The term Bancassurance is associated with the partnership or tie-up between a bank and the insurance company. In this tie-up, the insurance company sells their product through the bank to the bank's customer. Bank and the insurance company agree on a term, which allows both parties to come together and offer each other services and platforms to sell insurance to the bank's customer.
In the bancassurance arrangement, both the companies, bank and the insurance company, get benefits. Bank gets a wide range of insurance policies to offer to their millions of customers, whereas, the insurance company gets an open platform with millions of customers to sell their insurance policies.
This helps banks to receive a fee (non-interest revenue) from the insurance business in addition to interest income, whereas the insurance company expands its market reach and customer base. The bank serves as an intermediary, assisting the insurance company in reaching its target consumer and so increasing its market share.
What are the advantages of Bancassurance?
1. Customers benefit since they can get a variety of insurance policies through their bank.
2. Banks benefit from this arrangement because they receive additional revenue from the sale of insurance products.
3. Bancassurance provides insurance firms with a greater customer base and market reach.
4. This arrangement benefits both parties involved, and as a result, it is expanding globally.
Goal of Bancassurance Arrangement
In the Bancassurance arrangement between the Bank and Insurance company, the bank's primary goal is to act as a middleman in the sale of the insurance company's product, assisting the company in building a large customer base and expanding its market reach. Bancassurance is beneficial for both parties. In the last couple of years, it has again an immense amount of popularity in the banking and insurance sector. Europe and America are the biggest examples of this association. Now, it is started gaining popularity in India and other emerging nations of the world. For example, in the latest move, Federal Bank and the Start Health Insurance enters into Bancassurance.
Bancassurance has been the topic of numerous debates over the years, with many critics claiming that it gives banks too much power over the financial industry and should thus be avoided. A few governments have prohibited bancassurance to achieve this goal. Nonetheless, the global expansion of bancassurance has not slowed.