With reference to SBI, bancassurance is gaining acceptance gradually. Bank is converging towards a model of global retail financial institution offering a wide array of products creating a one stop-shop where mortgages, savings, pensions and insurance products will be available. Some of the regulatory issues need to be addressed comprehensively and sorted out particularly with respect to competition and market structure problems. Given these changes, bancassurance and collaboration between banks and insurers has a long way to go in India.
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Bancassurance is the process of using a bank’s customer relationships to sell life and non-life insurance products. In some developed countries it has had a dramatic impact on developing sales volumes, attaining market shares in excess of 50 percent in life and more than 10 percent in non-life. By contrast, in other developed countries it has had much lower impact. Its strategic benefits to developing countries are wide ranging.
The scope for bancassurance models as feasible source of sustainable income to banking sector is explored by exploiting the synergy in the context of India having the largest banking network on the one hand and lower insurance penetration and insurance density on the other hand. While analysing the present trend of banks handling insurance products, it also highlights some of the likely issues in general as well as specific from the point of regulator and supervisor. It concludes that going by the present pace, bancassurance would turn out to be a norm rather than an exception in future in India.
Introduction:
Bancassurance primarily banks on the relationship the customer has developed over a period of time with the bank. Banks have felt the need to offset these through growing fee incomes particularly from the retail side. To target the retail segment, banks have felt the need to offer a more diversified product range to appeal to a diverse range of risk profiles. . Thus as far as banks and other financial services providers are concerned, there has been a ‘double coincidence’ of needs that has led them to collaborate either through direct equity participation or ownership by banks or strategic alliances.
SBI Life Insurance Company a predominant player in bancassurance is positive about the channel bringing about a transformation in the way insurance has been sold so far. The company is banking heavily on bancassurance and plans to explore the potential of State Bank of India’s 9000 plus branches spread across the country and also its 4000 plus associate banks – one of the reasons why SBI Life Insurance is not laying much emphasis on increasing its agent force from the present 3000.
Bancassurance in State Bank of India Perspective:-
SBI Life insurance, a joint venture between State Bank of India, the largest bank in the country and Cardiff insurance company of France. Cardiff has launched eight products so far incorporating certain features that are introduced for the first time in the country. SBI -Life is banking on the bancassurance model on the strength of the SBI Groups 10000 plus bank branches and its vast customer base. In addition it is also tapping other banks corporate agents and the traditional agency route to penetrate the insurance market SBI Life is planning to introduce more novel and user friendly products to cater to the requirements of the consumers in different segments.
There are so many insurance products launched so far. Among them ‘sanjeevan’ in June, 2001 (single premium policy for VRS retirees), ‘Sukhjeban’ (guaranteed returns for village groups), ‘Scholar’ (for children’s higher education combining insurance cover for parents and guardians), ‘Swarna ganga’ (premium is refunded in the form of saving element with life cover and without obligation medical examination), ‘Super Suraksha’ (For all deposit holders initially at SBI) are to name a few. Other challenging new products are ready to come into the market to cover under the pension product, the unorganized population such as, self-employed professionals, Small traders, artisans, contract labors and house hold helpers. SBI has the largest banking network in the county. The bank is looking for business from every customer segment of the bank rural and urban segments, upper, middle and lower income segments / groups and corporate segment. Besides own channel, they are planning to distribute products through other interested banking channels. Cardif, ‘SBI-Life’s JV partner, has hand on experience with various banks around the world. In France, it is selling insurance products through BNP Paribas network of banks, the largest bank of the country and 35% of bank’s retail banking profit comes from distributing insurance products. SBI has customers in Bangalore with huge response. It is expected that 2/3 rd of the premium income in expected to come by way of bancassurance and the rest from the traditional agency channel as well as ties up with corporate agents (Sundaram Finance). SBI has also introduced group insurance to some well managed corporate staffs. Premiums paid by corporates on behalf of their employees qualify as a deductible expense and employees are not taxed, when employees pay premiums on a saving linked group insurance scheme, the monthly contribution qualifies for section 88 tax rebate and the final maturity sum received is also tax-free. Technology is an integral part of this operation. Cardiff provided the technology required. Cardiff’s PMS software has been successfully implemented in 24 countries. It modified the software, engaging TCS to suit our requirements.
Review of Literature
Studies exist concerning diversification of banks into financial services, especially insurance, but none of these focus specifically on the interactions of the agency/broker industry and bancassurance. Rose and Smith (1995) studied BHCs’ expansion into the limited number of insurance lines allowed during the period 1974 to 1990 and found banks experienced positive abnormal returns, especially after 13 1982. Carow (2001) conducted an event study to determine the market value effect on banks and insurers of rulings that allowed banks to enter the annuity and insurance business. Bancassurance activities can be formed by several corporate strategies of banks and insurance companies. According to the OECD (1992), for banks the main structural operations for bancassurance may take the form of minority or majority holdings, full-fledged acquisition, creation of subsidiaries, or joint ventures with holding companies.
METHODOLOGY AND DATA
Objectives of the Study:
To understand the concept of Bancassurance and its practical applicability at State Bank of India, Bangalore.
To find out the benefits of Bancassurance to the bank.
To evaluate the future prospects of Bancassurance in State Bank of India.
Statement of the problem:
Globally, cross selling is a major component of the business of banks. In India too, it is catching up fast with several of the banks. SBI is the leading bank among all nationalized banks having largest banking network in the country, also has made headway in selling the insurance products along with the banking products. Cross selling would help the banks by boosting their fee income. So there is a scope to study how the concept of bancassurance has been applied in State Bank of India.
Scope of the Project:
The study is limited to State Bank of India, Bangalore.
The study will be conducted on the basis of past three year’s performance of the bank.
Limitations of the study:
Detailed information is not provided by the bank staff because of the privacy policy of the bank. Only the bank employees of Wilson Garden and Koramangala branches are included for this study due to time constraint.
Data collection method:
Primary data is collected through;
Observation
Discussion with the bank manager and bank employees.
Filling up of the questionnaire from the bank staff.
Secondary data is gathered through;
The financial statements of the bank.
From various books, websites, magazines, bank brochures etc.
Tools used for analysis:
MS Excel
Graphs and charts
SPSS
Need for the study:
Squeeze on margins of fund based revenue has taken place in the banks now. Banks have felt a need to offset these through growing fee incomes particularly from retail side. So there is a need to study how the bank is trying to increase its fee based revenue.
Universal Banking- approach to provide all financial products under one roof; is another need for the study. Moreover, hawking of insurance products by banks is seen as a logical step for expanding their business and improving the bottom line.
Optimum utilization of infrastructure and resources to maximize revenue has also created the need for the study. It is necessary to study how the bank is optimally utilizing the resources and infrastructure through the activity of bancassurance.
Customer retention in the face of competition is very difficult for the banks. So there is a need to study how the bancassurance is helping the bank to retain its customers.
ANALYSIS
Total income and total miscellaneous income before cross selling for the years 2006, 2007 and 2008:
Particulars
2006
2007
2008
Total income
Rs.4967000
Rs.7608000
Rs.10068000
Total miscellaneous income
Rs.828000
Rs.219000
Rs.317000
Total income and total miscellaneous income after cross selling for the years 2009, 2010 and 2011:
Particulars
2009
2010
2011
Total income
Rs.17253495.36
Rs.18156082.16
Rs.25481107.46
Total miscellaneous income
Rs.621000
Rs.903000
Rs.1282000
Graph Showing Trends of Total Income & Total Miscellaneous
Income
0
5000000
10000000
15000000
20000000
25000000
30000000
2006
2007
2008
2009
2010
2011
Years
Amount
Total income
Total miscellaneous income
The trend line is showing increase in the total income. It is also showing a small increase in the total miscellaneous income after the branch took up the activity of cross selling.
% increase in the total income:
Particulars
2007
2008
2009
2010
2011
% increase in total income
53.17%
32.33%
71.36%
5.23%
40.34%
Percentage Increase in Total Income
53.17%
32.33%
71.36%
5.23%
40.34%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2007
2008
2009
2010
2011
Years
% increase in total income
% increase in total income
The % increase in total income in the year 2010 is low because advances have not been increased as per the expectations.
% increase in the total miscellaneous income:
Particulars
2003
2004
2005
2006
2007
% increase in total miscellaneous
Income
Nil
44.74%
95.89%
45.41%
41.97%
Percentage increase in total miscellaneous Income
0
44.74%
95.89%
45.41%
41.97%
0
0.2
0.4
0.6
0.8
1
1.2
2007
2008
2009
2010
2011
Years
% increase in total miscellaneous
income
% increase in total
miscellaneous Income
The % increase in total miscellaneous income in the year 2007 is nil because loan growth was not there.
The % of total miscellaneous income in the year 2007 came down because loan growth was less and the total income has not increased in proportion.
% increase in total miscellaneous income to total income:
Particulars
2007
2008
2009
2010
2011
% increase in total miscellaneous
Income to total income
2.88%
3.14%
3.59%
4.97%
5.03%
Percentage increase in total miscellaneous Income to total income
2.88%
3.14%
3.59%
4.97%
5.03%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2007
2008
2009
2010
2011
Years
% increase in total miscellaneous
Income to total income
% increase in total
miscellaneous Income to total
income
The proportion of total miscellaneous income in total income has been increased after the branch took up the activity of cross selling.
Calculation of percentage of commission from cross selling for the past three years 2009, 2010, 2011:
Total amount of commission for the past three years:
Particulars
2009
2010
2011
Total Commission
Rs.345525.12
Rs.645830.73
Rs.690860.70
This commission amount is inclusive of commission from cross selling, commission from mutual funds, commission for selling credit cards etc. For the year 2009, around 45.5% of the total amount of commission has come from cross selling. For the year 2010, about 49.25% of the total amount of commission has come from cross selling. For the year 2011, around 50.95% of the total amount of commission has come from cross selling.
Commission from cross selling:
Particulars
2009
2010
2011
Commission from cross selling
157213.93
318071.63
351993.53
% of commission from cross selling to total income:
Particulars
2009
2010
2011
Commission from cross selling
157213.93
318071.63
351993.53
Total income
17253495.36
18156082.16
25481107.46
% of commission from cross selling to total income
0.91
1.75
1.38
Percentage of commission from cross selling to total income
0.91
1.75
1.38
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2009
2010
2011
Years
% of commission from cross
selling to total income
% of commission from cross
selling to total income
The percentage of commission from cross selling to total income for the year 2009 is 0.91%, for the year 2010 it is 1.75% and for the year 2011 it is 1.38%.
The contribution of commission from cross selling to the total income is less.
% of commission from cross selling to total miscellaneous income:
Particulars
2009
2010
2011
Commission from cross selling
157213.93
318071.63
351993.53
Total miscellaneous income
621000
903000
1282000
% of commission from cross selling to total miscellaneous income
25.32
35.22
27.46
Percentage of commission from cross selling to total miscellaneous
income
25.32
35.22
27.46
0
5
10
15
20
25
30
35
40
2009
2010
2011
Years
% of commission from cross
selling to total miscellaneous
income
% of commission from cross
selling to total miscellaneous
income
The percentage of commission from cross selling to total miscellaneous income for the years 2009, 2010 and 2011 are 25.32%, 35.22% and 27.46% respectively.
The percentage of commission from cross selling to total miscellaneous income is increasing.
Are you involved in the activity of bancassurance?
INTERPRETATION:
Out of total 30 bank employees surveyed, 73.3% employees are involved in the activity of bancassurance and remaining 26.7% employees are not involved in the activity of bancassurance.
It is observed that, major portion of the employees are involved in the activity of bancassurance.
Have you been given any training for cross-selling (bancassurance)?
INTERPRETATION:
Out of 22 employees, 36.4% employees have been given training for cross-selling and remaining 63.6% employees have not been given any training for cross-selling.
It is observed that, major portion of the employees have not been given training for cross-selling.
Is the activity of bancassurance helping in the diversification of revenue to the bank?
INTERPRETATION:
Out of 22 employees, 95.5% employees told that bancassurance is helping in the diversification of revenue to the bank and remaining 4.5% employees say that it is not helping in the diversification of revenue to the bank
It is observed that, major portion of the employees told that bancassurance is helping in the diversification of revenue to the bank.
Do you feel, cross-selling is increasing the customer loyalty to the bank?
INTERPRETATION:
Out of 22 employees, 95.5% employees say that bancassurance is increasing the customer loyalty to the bank and remaining 4.5% employees told that it is not increasing the customer loyalty to the bank.
It is observed that, major portion of the employees told that bancassurance is increasing the customer loyalty to the bank.
In your opinion, is cross-selling increasing the total other income of the bank?
INTERPRETATION:
Out of 22 employees, 90.9% employees told that bancassurance is increasing the total other income of the bank and remaining 9.1% employees told that it is not increasing the total other income of the bank.
It is observed that, major portion of the employees told that bancassurance is increasing the total other income of the bank.
In your opinion, is this activity (bancassurance), increasing your productivity?
INTERPRETATION:
Out of 22 employees, 90.9% employees told that bancassurance is increasing their productivity and remaining 9.1% employees told that it is not increasing their productivity.
It is observed that, major portion of the employees opine that bancassurance is increasing their productivity.
Do you feel, your work content is enriched by the activity of cross-selling?
INTERPRETATION:
Out of 22 employees, 81.8% employees say that their work content is enriched by the activity of bancassurance and remaining 18.2% employees told that work content is not enriched by the activity of bancassurance.
It is observed that, major portion of the employees told that their work content is enriched by the activity of bancassurance.
For the last question, i.e. advantages of bancassurance, the employees told the following things:-
It will increase the income of the bank a well as the income of the bank staff by providing them the incentive for cross-selling.
No NPA on account of death of the borrower because entire outstanding loan amount will be reimbursed by the insurance company.
With the existing staff bank can do insurance business also. No extra manpower is required.
The bank staff will be motivated when there is no further scope in their career progression.
Bancassurance will bring in more customers to the bank.
I have also discussed with the branch manager about the activity of bancassurance in the branch. He told the following things:
– For the initial two years, the activity was aggressive. But from 2011, taking bancassurance has been made optional for the customers. If the customers are interested in taking the insurance along with loan, they can take.
– For the bank staff, involvement in the activity of bancassurance is optional.
– The Certified Insurance Facilitators (CIF) who collects Rs.1 lakh premium, they will be given 1 gram gold.
– The CIF’s who cross Rs.50 lakhs premium, they will be given a chance to travel to Singapore.
– The CIF’s who cross Rs.1 Crore premium, they will be given a chance to travel to Singapore with their family for a period of one week.
– The CIF’s who reach Rs.5 Crore premium, that branch manager and CIF will be given a chance to travel to Singapore.
The advantages of bancassurance are:
Bank can become financial supermarket for the customers.
The CIF’s are being recognized for their performance which improves motivational level.
In the age of reduction in remittance business, bancassurance is one way of offsetting the loss of other income.
Bank gets captive customers who are in need of insurance.
The brand name of SBI can be leveraged to get more customers.
• From the view point of Insurer: – Insurance company also gets the benefits, some of which are listed below;
The insurer can increase their volume of business through banking distribution channel and gain better.
It can solve the difficulties arising out of price competition which has driven down the margins and increased the compensation demand of successful agents.
Through agents the insurer can only sell fewer and larger policies to a more upscale client. Mainly middleclass income holders who comprise the bulk of bank customers get very little attention. By using bank channel the insurer can capture much of its underserved market.
By cutting cost insurers can serve better to the customer in terms lower premium rate and better risk coverage through product diversification.
Insurers can exploit the banks’ wide network of branches for distribution of products. The penetration of banks’ branches into the rural areas can be utilized to sell products in those areas.
Customer database like customers’ financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly.
Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily.
• From the customers’ view point:-
Product innovation and distribution activities are directed towards the satisfaction of the needs of the customer. Bancassurance model assists customers in terms of reduced price, diversified products quality products, in time and doorstep service.
Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.
The risk will be reduced for the customer. In case of default, the property will remain to his legal heirs.
Enhanced convenience on the part of the insured.
Easy accesses for claims, as banks are a regular go.
Customers can get innovative and better product ranges.
CONCLUSION
With huge untapped market, insurance sector is likely to witness a lot of activity – be it product innovation or distribution channel mix. Bancassurance, the emerging distribution channel for the insurers, will have a large impact on Indian financial services industry. Traditional methods of distributing financial services would be challenged and innovative, customized products would emerge.
Banks will bring in customer database, leverage their name recognition and reputation at both local and regional levels, make use of the personal contact with their clients, which a new entrant cannot, as they are new to the industry. In customer point of view, a plethora of products would be available to him. More customized products would come into existence and that too all within hands reach. Success of the bancassurance would mostly depend on how well insurers and banks understand each other’s businesses and seize the opportunities presented, weeding out differences that are likely to crop up.
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Bancassurance has developed its form gradually where banks at first do not carry risks and distribute insurance products for a fee and product development is left to insurance company. But gradually banks have assumed risks regarding distribution assuming full responsibility. But the proper implementation of bancassurance is still facing some problems such as, poor manpower with in the banks, detachment of branch manager, insufficient product promotion, managerial database expertise, inadequate incentives, negative attitude towards insurance etc. In order to get the full benefit of it the following steps should be taken:-
i) Service delivery mechanism should be strengthened.
ii) Knowledge of target customer needs should be developed.
iii) Extensive and high quality training should be ensured.
iv) Strategies consistent with the banks vision should be developed.
v) Bank’s data base system should be made flexible to cope with the change.
So observing the progress in India, particularly with reference to SBI, bancassurance is gaining acceptance gradually. Bank is converging towards a model of global retail financial institution offering a wide array of products creating a one stop-shop where mortgages, savings, pensions and insurance products will be available.
There are costs associated with setting up a successful bancassurance network. The proper training of bank personnel to understand and market insurance schemes is vital to the success of these ventures. There is also a need to invest extensively in IT and other support systems that would provide an integrated ‘back-end’ for banking and insurance services. Regulatory issues need to be addressed comprehensively and sorted out particularly with respect to competition and market structure problems. Given these changes, bancassurance and collaboration between banks and insurers has a long way to go in India.
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