19 TH INDIA FELLOWSHIP SEMINAR 19 INDIA FELLOWSHIP SEMINAR JUNE 2013 THE BANCASSURANCE DILEMMA THE BANCASSURANCE DILEMMA Should banks be brokers with higher responsibility towards customers or should they continue as corporate agents? Bhavna Verma & Shivank Chandra Guide - Varun Gupta
AGENDA AGENDA • Bancassurance – The story so far B Th f • Bancassurance models • IRDA (Licensing of Bancassurance Entities) Regulations, 2012 • Comparative analysis of agent and broker models Comparative analysis of agent and broker models • Bank as corporate agent, bancassurance agent and broker • Insurer’s perspective • Bank’s perspective • Customer’s perspective • Customer s perspective • Industry views and concerns • Summary
BANCASSURANCE -THE STORY SO FAR “Bancassurance is an arrangement in which a bank and insurance company form a partnership so that the insurance company can sell its products to the bank’s customer base.”
History and relative importance of bancassurance globally History and relative importance of bancassurance globally The bancassurance model was introduced in Europe in the 1980s. The bancassurance model was introduced in Europe in the 1980s. Main distribution channel for life insurance products in many countries in Europe • Agents and brokers continue to be the dominant channels for the distribution of Agents and brokers continue to be the dominant channels for the distribution of • non-life products in Europe Most Asian markets are also witnessing growing contribution of the • bancassurance channel to life insurance premiums.
Factors that prompted banks to take up insurance distribution in India Factors that prompted banks to take up insurance distribution in India Wider range of financial 59% 35% products products Increase fee-based income/additional stream of 29% 29% 18% revenue Increase customer loyalty 24% 18% 24% Improve the sales culture Improve the sales culture 18% 18% 29% 29% Rank 1 Rank 2 Rank 3 Acquire new customers 6% 24% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Source: Towers Watson India Bancassurance Benchmarking Survey, 2009-10 Essentially, banks see insurance products as a means to attract customers and additional fee income, at little extra investment.
Bancassurance market share Source: IRDA data The share of bancassurance in new business sales has • increased steadily over the last few years for life insurance business. Private life insurers tend to be more focused on • bancassurance and hence generate a relatively higher proportion of their business through banks when compared to public sector insurers. Globally and in India, banks contribution to general insurance • business has been comparatively lower than their share in Source: IRDA data life insurance new premiums collected by the industry.
Bancassurance success factors Benefits to insurers Benefits to insurers Benefits to banks Benefits to banks Benefits to customers Benefits to customers � Higher market � Enhanced product � Access to wider range of penetration through the portfolio products within the bank existing customer base of existing customer base of � Source of additional fee � Source of additional fee- � Availability of need-based Availability of need based the bank based income advice and assured service � Increased turnover � Marginal additional � Higher trust � Lesser need to establish distribution costs (use of � Ease of premium payments own networks own networks existing staff) existing staff) (linked to bank accounts) (linked to bank accounts) � Overall cost � High degree of alignment � Products may be cheaper effectiveness versus in customised product versus agency channel agency channel design, sales support etc. for bank led insurers for bank-led insurers Prompted by the success of the bancassurance model globally and to facilitate active integration with the insurance company, several banks promote insurance companies singly or jointly in India.
BANCASSURANCE MODELS
There are four main types of bancassurance models globally… There are four main types of bancassurance models globally… Strategic Pure distributor alliance alliance Wholly-owned Wholly owned J i t Joint venture t insurer / bank
Models prevalent in India Models prevalent in India Strategic Pure distributor alliance Wholly-owned Joint venture insurer / bank insurer / bank In India, while the first three models are practiced, regulations do not permit either banks or insurers to wholly own an insurance company or bank.
Roles and responsibilities Roles and responsibilities Servicing, Lead New Marketing Product CRM and and generation business development development repeat repeat promotion ti and sales d l processing i sales Pure Distributor Insurer Insurer Bank Insurer Insurer Marketing Strategic Alliance Insurer Insurer (and bank) Bank (and insurer) Insurer Insurer Joint Venture Insurer (and bank) Bank (and insurer) Bank (and insurer) Insurer (and bank) Insurer Wholly Owned y B Bank (and insurer) k ( d i ) B Bank (and insurer) k ( d i ) B Bank k Bank (and insurer) B k ( d i ) I Insurer (and bank) ( d b k) (Integrated Venture) These are hygiene areas: Banks expect ‘perfect’ delivery
IRDA (LICENSING OF BANCASSURANCE IRDA (LICENSING OF BANCASSURANCE ENTITIES) REGULATIONS, 2012
Exposure draft – key provisions Exposure draft key provisions Bancassurers can operate through the corporate agency or broker channel; the broker channel was previously not permitted. h l th b k h l i l t itt d A ‘bancassurance agent’ will be allowed to The conduct of bancassurance through the broking channel will be governed by tie-up with one life, one non-life, one the IRDA (Insurance Broker) standalone and one specialised insurer in p Regulations, 2002 which are currently a minimum of 10 and maximum 20 of the under review. listed states / Union Territories. Those opting to act as brokers will need Those opting to act as brokers will need In any one given state, exclusivity of the to withdraw from existing ancassurance bancassurance partnership must be partnerships. maintained. The driving factor behind the new regulations is reportedly to increase overall insurance penetration by utilising the vast network of banks, particularly in rural and semi-urban areas.
COMPARATIVE ANALYSIS OF COMPARATIVE ANALYSIS OF AGENT AND BROKER MODELS
Bank as corporate agent, bancassurance agent and broker Corporate agent (current) Bancassurance agent Broker (proposed) (proposed) Sell products of one life and one Sells the products of one life, Sell products of all insurance non-life company across the one non-life, one standalone companies country heath and one specialised insurance company in one insurance company in one location Represent one life and one non- R t lif d R Represent one life, one non- t lif R Represent the customer and t th t d life insurance company across life, one standalone heath find the product that best the country and one specialised meets the requirement insurance company in one among the products of all l location ti companies i May be able to secure better y Works on rates offered by the insurance company rates as all companies’ products are offered
Comparison of corporate agency and broker models (1) Insurer’s perspective Insurer’s perspective Bancassurance model Advantages Challenges Corporate agency Corporate agency � Automatic tie-up for bank- A t ti ti f b k � Might need to offer equity Mi ht d t ff it (single tie-up) led insurers and brand stake to ensure commitment integration � Higher senior Hi h i � Need to commit resources to N d t it t management commitment maximise productivity / interest from bank � Potential conflict with core � Enhanced investments by Enhanced in estments b business b siness bank – equity stake, people, training infrastructure, marketing etc etc. � Customised product development based on bank’s customer bank s customer segmentation and needs analysis
Comparison of corporate agency and broker models (1) Insurer’s perspective (contd.) Insurer’s perspective (contd ) Bancassurance model Advantages Challenges Corporate agency � Access to a wider range of � Conflict of interest for (multiple tie-ups) banks bank-led insurers � Commitment from bank in � Dilution of brand a single location association for customers in areas where the � Customised product promoter bank partner’s development for major products are not offered banking partner � Need to engage with different banks in different locations, requiring additional time and resources
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