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Bancassurance

A High Potential for Growth

The 3rd Middle East Insurance Forum


March 20-21, 2006 Ritz Carlton, Bahrain

Mukul Gupta
CFO & Head Bancassurance Bajaj Allianz Life Insurance, India

There is no stronger force than an idea whose time has come.

Victor Hugo
(19th Century French Novelist)

Banks & Insurers across the World have realized Bancassurance is the distribution channel, which would help them achieve economies of scale and boost their revenues in the 21st Century

Agenda
Impact of Bancassurance on Increasing Insurance Penetration and Realizing Growth India Case Global Bancassurance Trends Industry Evolution - India The Bancassurance Opportunity Case Study : BALIC & Standard Chartered Bank Case Study BALIC & Syndicate Bank

Global Bancassurance Trends


The key factors impacting development of Bancassurance across the globe are: Regulatory Environment in the country Banking Habits Is Visiting the Bank natural to customers?

 Europe - Bancassurance accounts for the 35% of the sales in the European life insurance market and is the dominant distribution channel in a number of South European countries such as Belgium, France, Italy, Spain and Portugal.  US Bancassurance started developing post the crumbling of barriers set by the Glass-Steagaal Act in late 1990s  Asia Bancassurance is in its nascent stage in Asian Life Insurance Market but is developing very rapidly due to presence of Brick & Mortar Model of Banking in most of the Asian countries.

Banks dominate Life distribution in Southern Europe, and making progress in Northern Europe
Distribution channels - Life
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

82% 72% 65% 60% 50% 19 % 19 %

14 %

rt ug al

Ita ly

G er m an y

ai n

nc e

Sp

Fr a

Be l

Banks, post off ice

Insurance co. Employees

Agents

N et he rl

Po

an d

gi u

Brokers - IFAs

Success of Bancassurance vary through out Europe due to different regulatory environment in each country

UK
Others

Recent Bancassurance Trends in Asia


Estimates of New Business generated from Bancassurance in 2004
60 50 P rc n g e e ta e 40 30 20 10 0

In India, Bancassurance accounts for 22% of the sales by Private Insurers

S u K re o th o a

n o e ia I dns

M la ia a ys

o ko g Hn n

S g p re in a o

Ta n h ila d

h a C in

Countries

Due to presence of Brick & Mortar Model of Banking, Bancassurance is increasing its Market Share very rapidly

Jpn aa

n ia Id

Choice of Bancassurance Model Depends upon Strategy & Environment


Distribution Agreements Low
Banks distribute life insurance products (stand-alone or bundled with bank products) in return for fee income No or little sharing of customer DB Limited investment

Strategic Alliances
A higher degree of integration in product development, service provisions and channel management Possible sharing of customer DB Requires investments in IT and sales personnel

Joint Ventures

Financial Services Group High


Operations and systems can be fully integrated A high capability to leverage on banks existing customer and other services provisions One-stop financial services Potential for fully integrated products

Degree of integration
Clear mutual ownership of products and customers Sharing of customer DBs Requires strong and long-term commitments from both sides

Low

Control Resource commitment Ability to satisfy customer needs value added Reward opportunity Management complexity Convergence of interest

High

Who bring what to the Partnership


Bank
Customer base and relationships Distribution network Brand

Insurer
Sales & marketing expertise for insurance products Profit maximization selling insurance products Strong technical expertise Product know-how Financial strength Brand
50%

50%

Insurance

Bancassurance partnership and distribution agreement to clearly address:


Volume targets Type of products to be sold Sharing of margins between product and distribution Sharing of CRM system Management responsibility of the product factory Require solid legal contract / servicing agreements

Key Success Factors


Commitment of Partners
Motivation & Training of Bank Staff

of Partner

Selection of Selection Customer Segments

Sales & Distribution Model

Product Offerings

Industry Evolution
Up to 1999
LIC Monopoly No. of Players No Private Players allowed Agency only 800K Agents

1999 till 2004


Private Players allowed 12 new insurers Agency model replicated Bancassurance in development stage

2005 onwards
13 Private Players Pvt Insurers gain over 28% share
Confidence in Bancassurance BA takes 20% + share among Private Players Fastest Growing Distribution Channel ULIPs are the most popular products, accounts for 75% of Sales through Private Insurers Bancassurance regulations become clearer Multiple models allowedCA, Referral, Broking

Distribution Focus

Products

Traditional Endowments, Money Back Plans & Wholelife

Emergence of Unit Linked Products

Regulatory Environment

Primarily Agency driven regulations

Primarily Agency driven regulations

The Bancassurance Opportunity


Real Potential Still to be Unleashed
Banks are major players in the Indian Financial system:
66,000 branches (32,000 rural and 14,700 semi urban) Enormous retail account base of 440 mn deposit accounts Total deposit base of Rs. 14 trillion (USD 300 bn)

Large Structure governed thru Regulations


Four Categories of Banks Foreign Banks, Nationalised Banks, Private Sector Banks and Co-operative Banks catering to distinct customer segments Over 2500 Banks spread nationally and geographically

Banking Habits of Customers


Propensity to Visit Bank Branches High Trust in the Banking System Bank Managers looked upon as Financial Advisors Only Tip of the Iceberg, in terms of penetration, has been touched with less than 2% customers of State Owned Banks insured

The Bancassurance Opportunity


Incremental Financial Household Savings 04
Government bonds 5% Mutual Funds 1% Insurance 14%

Bank deposits 38%

PF/Retirement funds 14%

p oo C

Shares & Debentures 1%

Over 65% of Household financial savings are in short term instruments


Source: RBI Annual Report, All Data for Yr 20003-04

cy en rr Cu % 10

s g in av lS al Sm

s nk ba

's C F B N 1%

2%

% 14

Case Study : Standard Chartered Bank & BALIC


 Standard Chartered Bank Largest Foreign Bank in India  Catering to the High NetWorth clients and the Mass Affluents  83 Branch Offices with presence in 25 cities  Customer Base of 2.50 million  Deposit Base of over Rs. 135 billion (USD 3 bn)  Client Habits : Savvy Customer Base with both high branch traffic and Off-Site Banking habits.  Joint operations were rolled out in January 2002 with 25 FSCs covering 30 Bank Branches.

Case Study : Standard Chartered Bank & BALIC


Model
 A designated persons stationed in each Branch selling Insurance.  Selling thro 11 Channels of Distribution :- Branch Banking, Priority Banking, Outbound Sales Team, Mortgages, Credit Cards etc  Over 250 Sales Staff dedicated selling Insurance in these Distribution Channels  Dedicated Operation Staff for processing SCB Proposals  Fortnightly Saturday Schools for Sales Staff  

Results
The Benchmark for the Indian Industry for Bancassurance Bancassurance contributes 20% of total income from Retail Banking operations Avg Productivity per person is over 12-15 policies per month and Avg Ticket Size stands at USD 1,100. Projected GWP of USD 100 mio for FY 05-06 & earnings to Bank to be in range of USD 25-30 mio Regular UnitLinked Products fit in the clients needs of the Bank.

Distributions servicing different Customer Segments


Channels of Distributions
In-Branch Sales Team Dedicated Relationship Managers Relationship Managers

Out Bound Sales Team

Distributions Catering to Different Customer Segments


Retail Walk-in customers

Loan Customers

New Customers

High Networth Customers

SMEs

Channel Distribution : Standard Chartered Bank

15% 12%

1%

72%

Branch Banking

Priority

OBST

SME

Branch Banking / Walk-ins Contribute over 70% of Insurance Sales

Case Study : Syndicate Bank & BALIC


 Syndicate Bank Nationalised Bank with a dominant holding by the Government  Catering to Middle Class and Rural Base  1500 Branch Offices with presence in 500 cities and town  Customer Base of over 17 million  Deposit Base of over Rs. 462 bn (USD 10.2 bn)  Client Habits : Branch Walk-ins for transactions with advice from the Branch Staff / Manager for all financial decisions  Bancassurance tie-up with Bajaj Allianz in October 2003

Case Study : Syndicate Bank & BALIC


MODEL Integrated Model Implemented with the Bank Staff being regularly trained to directly sell Insurance to its customers. Phase wise Roll Out started in Oct 03 with 11 Insurance Managers covering 40 Branches. Currently over 500 branches covered, with 250 Bank employees selected as Insurance managers & over 75 employees of BALIC, to promote insurance sales Projected GWP of USD 25 mio for FY 05-06 & Earnings to Bank to be in range of USD 5-8 mio Traditional endowment, Pension Product and Mortgage Reducing Term Assurance are the key products sold. Among the most successful Public Sector Bank Distribution tie-up in India. Over 50,000 policies sold annually

Thank You

Annexures

Insurance Industry in India


13 Private players in the market today:  6 Bank owned insurers- HDFC Standard Life, ICICI Prudential, ING Vysya, Metlife, OM Kotak, SBI Life  7 Independent Insurers- Bajaj Allianz , Birla Sun Life, Aviva, Max New York Life, Tata AIG, Reliance Life and Sahara Life  LIC The state Insurer is the dominant player with over 70% of the market share  Total Life Market Size at Rs. 250 billion (USD 5.5. Bn)

Consideration for Banks


1. Increase in Fee Based Income 6. Provide integrated financial services tailored to the life cycle of customers 2. Reduce reliance on interest spreads as the major source of income 2 16 2/3 %

16 1 % 2/3 16 6 % 2/3

16 2/3 %
5

16 2/3 % 3 16 2/3 %
3. Leverage extensive customer base

5. Reduce risk based capital req. for the same level of revenue

4. One stop shop for all Financial Services

Consideration for Insurers


Immediate access to New Markets Improve sales effectiveness & after sales service Increase in Market Penetration

Insurer
Develop new financial products more efficiently Combine Cost Saving & Increased Profitability Reduce reliance on traditional distribution channel

Bancassurance Models Worldwide


Distribution Agreements Strategic Alliances Joint Ventures Financial Services Group

European Life bancassurers progressively abandon the intermediary role to gain access to long-term profits (bank-owned model)
Germany: numerous cross share-holdings between banks & insurers make acquisitions or mergers more difficult Italy France: bank-owned units = 56% of total Life & pension premiums vs. 44% for the distribution agreement Netherlands, branch networks

Spain

Asia: mainly distribution agreements & strategic alliances, other models facing regulatory restrictions
S Korea, India, China, Japan

US: mainly distribution agreements & banks acquiring large brokers. Concentration on Life products.

Singapore

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