There was a time in the past when insurance policies were meant for a small part of public who were financially strong. Today the scenario has completely changed wherein insurance policies reach every person in almost every corner of our nation. This change in the financial horizon was ushered in with the birth of bancassurance in India. Banks which were meant for deposits, loans and transactions are allowed to provide insurance policies to people and this feature of bank is called ‘bancassurance’. However to understand how this takes place one would have to continue reading this article.
Need for bancassurance in India:-
Researches and present day statistics speak about the need of a well equipped financial structure for a country that helps it to grow economically. The financial resources in the hands of people should be channelized in effective manner so as to increase the returns from the basic financial structure of nation and also the quality of living of people. Insurance policies are instruments/products that play major role in upholding the financial structure of developed countries. Though the teething phase of insurance, one may say is just past, a desirable foothold is yet to be found. With growth in number of middle class families in the country, RBI recognized the need of an effective method to make insurance policies reach people of all economic classes in every corner of the nation. Implementing bancassurance in India is one such development that took place towards the cause. The need and subsequent development of bancassurance in India began for the following reasons:
To improve the channels through which insurance policies are sold/marketed so as to make them reach the hands of common man
To widen the area of working of banking sector having a network that is spread widely in every part of the nation
To improve the services of insurance by creating a competitive atmosphere among private insurance companies in the market
Regulations under RBI and IRDA:-
The Reserve Bank of India and the insurance development and regulatory authority have a set of guidelines for companies that couple to form bancassurance. Based on the equity a bank should hold in joint venture, the highest allowable value of equity, the type of banks and insurance companies that can couple together and the operation of bancassurance are all the factors that are regulated by RBI and IRDA.
The IRDA has very recently drafted guidelines to promote open architecture in bancassurance. Currently a bank has a tie-up with only one life insurer and one non-life insurer. But in the new model the banks necessarily have to have multiple tie-ups. The country is divided into zones and every bank has to choose multiple insurers within the zones. With this the customer will have a wider range of insurance products offered by different insurers. It will also lead to a deeper penetration in the selling of insurance products.
Benefits of Bancassurance:-
It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.
The people who are unaware of and/or are not in reach of insurance policies can be benefitted through widely distributed banking networks and better marketing channels of banks.
Increase in number of providers means increase in competition and hence people can expect better premium rates and better services from bancassurance as compared to traditional insurance companies.
Demerits of bancassurance:-
Data management of an individual customer’s identity and contact details may result in the insurance company utilizing the details to market their products, thus compromising on data security.
There is a possibility of conflict of interest between the other products of bank and insurance policies (like money back policy). This could confuse the customer regarding where he has to invest.
Better approach and services provided by banks to customer is a hope rather than a fact. This is because many banks in India are known for their bad customer service and this fact turns worse when they are responsible to sell insurance products. Work nature to market insurance products require submissive attitude, which is a point that has to be worked on by many banks in India.
SBI life insurance Company
LIC is tied up with Vijaya bank, Oriental bank of commerce, Corporation bank
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