Bancassurance: An alternative distribution channel for insurance sale

Bancassurance is an alternate distribution channel for selling insurance plans wherein insurance companies tie-up with different banking entities for selling their insurance policies to the customer base of respective banks.

This channel of bancassurance began functioning in the year 2000 after government of India allowed banks to conduct insurance business u/s 6(1)(o) of the Banking Regulation Act, 1949.

In the current scenario, banks are allowed to become the agent and sell the insurance policies of only one life, one non-life and one health insurance company. However, insurers are urging for an open system that would enable them to associate with not less than five banking entities for distributing and selling their insurance policies.

According to a Business Standard report, the Insurance Regulatory and Development Authority (Irda) is likely to present final guidelines on bancassurance next month. Though the acceptance of the proposal by the IRDA would provide banking customers with a gamut of insurance policies to choose from, nevertheless it could prove detrimental in the sense that banks could push sale of policies with higher commissions.

Further, in this respect, IRDA has proposed that an insurance company could associate with bank exclusively for a specific region instead on a pan India basis. IRDA, the governing body regulating and monitoring the functioning of insurance business in India, also suggested that the nation be segmented into 3 zones, with further segmentation into 40 geographical spheres. And, a bank could associate with individual insurance company for maximum 10 regions on an exclusive basis.

Rationale of Bancassurance from customer's standpoint:

1. Banking customers are encouraged to purchase insurance policies and with this customers develop better relationship banks.

2. Customers unaware of insurance policies could be reached through the wide distribution and sales network of banks. In turn, they could avail of the benefits accruing to them as a result of holding an insurance policy. This way bancassurance emerges as a sales channel aiming at financial inclusion.

3. Also, customers would be provided with better premium rates in addition to better services as insurance companies would tend to attract maximum market share through the bancassurance channel.

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