Bancassurance Set To Spur Price War

A price war in the insurance sector is on the anvil as bancassurance takes off in a big way, lowering distribution costs considerably. SBI Life Insurance Company chief marketing officer S Muralidharan said: "We will see a decrease in price because of distribution costs."

"The cost will be much lower for us (SBI Life), and the benefit will go to the customer," said State Bank of India (SBI) chairman Janaki Ballabh. The idea is to introduce simple features and products that can be easily sold through the bank's network of branches, promoting the dual concept of savings and protection.

Banks will be instrumental in taking the message of savings and insurance across the country, just as they were instrumental in the 80s with the green revolution, said SBI Life chief executive officer R Krishnamurthy.

 

A number of new private players and even the incumbent -- Life Insurance Corporation of India (LIC) -- have all clued into strategic alliances with the Indian banking industry with the sole intention of widespread penetration.

SBI, with its largest network of branches, is confident of exploiting the virgin market and garnering a hefty share.

SBI Life Insurance is banking heavily on SBI and its associated branch network. "We are uniquely placed by way of our 13,000-strong delivery channel we command," said Ballabh.

The joint promoter of SBI Life is confident that through this network of branches, the insurance venture will become the second largest in India. With 13,000 branches, SBI has the largest network in the world.

Royal Sundaram Alliance Insurance Company is also banking heavily on bancassurance as part of its marketing strategy. To date, it has tied up with four foreign banks -- American Express Bank, Citibank, Standard Chartered Bank and ABN Amro Bank, and is in talks with leading domestic banks.

The general insurance outfit has targeted a gross premium income of Rs 120 crore for the current financial year, based on the assumption that the business will grow at the rate of 50 per cent.

Comfortable with the bancassurance model, Antony Jacob, deputy-managing director Royal Sundaram said that it is "also looking at distribution through the Indian banking network, and are in dialogue with some of the leading local banks for marketing and distribution of our general insurance products".

Once the necessary modifications are made in the Insurance Act permitting sales through corporate agents, banks will be able to earn fee-based income.

"We do not see it as a source of great revenue generation. The idea is to improve the affordability of risk products and improve the penetration of insurance, especially in the rural and semi-urban areas," said Ballabh. SBI Life has identified 100 branches of SBI so far and will increase this in time to 500, as the bank employees undergo necessary training.

SBI Life's foreign promoter, Cardif S A of France is keen to introduce complimentary products that can be introduced through the banking channel.

Cardif president director general Paul Villemagne said: "The products distributed through this channel will be competitively priced, and will allow widespread distribution." The idea is to offer cross selling of risk products with banking products.

"With more than 50 per cent of banks' branches in the rural markets, the Indian banking industry has a crucial role to play in bringing about a quantum jump in insurance coverage, especially in rural pockets," said Krishnamurthy. The true benefit of bancassurance is cut down in distribution costs, he added.

Cardif's experience in global markets indicates that banks can quickly generate significant, recurrent additional fee income, contributing up to 40 per cent of their retail portfolio. With fee-based income on the decline, the SBI chief sees sales through the banking channel as a "recurring source of revenue for the branches".

With presence across 25 countries, Cardif enjoys tie-ups with more than 150 banks and credit card firms. Cardif netted a turnover of $8 billion for the year 2000, of which 80 per cent was through partnership with financial groups, and only 20 per cent through sales by independent agents and brokers, said Villemagne.