Problems associated with Bancassurance:
in Bancassurance at Branch level:
Absence of posters and communication on bancassurance
Absence of brochure on bancassurance policies, rules and procedures
Lack of interest and motivation among bank staff towards selling of
Lack of updates on different insurance products knowledge, training and
No display of bancassurance on different service counters of banks.
No sharing of commission as incentive to bankers.
The rates of premium for bancassurance not competitive.
Corporate clients affinity towards international insurance company.
Absence of new products, latest technology and diversified insurance
In spite of the fact that the respondents have
called attention to that “No show of bancassurance information at various
administration counters of the bank”, absence of interest and motivation among
bank staff individuals towards offering of bancassurance” and lack of
updates on various insurance products knowledge training and awareness ”
are the principle explanations behind bancassurance not getting to be popular
and well known but all the issues mentioned above requires immediate attention
of commercial banks and insurance companies to make it a powerful source of
insurance business in India.
Problems Associated with
Bancassurance Business in India:
1. lack of
Involvement of top management
2. Incentive systems
3. Defect in use of
4. Co-branding issues
5. Lack of
6. Competing returns
7. Difference in pace
8. Manpower and
10. Payment of
involvement at each levels
12. Change of mindset
Bancassurance is a new business
in India. In spite of the fact that tie-ups between business banks and
insurance agencies are expanding however they are confronting numerous issues
in its execution. Staff individuals from banks and insurance agencies have
recognized a portion of the issues in their tie-ups, which have been shown in percentage
terms in the above. Commercial banks and insurance agencies should attempt to resolve
these issues to guarantee smooth working environment and development in
Bancassurance products, being a “push” items, require an entirely
unexpected mindset and work culture. Regardless of whether the current staff of
banks can accomplish this is a big question. Have the Indian banks, which have
Mutual Fund through their bank branches? Certainly not.. The issue of cultural
incompatibility can impede bancassurance business to a great extent. On the
other hand, if the insurance subsidiary of the bank has to maintain the entire
paraphernalia, comprising research, administrative, distribution and other
staff, it would be too costly, and in some cases, the cost restrictions would
not permit it to indulge in this.
b. Further, since life products and banking products are similar, efforts to
market the former will will be less cumbersome for the bancassurance
organization. However, non-life items are altogether not the same as life or banking
projects and are far too complex, with high counter- party and reinsurance
dangers, and consequently, it would be troublesome for bancassurance companies to
go into general insurance business immediately, until and unless they develop
and retain the required skill.
c. The way in which insurance profits develop poses a threat to successful
operation of bancassurance. An examination of profit signatures, i.e., the time
pattern over which profits of the insurance sector develop, demonstrates that
around the world, the breakeven period of time before profits ranges between 6
and 8 years. For disaster protection business, this works out to 8-10 years. This
is because initial procurement costs are high. In some countries, commissions
and expenses required to earn first year’s premium are much higher than 100
percent. In India, these stand at 90 percent for the first year’s premium. On
the other hand, distribution of profits is tightly regulated. In India, only 5
percent of the actuarial surpluses can be distributed as dividend. Does this bode
well for bancassurance?
d. LIC and the four subsidiaries of GIC are well established in their
respective lines of businesses. Opening up the insurance sector has also
awakened them, and being old players, they would like to take their
competitors, who are new, by the horns. Thus, they will strive to become more
competitive, and will be buttressed by their financial and non-financial
strength, including the lobbying power. This would pose a threat to the new
bancassurers. Too much of competition may lead to accentuation of the adverse
selection and moral hazard problems, which may ultimately prove detrimental to
the insurance industry as a whole.
e. Success of bancassurance would also depend on the extent to which and how
fast the technology being used for banking operations can be used for meeting
the technology requirements for insurance business. Otherwise, banks will have
to incur large investments for putting in place the technological
infrastructure for bancassurance operations.
f. In case of failure of the bancassurance operation, the bank runs the threat
of image risk and cannibalizing deposits (i.e. there may be a fear among the
staff that investment oriented life insurance products may eat into the deposit
base of the branches).
g. Insurance sales being commission/ incentive driven, banks offering insurance
products may be required to provide incentive packages in addition to the
regular remuneration to drive the sales.
h. Keeping up same service levels for insurance business as that for the banking
services may be one of the biggest challenge.
i. Private players in the insurance industry being new contestants are technology-savvy.
Banks, particularly PSBs, need to ascend to the challenge and be willing to
invest in technology.
At one point when banks undertook insurance
business in other countries, they faced the problem of indifference by bank
employees to insurance. Bank employees are reported to have kept protection
items sidelined too complex to sell within their conventional relationship. One
of the papers circulated in the conference pointed out, however, that universal
banks, which handled multiple goals, were consistently at a disadvantage in
terms of profitability compared to focused banks. They are less profitable than
others. Focused banks — those that concentrate on a primary objective —
tended to give better attention to shareholder value.
Mergers of banks and insurance agencies can at
some point make issues, arising from the mere fact of complexity of
conglomeration. One of the papers circulated in the conference cited the
example of a bancassurer in Netherlands, INB, facing a problem with
distribution. Its insurance agents ran a boycott of its business. It had to
finally agree that its banking division would undertake only the distribution
of very simple products.
This kind of channel conflict is a problem the
new bancassurers in India have to learn to avoid. One of the methods of
limiting this is to insist on banks creating specialized subsidiaries for
handling insurance. Fortunately, this seems to be the preferred model.
Large organisations cannot be managed as easily
as smaller ones. Complexity generates its own problems. Overburdening of
top-level bureaucracy results in the neglect of core competence. Banks have to
take good care to avoid these pitfalls when they under take insurance as a new
Above all, a proper pattern of incentives, training and top
management attention to removing problems of inter-sectoral rivalry will help
resolve the problems.
Value and proposition:
commercial banks also oversee value and potential in insurance business due to complementary
nature of insurance products, a source of additional fee based income along with
availability of a cushion for recovery of bank advances in case of death of the
borrower or destruction of properties mortgaged. Further, many commercial banks
being promoters of the insurance companies in India also benefit from the
higher valuation of these companies due to synergies derived from bancassurance.
Propositions of Bancassurance:
offered by the banks and in addition by the insurance agencies, are related to
assets and risks. They must be overseen. These institutions manage risks and
assets for the customers, reducing and taking over the risks and transforming
the assets. The cores of the businesses are similar, though not same. The basic
values offered by banks, Insurance companies and other
institutions are indicated below.
Banks offer to
its client’s liquidity (while at the same time making long term loans), safety,
trust (managing estates on behalf of beneficiaries), collection of interest or
dividends payments of commitments (rentals and insurance premiums for example)
and annuities. Insurers primarily protect clients from risks (political,
financial, commercial, business, and human). In life insurance, there is major
component of management of an asset, which iscreated by the policy. The
benefits of the insurer’s expertise in assetmanagement, passes on the clients
by way of premiums levels and bonuses. The liquidity concerns of insurers are
different from liquidity concerns of banks
principally provide information and advice. They additionally go about as brokers
or agents for the customers, but not take responsibility for risks and assets. Pension
funds manage the saving made directly or through employers and help the
pensioners manage the risks of loss of income in old age. Mutual funds are
asset transformers, providing small savers easy access to complex Portfolios of
capital market, without sacrificing the needs of liquidity.
big and small, individual and organizations are all interested in all these
services. That is the justification for
concept of a single window for all financial services. Bancassurance is a step
in this evolution.