Bank on insurance

The regulator has asked for comments from all stakeholders and if the proposals are implemented,it will help insurers increase penetration. Public and private sector banks together have a network of over 80,000 branches 14,000 metro,16,000 urban,18,000 semi-urban and 32,000 rural branches and they can see value in the insurance business due to complementarity of products,and can generate fee income from the distribution of insurance products.

Though the number of savings bank accounts in the country is around 310 million,given the number of multiple accounts,the total number of individuals having bank accounts would be around 200 million and many account holders have long relationship with their banks. Bancassurance commenced in India in 2000,when the government issued notification under Banking Regulation Act that allowed banks to do insurance distribution. Two years later,Irda notified corporate agency regulations where banks could become an agent of one life and non-life insurer. Currently,there are 17 banks with shareholding in insurance companies and the total premium collected through bancassurance in 2009-10 was R 21,947 crore 7.31 of the total premium income of life and non-life insurance sectors put together.

However,the Irda note says that premium growth seems to have reached a plateau due to the inability of both banks and insurance companies to exploit the full potential. Low level of training,lack of operational coordination and lack of specially-designed products have hampered the growth of bancassurance.

As insurance is mostly sold in India as a push product,the role of distributors cannot be undermined. But after a series of new norms by the regulator,the commission earned by distributors has come down drastically. Moreover,insurers are also going slow on branch expansion,especially in smaller towns. Analysts say the bankassurance model will not only be cost effective but will also be beneficial to customers as it will be more transparent.

Analysts also say bancassurance can play an important role can in reaching out to rural areas where a vast population remains outside the reach of insurance and help mobilise non-volatile source of funds over a long period of time. In fact,according to a World Bank-NCAER Rural Finance Access Survey carried out in 2003,over 82 of rural households have no insurance cover. Analysts say nothing much has changed after that survey,which clearly suggests and even the Irda report makes a note that rural areas have to be given high priority by insurers for increasing the penetration of services.

Bancassurance has emerged as an important channel for distribution of insurance products globally and various studies have shown that the channel can save costs of insurance companies in the long run. In fact,a study by Swiss Re shows that for insurers,bancassurance have resulted in cost saving of around 21 and revenue gain of around 5. Citing the US example,McKinsey estimates that bancassurance helped to boost the life insurance business by around 25. The Irda panel has also underlined that the administration charge under the bancassurance channel is lower than all other channels. For instance,the total charges per unit premium for bancassurance in unit-linked insurance plans is 18.80 compared with 26.10 for all channels. The total expense loadings required to give unit maturity benefit to the policyholder are substantially lower under the bancassurance channel compared to all the channels. The major contributors to the effect were the commission and premium related expenses which may be considered to reflect the ease in the acquisition of business under the bancassurance channel, says the Irda report.

Banks selling insurance products will not be eligible for any compensation other than the commission payable for distribution of insurance. Banks will also not be permitted to receive any other payment directly or through affiliates,or other revenues for any activity or facility including rent and advertising.