Pune: The growth of private sector insurance companies in India is nothing but phenomenal compared to its peers operating in other emerging Asian economies. In a matter of five years the private players in India have captured around 25 per cent market share. In other Asian economies the new players took over a decade to reach that mark.
But the task was not easy for the Indian private life insurers. One of the major challenges faced by them was the setting up of distribution channels. In fact the entry of private players has brought in significant changes in the latter. Till three years ago, the only mode of distribution of life insurance products was through agents. Today there are alternate channels like bancassurance, brokers, corporate agents and direct marketing through Internet.
Amongst the new distribution channels, the bancassurance route offers immense potential. The channel contributes around 15-18 per cent of the new business procured by the new Indian life insurers. For instance for Bajaj Allianz Life Insurance Company Limited the bancassurance channel contributes about 27 per cent of the new business and is growing at over 200 per cent.
The development of bancassurance has led to many success stories across all sectors - foreign, private and nationalised banks. The banks that have taken the lead in identifying bancassurance in its early stage are now exploiting the twin benefits of deeper customer relationships and enhanced fee income.
Given the deep and wide reach of the public sector and cooperative banks in India (around 65,000+ branches) bancassurance in India is here to stay and grow. It should be noted that parallels cannot be drawn with the older and more developed economies.
The success of bancassurance in the developed economies has been a mixed one. The reason for this being that most of their banking is done electronically, offering very little opportunity for the bank staff to have a face to face interaction with the customers - the most crucial aspect in the sale of insurance products.
In India, more then 80 per cent of the customers bank physically through bank branches. This provides an opportunity to the bankers to have regular face-to-face interaction with their customers. Secondly, the concept of a financial planner does not exist in India.
In smaller towns the bank managers double as investment advisors.
Life insurers are now expanding their reach through co-operative banks to reach the small towns. With a booming rural economy and rising non-urban incomes across the country, there is a growing need for life insurance coverage in these areas.
Currently life insurers have just touched the tip of the iceberg in terms of penetration, with just about 2 per cent of the rural population being insured. Bancassurance can catalyse the growth of insurance in this huge untapped market on two accounts -first, setting up their own distribution channels in rural areas is very expensive and second, bank staff-client relationship in smaller towns is very strong, which can be leveraged. In the next three or four years the bancassurance channel would contribute as much business for private companies as their own agency channels.
No place for itches
Given this situation the banks should have a long term perspective while entering into a bancassurance deal. They should realise that the insurance is a long-term contract, where the customer has purchased the policy in pursuance of the banking relationship. So for all service aspects, the customer relies on the bank more than on the insurance company. The banks should understand that bancassurance deals offers them an opportunity to develop long term customer loyalty as insurance and pension products have longer life than their own banking products.
Normally a bancassurance tie up is for three or five years. Therefore, the parties to the bancassurance - the bank and the life insurer - should understand that their partnership is a long-term one with no scope for a three, five or seven-year itch.
A number of bancassurance tie-ups in India will come up for renewal soon. The insurers will be ready dangling carrots to banks to sign up with them. It is imperative on the part of the banks to think twice before changing their insurance partners for short-term gains. The banks should opt out of existing relationships only if the service standards provided by the insurance companies are not at par with industry standards.
Other important issues that the life insurers need to look at closely is the regulatory environment. Currently, regulators are pondering over the idea of allowing banks to enter into multiple bancassurance contracts. This would result in the balance of power shifting to the banks.
*The author is the CFO & Head Bancassurance, Bajaj Allianz Life Insurance Co Ltd
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