Bancassurance A Double-Edged Sword For Banks

The vast branch network of Indian banks will act as both a strength and a difficulty as the banks jump onto the bancassurance bandwagon. Though insurance companies see banks as a good alternative distribution channel in terms of "a warm database facilitating access to the customer," warned Graham Morris, director, Asia Regional Consulting Web, of the various difficulties that exist in developing markets. "While the cost of distribution and reach might prove to be a bonus, much depends upon the local sales culture," he said.

While mass and size plays an important role in bancassurance, the success story of Mayban Life Assurance of Malaysia has been the focused strategy, commitment and capital injected in the venture, said Morris. The most successful bancassurance model is one where the bank owns everything and then cross-sells the various products.

Proper regulations and a level-playing field will be crucial to the success of this model, said Morris. "Most countries do not have a level-playing field for banks participating in bancassurance, as the level of capital required to be injected into a bank differs from that injected into an insurance company. Commission levels are the same, though regulations are more stringent," said Watson Wyatt managing director Richard Holloway.

Holloway together with Morris has advised 18 multinational insurance companies, some of which have already established themselves in the country. Of these, just three intend to adopt a bancassurance model.

Much hype has been created over the success of bancassurance in the country, with both sides having little experience. As new players need to develop reach, most are eyeing distribution through banks as an alternative channel. Holloway pointed out that insurance companies and banks have to be realistic in their expectations in terms of the number of customers they can tap and the volume of fee-based income banks can generate through commissions.

The first Indian international bancassurance conference on Thursday in Mumbai, has been jointly co-sponsored by Watson Wyatt and Asia Regional Consulting Web. The seminar is aimed at insurance companies and banks in the country, to help them identify the potential of bancassurance, and highlight the pitfalls of the model.

Private banks and foreign banks are well placed in adopting the bancassurance model. The point of contention said Morris is for a bank to be able to sell its own products before it looks at cross-selling.

The bancassurance model will succeed in the Indian context provided the right approach and partnership exists, encouraged by proper legislation, said Morris. At the start up stage, Morris said: "There should be less number of branches, and develop the model in a phased manner. One has to accept that insurance is not the main priority of banks".