An Analysis of Effectiveness of Bancassurance as a Distribution Channel in India

Abstract

ANCASSURANCE , which basically involves banks acting as corporate agents for insurers to distribute insurance products, has evolved as a strong distribution channel in many countries. Following the deregulation of the Indian insurance industry and the amendment of the insurance law, Indian banks have been looking towards bancassurance as a logical step in the expansion of their business and have planned to venture into this lucrative segment which has hitherto been dominated by few public sector companies. Similarly, new insurers have also viewed banks as an ideal mechanism to gain distribution power. The present paper is an exploratory study to understand the effectiveness of Bancassurance on three dimensions: 1. The motivating factors behind the Bancassurance 2. Potential benefits of Bancassurance 3. Implementation problems of Bancassurance Factor analysis that has been used to conclude the findings on one hand has identified greater fee based income, improved profit margins, effective utilization of resources are the motivators for banks to enter into bancassurance, on the other hand factors such as expansion of existing market, access to ready client base of banks and encashing the brand name of banks motivate insurance companies for the same. It also reveals that customers prefer bancassurance to purchase a policy due to more benefits and authenticity. The study concludes that successful bancassurance partnerships in India is due to the fact that by entering into this, both parties have win- win proposition since there is nothing to lose. Purpose: This study seeks to examine the relatively new trend in insurance distribution channels alternative; namely, Bancassurance: it’s role, benefits, implication, and problems in India. Bancassurance is a new buzzword. While Bancassurance has developed into a tremendous success story in Europe, it has been constrained by legislation in USA and Canada. It is a relatively new concept in Australia and Asia. However, a sea change in the financial service industry is imminent with banks and insurance companies increasingly realizing the strategic significance of Bancassurance in the future viability of their businesses. Design/Methodology/Approach: The study examines how Bancassurance works in India. There are a number of theoretical reasons as to why banks should enter into the insurance market in India. The main reason behind the bancassurance partnerships in India has been the fact that the banks and insurance both tend to lose nothing. So, marketing of insurance products and earning an additional income is a blessing for the banks. The study is based on survey method.