Life insurance companies are discovering that, compared with other distribution channels, bancassurance is a lower-cost option they can leverage to expand their distribution network, according to a study commissioned by the Confederation of Indian Industry.
The study, titled “Addressing Distribution Challenges in Insurance,” said the increased tie-ups of banks with insurance companies indicated the latter are making use of the opportunity to leverage the extensive branch network. The study was carried out by Ernst & Young Pvt Ltd for the CII.
“Bank-based insurers are better positioned due to their relatively lower development costs,” it said.
The performance of distribution channels in obtaining individual new business premiums also testifies to this aspect.
An analysis of channel-based performance shows that individual agents have been the dominant channel in acquiring business. However, their share has fallen from 88 per cent in 2004-05 to 79 per cent in 2009-10.
While direct selling and other channels have remained steady, bancassurance has rapidly emerged as a viable channel, with a 10 per cent share, the study claimed.
This was driven by the universal banking model of selling savings and investment products under one umbrella and increased customer trust in the traditional form of selling.
DISADVANTAGES
As per the guidelines in force, banks are allowed to partner with a single life-insurance company to sell its product as a corporate agent or through referral agreement.
“This has a number of disadvantages, such as limited product and price options for bank customers as banks are constrained to offer the products of just a single insurance company,” the study observed.
Today, the more established insurers have at leaser 20-30 bancassurance partnerships. In addition, of the 24 registered life-insurers, eight are joint ventures with 12 major private and public sector banks in the country.
“The Indian bancassurance space is thus headed for a possible saturation in terms of bancassurance partnerships. Many insurance companies are finding it difficult to find even a single bank to tie up with,” the study said.
Globally, most markets in Europe and some in Asia are increasingly easing regulatory restrictions to encourage the bancassurance channel.
IRDA's POSITION
The regulator, however, feels there is scope only for a limited opening up of the bancassurance channel, with one bank possibly being allowed to sell products of three or four insurance companies.
Mr J. Hari Narayan, Chairman, IRDA, told Business Line that final guidelines on opening up of the bancassurance channel were likely to be announced by April this year.