, 2000,

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; RBI issued the
guidelines on Insurance business for banks.
1. Any scheduled commercial bank would be permitted to undertake insurance
business as agent of insurance companies on fee basis, without any risk participation. The
subsidiaries of banks will also be allowed to undertake distribution of insurance product
on agency basis.
2. Banks which satisfy the eligibility criteria given below will be permitted to set up a
joint venture company for undertaking insurance business with risk participation, subject
to safeguards. The maximum equity contribution such a bank can hold in the joint
venture company will normally be 50 per cent of the paid- up capital of the insurance
company. On a selective basis the Reserve Bank of India may permit a higher equity
contribution by a promoter bank initially, pending divestment of equity within the
prescribed period (see Note 1 below).
The eligibility criteria for joint venture participant are as under:
i. The net worth of the bank should not be less than Rs.500 crore;
ii. The CRAR of the bank should not be less than 10 per cent;
iii. The level of non-performing assets should be reasonable;
iv. The bank should have net profit for the last three consecutive years;
v. The track record of the performance of the subsidiaries, if any, of the concerned
bank should be satisfactory.

3. In cases where a foreign partner contributes 26 per cent of the equity with the
approval of Insurance Regulatory and Development Authority/Foreign Investment
Promotion Board, more than one public sector bank or private sector bank may be
allowed to participate in the equity of the insurance joint venture. As such participants

41
will also assume insurance risk, only those banks which satisfy the criteria given in
paragraph 2 above, would be eligible.
4. A subsidiary of a bank or of another bank will not normally be allowed to join the
insurance company on risk participation basis. Subsidiaries would include bank
subsidiaries undertaking merchant banking, securities, mutual fund, leasing finance,
housing finance business, etc.
5. Banks which are not eligible for ‘joint venture’ participant as above, can make
investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower, in
the insurance company for providing infrastructure and services support. Such
participation shall be treated as an investment and should be without any contingent
liability for the bank.
The eligibility criteria for these banks will be as under:
i. The CRAR of the bank should not be less than 10%;
ii. The level of NPAs should be reasonable;
iii. The bank should have net profit for the last three consecutive years.
6. All banks entering into insurance business will be required to obtain prior approval
of the Reserve Bank. The Reserve Bank will give permission to banks on case to case
basis keeping in view all relevant factors including the position in regard to the level of
non-performing assets of the applicant bank so as to ensure that non-performing assets do
not pose any future threat to the bank in its present or the proposed line of activity, viz.,
insurance business. It should be ensured that risks involved in insurance business do not
get transferred to the bank and that the banking business does not get contaminated by
any risks which may arise from insurance business. There should be ‘arm’s length’
relationship between the bank and the insurance outfit.

Notes:
1. Holding of equity by a promoter bank in an insurance company or participation in
any form in insurance business will be subject to compliance with any rules and
regulations laid down by the IRDA/Central Government. This will include compliance
with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for

42
divestment of equity in excess of 26 per cent of the paid up capital within a prescribed
period of time.
2. Latest audited balance sheet will be considered for reckoning the eligibility
criteria.
3. Banks which make investments under paragraph 5 of the above guidelines, and
later qualify for risk participation in insurance business (as per paragraph 2 of the
guidelines) will be eligible to apply to the Reserve Bank for permission to undertake
insurance business on risk participation basis.

Insurance Agency Business/ Referral Arrangement

The banks (includes SCBs and DCCBs) need not obtain prior approval of the RBI for
engaging in insurance agency business or referral arrangement without any risk
participation, subject to the following conditions:

i. The bank should comply with the IRDA regulations for acting as ‘composite
corporate agent’ or ‘referral arrangement’ with insurance companies.
ii. The bank should not adopt any restrictive practice of forcing its customers to
go in only for a particular insurance company in respect of assets financed by
the bank. The customers should be allowed to exercise their own choice.
iii. The bank desirous of entering into referral arrangement, besides complying
with IRDA regulations, should also enter into an agreement with the
insurance company concerned for allowing use of its premises and making
use of the existing infrastructure of the bank. The agreement should be for a
period not exceeding three years at the first instance and the bank should have
the discretion to renegotiate the terms depending on its satisfaction with the
service or replace it by another agreement after the initial period. Thereafter,
the bank will be free to sign a longer term contract with the approval of its
Board in the case of a private sector bank and with the approval of
Government of India in respect of a public sector bank.
iv. As the participation by a bank’s customer in insurance products is purely on a
voluntary basis, it should be stated in all publicity material distributed by the

43
 bank in a prominent way. There should be no ’linkage’ either direct or
indirect between the provision of banking services offered by the bank to its
customers and use of the insurance products.
v. The risks, if any, involved in insurance agency/referral arrangement should
not get transferred to the business of the bank

44
 4. CONCLUSION

The insurance industry in India has been progressing at a rapid speed since the
inception of this sector. In a country like India which consists of a diverse set of people
combined with problems of connectivity in rural areas makes the insurance selling a very
difficult task. So due to this reason, insurance companies require good distribution
strength and huge manpower to reach out to such a huge customer base.
The concept of bancassurance in India is still in its emerging stage. But an
incredible potential reveals that bancassurance in India has a very bright future. Recently
various innovations have taken place in the insurance sector to suit and satisfy the
growing needs of various customers. So, there is every reason to be optimistic that
bancassurance in India will play a long inning.
However, bancassurance segment is still facing many problems because of poor
manpower management, lack of call centers, less personal contact with customers,
insufficient incentive to the agents etc.

45
 APPENDICES
Q.1 What is your age?
o 20 – 30
o 31 – 40
o 41- 50
o Above 50

Income
o 1 lakh - 2 lakh
o 3 lakh - 4lakh
o 4 lakh – 5lakh
o Above 5 lakh

Q.2 Do you know about bancassurance?

o Yes
o No
Q.3 Do you know that this bank provides bancassurance?
o Saraswat bank
o PMC bank
o Hdfc bank
o Other __________________

Q.4 Which bank do you prefer for taking bancassurance except these banks?
o ICICI bank
o HDFC bank
o Uco bank
o Other____________

46
Q.5 Do you have bancassurance ?
o Yes
o No

Q.6 In which type of bank do you like to have bancassurance ?

Public bank
Private bank
Co-operative bank

Q.7 What type of bancassurance you will take?

o Life insurance
o General insurance
o Miscellaneous insurance

Q.8 How do you get information that this bank provides bancassurance?
o Advertisement
o Friends
o Relatives
o Newspaper

Q.9 Do you have take loan against your insurance?

o Yes
o No

Q.10 What is the purpose of taking insurance?

o Tax saving
o Capital appreciation

47
Q.11 Which type of life insurance policy will you like to take?
o Child plan
o Endowment policy
o Other________

Q.12. Which type of general insurance policy you will take?

o Marine
o Fire
o Motor vehicle
o Other________

Q.13. Which type of miscellaneous insurance policy you will take?

o Fidelity
o Flood
o Crop insurance
o Other______________

Q.14.Do you think life insurance is a type of saving?

o Yes
o No

Q15. Do you have face any problem while claiming the amount? (if)
o Yes
o No

48
 COLLECTION ANALYSIS OF DATA

The data has been collected on the basis of questionnaire prepared as per the objectives of
the study. The questionnaire was distributed to 60 respondents

1. What is your age?

20-30
20%
above 50
25%

31-40
25%
41-50
30%

Comments:

2. What is your income?

49
 1 lakh- 2lakh
15%

above5 lakh
25%

3lakh-4lakh
25%

4lakh-5lakh
35%

Comments:
3. Do you know about bancassurance?

no
35%

yes
65%

Comments:

4. Do you know that this bank provides bancassurance?

50
 saraswat bank
25%
other
45%

icici bank
30%

Comments:

5. Do you have Bancassurance?

yes
45%
no
55%

Comments:

6. Which bank do you prefer for taking Bancassurance?

51
 OTHERS
20%

PMC BANK
35%

HDFC BANK
45%

7. In which type of bank do you like to have a banssurance

co-operative
bank
25% public bank
40%

private bank
35%

Comments:

52
8. How do you get information that this bank provides bancassurance?

newspapers
30% advertisement
35%

relatives
15%
friends
20%

Comments:

9. Do you know about various type of bancassurance mentioned below?

indemnity insurance
30%

life insurance
70%

Comments:

53
10. Which kind of product are covered under bancassurance?

pension product
35%
individual product
65%

Comments:

11. Do you feel awareness level of concept of bancassurance exit in the market?

no
45%

yes
55%

Comments:

54
 12. Do you think bancassurance is safe for investment?

no
35%

yes
65%

comments:

13. Do you have taken loan against your insurance?

no
25%

yes
75%

Comments:

55
14. What is the purpose of taking banmassurance?

capital appreciation
35%

safety
65%

Comments:

15. Which type of life policy will you like to take?

others
30%

child plan
45%

endownment
policy
25%

Comments:

56
16. Do you have faced any problem while claiming the amount?

no
35%

yes
65%

Comments:

17. Do you think banassurance is a good investment option?

no
40%

yes
60%

Comments:

57
18. Are you satisfied with bancassurance services?

No
45%

Yes
55%

comments:

58
 INTERPRETATION OF DATA

In India banking and insurance sectors are regulated by two different entities. The
banking sector is governed by Reserve Bank of India (RBI) and the insurance sector is
regulated by Insurance Regulatory and Development Authority (IRDA).For banks it just
acts as a means of product diversification and additional fee income; for insurance
company it acts as a tool for increasing their market penetration and premium turnover
and for customer it acts as a bonanza in terms of reduced price, high quality products and
delivery to doorsteps. The bank sees bancassurance as a way of creating a new revenue
flow and diversifying its business activities. The bank becomes a sort of “supermarket”, a
“one-stop shop” for financial services, where all customers’ needs – whether financial or
insurance- related – can be met.
Distribution of insurance products through a bank‟s distribution channels.
According to IRDA, „bancassurance‟ refers to banks acting as corporate agents for
insurers to distribute insurance products Life Insurance Marketing and Research
Association’s insurance dictionary defines bancassurance as “the provision of life
insurance services by banking and building societies”. Each bank that sells insurance
must have a chief insurance executive to handle all the insurance activities; All the people
involved in selling should under-go mandatory training at an institute accredited by
IRDA and pass the examination conducted by the authority; Commercial banks may
become corporate agents for one insurance company Banks cannot become insurance
brokers.
Research Association’s insurance dictionary defines bancassurance as “the
provision of life insurance services by banking and building societies”. Each bank that
sells insurance must have a chief insurance executive to handle all the insurance
activities; All the people involved in selling should under-go mandatory training at an
institute accredited by IRDA and pass the examination conducted by the authority;
Commercial banks may become corporate agents for one insurance company banks
cannot become insurance brokers.
Bancassurance is helpful for the banks because it provides Revenue
diversification Satisfaction of more financial needs under the same roof Customer
retention-Increase in customer loyalty More profitable resource utilization Enriched work

59
environment Establish sales oriented culture Bancassurance is helpful for the insurance
companies, Revenue and channel diversification Quality customer access Quicker
geographical reach creation of brand equity Increase in volume and profit Improved
brand equity.

60
 SUGGESTIONS

 The Insurance companies need to design products specifically for

distributing through banks. Trying to sell traditional products maynot

 The employees of the banks who are selling insurance productsmust be

given proper training so that they can answer to anyqueries of the
customers and can provide them products accordingto their needs.
 Banks should also provide after sales services and they should bemore
aggressive in selling the insurance products.
 Banks should also do the settlement of claims which will increasethe trust
and reliability of the customers on the banks.
 In India, since the majority of the banking sector is in public sector which
has been widely responsible for the lethargic attitude and poor quality of
customer service, it needs to rebuild the blemishedimage. Else, the
bancassurance would be difficult to succeed inthese banks.
 A formal and standard agreement between these banks and theinsurance
companies should be taken up and drafted by a nationalregulatory body.
These agreements must have necessary clauses of revenue sharing. In case
of possible conflicts, the bank management and the management of the
insurance companyshould be able to resolve conflicts arising in future.
 For bancassurance to succeed, products and processes will need to be
tailored to bank markets, rather than adjusted to insurer’sspecifications.
 Banks and Insurance companies should apply all the skills and potential in
this area and take advantage of the same and theyshould improve the
products from time to time according to theneeds of the customers.

61
 BIBLOGRAPHY

Website:
www.encyclopedia.com
www.saraswatbank.com
www.icicibank.com
www.wikipedea.com
www.investopedia.com/terms/b/bancassurance.asp

indianmoney.com/how/what-are-the-models-used-in-bancassurance

Books reference:

Insurance Marketing

Insurance watch.

Theories and Practices in Insurance

Insurance fund management

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