Everything You Need to Know About Bancassurance

What is Bancassurance?

Bancassurance refers to the strategic alliance between banks and insurance companies that enables banks to sell insurance products to their existing customers through their branch networks. It is a distribution channel through which banks market and sell insurance products of an insurance provider to their customers.

The concept originated in Belgium in the 1920s and has now become a popular business model worldwide for increasing insurance penetration. By leveraging the wide distribution networks and customer databases of banks, insurance companies can expand their customer reach without having to establish extensive sales forces. At the same time, banks are able to generate additional non-interest income and strengthen customer relationships through partnership with insurers.

How does Bancassurance Work?

In a typical bancassurance model, an insurance company partners with a bank by entering into exclusive marketing and distribution agreements. The bank acts as an agent for the insurance provider and promotes, markets and sells the insurer’s products to its customers.

The key aspects of how bancassurance works are:

• Insurance providers train and certify bank staff to sell their products. This allows banks to cross-sell insurance while customers conduct regular banking activities.

• Banks offer space on their premises to display insurance products. They may also provide proposal forms, product literature, processing facilities etc.

• Customers can purchase insurance products at bank branches, through bank websites or using other digital channels. Policies are underwritten and serviced by the partner insurer.

• Commissions from insurance sales are shared between the bank and insurer as per their agreement. This generates non-interest income for banks.

• Data sharing enables cross-selling of tailored products to bank customers with suitable risk profiles.

• The insurer gains access to a huge captive customer base without incurring extensive distribution costs.

Pros of Bancassurance

1. Wider reach – Leverages the vast branch networks of banks for insurance distribution in both urban and rural areas.

2. Existing customer base – Insurers can easily cross-sell to bank’s pre-screened and known customers with consumption and credit histories.

3. Trust factor – Customers already trust their bank, so buying from bank-recommended insurers is perceived safe.

4. Convenient shopping – Customers can buy insurance while conducting other banking, saving commute time.

5. Additional revenue source – Bancassurance commissions supplement banks’ interest earnings.

6. Low distribution costs – Insurers benefit from banks’ existing infrastructure and sales forces.

Cons of Bancassurance

1. Conflict of interest – Banks may sometimes push policies from their bancassurance partners rather than recommending the most suitable options.

2. Lack of insurance expertise – Bank staff’s core competency is banking, not advising on technical insurance products.

3. Single-insurer tie-ups – Exclusive deals limit choice for customers compared to independent insurance agents.

4. Poaching of customers – If partnerships end, insurers may try taking bank’s customers directly to maintain business volumes.

5. Privacy/data concerns – Information sharing between banks and insurers requires strong data governance.

6. Non-mutual interests – Success metrics differ between profit-focused banks and relationship-oriented insurers.

Conclusion

Overall, bancassurance has emerged as an efficient distribution and sourcing model bringing mutual benefits to banks and insurers. By addressing conflict, lack of expertise and other issues sensitively, it can develop into a win-win proposition for all stakeholders if regulated and implemented properly. Its potential to spread insurance across populations remains largely untapped in many countries.