Emerging role of Bancassurance in Financial Sector
The contemporary business environment has witnessed a precipitous change in the financial system in terms of greater depth of financial markets, the sophistication of services, and the unfolding of novel financial products. Financial institutions in their endeavours to thrive in the competitive landscape adopted new paradigms and business strategies. To stay ahead of the curve, the financial sector, came up with strategic partnerships like Bancassurance by converging the worlds of banking and insurance. The combination of manufacturing and selling capabilities of the insurance sector with the distribution network and well-disposed client base of banks enhance customer satisfaction, bottom line, and access to emerging channels of distribution. Considering a banking perspective, the service equips to generate risk-free income, optimize manpower utilization, and opens a new channel while using the existing customer base. Additionally, it diversifies the revenue stream and enriches the customer experience. On the other hand, the service benefits the insurance companies to expand its customer without having to pay broker commissions and can attain better market exposure. The approach leads to channel diversification, improve brand equity and facilitate insurance companies in establishing themselves in a new market utilizing existing banking network. While the service is advantageous for customers as bancassurance facilitates them in availing several insurance products through their banks. It is also a one-stop shop for all financial requirements. It offers an innovative product range and provides more credible solutions to various financial queries. Earlier, insurance products were serving the requirements of affluent people and concentrated in a limited geographical area. Bancassurance has extended the reach of insurance companies across various strata of society. During Covid, the service played a remarkable role in servicing claims and enhancing the insurance buying experience for customers. The digitization of bancassurance optimized the branch footprints, transformed branch personnel roles, and built omnichannel service and sales channels for flawless customer experience.
Contemporary Trends in Bancassurance
The service require systematic segmentation of market to cater to the requirements of consumers of both public and private sector banks. The segmentation requires a lateral shift from conventional , sole sales/distribution channel to a multiple sales and distribution channel. Although, multiple channels are facing challenges due to tangible cost benefits and through new approaches. Bancassurance has bright prospects in India due to following reasons-
- Increasing Purchasing Power Parity
- Massive influx of FDI
- Expansion of middle-class people
- Vast banking infrastructure across the countries
Strategic challenges for Bancassurance companies
New entrants in the bancassurance sector are challenging traditional providers in several ways:
- Shift to Distribution Services: Banks must now adapt to a model focused purely on distribution services, requiring them to align incentives across various suppliers.
- Sophisticated Risk Management: With the rise in sales of non-life insurance products, banks need to implement advanced products and risk management tools to handle the risks they retain.
- Cost vs. Benefits of Non-Life Products: The sale of non-life products should be balanced against the higher costs associated with servicing these policies. Additionally, frequent non-life insurance claims can lead to poor client relationships for banks.
Models for Bancassurance
Banks adopt different models for bancassurance. Some of them are as follows
- Strategic Alliance Model: This model involves a partnership between a bank and an insurance company where the bank solely markets, sells, and distributes the insurance company’s products. The bank handles only the marketing aspect and does not engage in other insurance-related functions.
- Full Integration Model: In this model, banking and insurance services are fully integrated. The bank sells insurance policies under its brand, acting as a comprehensive financial advisor. The bank addresses customer needs, controls sales, and manages post-sale services, including claims. Essentially, the bank performs all functions typical of an insurance company.
- Mixed Models: This approach combines banking and insurance services, where the bank provides its customer database to insurance companies. The insurers’ staff handles the marketing and selling of policies. This model requires minimal technical investment from the bank.
Career Prospects for Millennials
Keeping in mind the career options for millennials, bancassurance has emerged as one of the highest-demand jobs in the insurance sector. Candidates with experience in bancassurance roles or proficient in selling banking and insurance products have career prospects and can acquire the role of sales manager, agency manager, and relationship manager. Over the years, bancassurance is questioned by various opponents arguing that the service gives too much control to banking over the financial sector and negates the presence of insurance companies and hence should not flourish. With this notion, some countries have banned bancassurance. Even though, the global growth of service is exponential and gaining momentum in the current scenario of a volatile business environment. Tapping the right potential customer and acclimatizing the clientele of economic and mass market products shall meet the contemporary challenges of the financial sector and stimulate structured financial growth.
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Authored By
Dr. Deergha Sharma
Associate Professor
Department of Management & Commerce
The NorthCap University