Banks in insurance

Banks are able to convert prospects much more effectively by mining its databases and approaching only the best prospects. Moreover, as banking gets more competitive and margins come under pressure, banks need to increase the share of thecustomer wallet by providing all his financial needs. Insurance is an attractive proposition for banks.

Experience in many European countries suggests good success rate for banks in the insurance market. A study by Business Consulting Group, a Mumbai based strategy-consulting firm, shows that banks have achieved a high penetration in the total insurance premiums in these countries.

For participating in the action on insurance front, Indian banks would need to evaluate various options. They can consider entering either directly by forming a JV or indirectly by becoming a corporate agent. Considering customer preference (whether they prefer buying their insurance from the bank or from an insurance company agent) and insurance penetration (whether the bank customers have insurance and to what extent they are covered) four broad options become relevant bank becomes a corporate agent for one insurance company; bank becomes a corporate agent for several insurance companies; bank actively participates through aJV with an insurance company and; bank becomes a passive player providing only channel to the JV.

In the case of the first two options, since the bank customers have a high insurance cover it may be better to look at becoming a channel for more insurance firms since captive business scope is limited.

This is not the case in option three and four wherein the bank can consider getting into a JV. Most customers are likely to prefer dealing with the bank for their insurance purchases, in which case the argument for the bank becoming the more active JV partner becomes strong. International experience suggests that customers rate their bank as more credible as compared to an insurance agent. If the IRDA finally gives a green signal to banks, it may open up a flurry of activity.

The good banks may get wooed by many of the prospective new entrants. The bank, as an insurance channel or as a JV partner, brings much key strength to the table customers, database, credibility and branch network, which it canleverage to gain a position of advantage. However, it has been found in foreign markets that a bank teller or the branch manager is the least interested in selling insurance products.