What is Bancassurance?
Bancassurance is the partnership or relationship between a “bank” and “an insurance company”, or a single integrated organisation, whereby the insurance company uses the bank sales channel in order to sell insurance products.
It is also called bank insurance model (BIM) and also sometimes known as allfinanz. BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well.
The concept of bancassurance originated in Europe in the 1980s and has since gained popularity worldwide. It allows banks to diversify their product offerings, enhance customer loyalty, and generate additional revenue streams.
Insurance companies benefit from the wide customer reach of banks, facilitating access to a larger market and potential customer base.
- Bancassurance is a French term referring to the selling of insurance through a bank’s established distribution channels.
- In some countries, bancassurance is still largely prohibited, but it was recently legalized in countries like USA.
- Bancassurance is the selling of insurance and banking products through the same channel, most commonly through bank branches.
- Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training.
- Bancassurance primarily rests on the relationship the customer has developed over a period of time with the bank.
- Under Bancassurance The bank and the insurance company share the commission.
- BIM is extremely popular in European countries such as Spain, France and Austria.
- Privatbancassurance, a new kind of Bancassurance was pioneered by Lombard International Assurance and now used globally. The concept combines private banking and investment management services with the sophisticated use of life assurance.
- Bancassurance is an efficient distribution channel with higher productivity and lower costs than traditional distribution channel.
Three kind of models used in Bancassurance :
- Strategic Alliance Model : The bank only markets the products of the insurance company. Except for marketing the products, no other insurance functions are carried out by the bank.
- Full Integration Model : The bank sells the insurance products under its brand acting as a provider of financial solutions matching customer needs. Under such an arrangement the Bank has an additional core activity almost similar to that of an insurance company.
- Mixed Models : Under this Model, The database of the bank is sold to the insurance company. The approach requires very little technical investment.
Advantages of Bancassurance:
- Bancassurance offers another area of profitability to banks with little or no capital outlay. A small capital outlay in turn means a high return on equity.
- Today, convenience is a major issue in managing a person’s day to day activities. A bank, which is able to market insurance products, has a competitive edge over its competitors. It can provide complete financial planning services to its customers under one roof.
- Opportunities for sophisticated product offerings.
- Opportunities for greater customer lifecycle management.
- Diversify risks by tapping another area of profitability.
- Bank aims to increase percentage of non-interest fee income.
- Cost effective use of premises
Some Best Bancassurance Scheme:
While the effectiveness of bancassurance schemes may vary depending on the specific market and customer needs, here are a few notable bancassurance schemes that have achieved success:
- Savings and Investment-linked Insurance: This type of scheme combines insurance coverage with long-term savings and investment options. Customers can purchase insurance policies that offer protection while also accumulating savings or investing in various financial instruments. These schemes provide customers with the opportunity to achieve their financial goals while ensuring insurance coverage.
- Mortgage Protection Insurance: Many banks offer mortgage protection insurance as part of their bancassurance offerings. This scheme provides coverage to borrowers in case of unforeseen circumstances such as death, disability, or loss of income, ensuring that the outstanding mortgage amount is repaid, relieving the financial burden on the borrower’s family.
- Health Insurance: Bancassurance health insurance schemes focus on providing comprehensive medical coverage to customers. These schemes often include cashless hospitalization, coverage for medical expenses, and access to a network of healthcare providers. By partnering with insurance companies, banks can offer customers affordable and convenient health insurance options.
- Credit Card Insurance: Credit card insurance schemes provide coverage for credit cardholders against fraud, theft, or loss. In case of unauthorized transactions or fraudulent activity on the credit card, the insurance coverage can help customers recover their losses. This type of insurance enhances customer confidence in using credit cards and protects them from potential financial risks.
- Retirement and Pension Plans: Bancassurance schemes that offer retirement and pension plans cater to customers‘ long-term financial security needs. These plans help individuals build a retirement corpus by combining insurance coverage with investment options. Banks can provide customers with tailored retirement solutions that offer regular income after retirement, ensuring financial stability during their golden years.
- Business and Commercial Insurance: Banks also offer bancassurance schemes specifically designed for businesses and commercial clients. These schemes provide coverage for various risks such as property damage, liability, business interruption, and other risks that businesses may face. By bundling insurance products with banking services, banks can cater to the insurance needs of their business customers.
Bancassurance schemes aim to provide customers with comprehensive financial solutions that meet their protection, savings, and investment goals. Customers should consider their individual needs, risk appetite, and financial objectives while selecting the most suitable bancassurance scheme.
References : Wikipedia, Mint, AllBankingSolutions.