Banks are increasingly offering a range of tailor-made financial products; however, there are some downsides.
Seema Chauhan’s health policy on her Standard Chartered bank credit card offers a maternity benefit that reimburses up to a tenth of her expenses. In fact, the benefit is open to all StanChart customers. However, Royal Sundaram General Insurance, the company that provides health insurance to the bank, does not offer the same benefit to its other customers, outside of the association.
With banks linking to other financial service providers such as life insurers and broking firms, you may opt for demat and broking accounts with the bank’s associated securities firm or buy insurance through their bancassurance partner by opening a savings bank account with them. You could get your home loan covered against death risk, by opting for a home loan protection plan through the bank. You could also buy health covers through your credit card.
|PROS AND CONS|
In sum, your bank could well be your one-stop shop for financial needs. What works for many users is that the products offered are often customised, keeping in mind the customer’s profile.
"Banks are much-evolved financial institutions and they segment their customer base on various grounds. Leveraging their customer analytics’ abilities, insurance companies offer custom-designed products that differ from the ones available directly from the company, brokers or distributors by a few features, more or less," says Ajay Bhimbhet, managing director, Royal Sundaram Alliance Insurance.
For instance, State Bank of India credit card holders can avail of ‘Suraksha Plus’, a customised cover not available outside of the association. The Rs 1-lakh life cover offered by SBI Life Insurance covers dues on a customer’s credit card in case of death. Typically, any credit card dues must be paid by the family of the deceased.
Customisation of products, even if a small variation, makes it difficult to compare costs. However, according to bankers, they often use the higher volume of business they provide insurers to get cheaper rates for products offered to their customers.
For instance, take the home loan protection plan SBI offers its home loan customers. With every equated monthly instalment (EMI) paid, the customer’s dues on the home loan goes down and so does his premium on the policy. So, with time, his cost reduces. In a similar protection scheme purchased individually, the cover and premium would remain constant for the full term.
“The products offered are designed to take care of the customers’ consumption habit, both on the home loan and on the credit card usage front,” said Rajiv Gupta, executive director, marketing, SBI Life Insurance.
In products with no feature differentiation, costs are likely to remain the same. For instance, the ‘Health Suraksha’ plan offered by HDFC Ergo to HDFC credit card customers is the same as that offered by HDFC Ergo to individual customers. The premium for a Rs 5 lakh policy for a family of three would cost Rs 15,107 annually, irrespective of where you buy it from.
But as Karan Chopra, head-retail business, HDFC Ergo, says: “Whatever the distribution channel, the basic product remains the same. So, what matters is the convenience of buying the product and paying for it through a simpler mode of payment – in EMIs.”
Buying insurance on your credit card will allow you to convert the payment into either interest-free EMIs. Most general insurance companies only allow annual payment facility.
However, banking regulations allow banks to tie up with just one partner in both the life and general insurance segment. This limits the choice for the bank’s customer. More, the product being offered may not always meet one’s insurance requirements. If he were to buy outside of the bank, he would have many more companies to choose from. He could buy through an agent or through an online platform which is cheaper.
Bombay HC said Ombudsman should have powers to penalise insurers for rejecting claims on flimsy grounds