Bancassurance boom

The cellular phone in Reena Sharma's handbag beeps. It's a sale. Sharma has just finalised the sale of a Rs 20-lakh (Rs 2-million) term insurance cover to one of her bank's customers.

Had Sharma depended on the branch's two direct telephone connections, she would probably have been in no position to close the sale at all.

But thanks to the insurance partner's infrastructure support in terms of a mobile phone, this has been her sixth closure this month. The remote rural branch of the bank where Sharma works has repaid the insurer well, with an average premium of over Rs 20,000 per policy.

Sam Screwalla has just returned from a village in Gandhinagar district. Having sold over 15 policies last month, Screwalla was given a two-wheeler by the insurance company his bank has tied up with. The two-wheeler is godsend, enabling him to canvass for insurance business outside his branch.

Without the insurance company footing his petrol bill, Screwalla would have been unable to work, as public sector banks do not pay any travel allowance to employees for any travel beyond 8 km.

And with no direct financial benefit coming to the pockets of bank employees, they have little incentive to move outside the branch.

Sharma and Screwalla are the pioneers of a new breed of professionals in India -- bancassurance workers. Cash registers are ringing as banks capitalise on their network and reach -- accessing the population – to hawk insurance products.

In India, there are 75 branches per million inhabitants and banks have expertise on the financial needs, saving patterns and life stages of the customers they serve.

Clearly, that's something insurance companies -- both private and state-owned -- would find nearly impossible to achieve on their own.

Banks also have much lower distribution costs than insurance companies and thus are the fastest emerging distribution channel. Tying up with banks is the logical route for insurers to take achieve extensive geographical spread and countrywide customer access.

Until the entry of private insurers, state-owned insurance entities relied solely on the tied agency force and their own employees. The Life Insurance Corporation of India continues to command the largest troupe of agents today, with plans to enhance it further to 11 lakh-strong. But agents and employees have their limitations.

After a while, the less aggressive ones see their sources and contacts dry up, and growth in the sale of new policies decreases. Distances handicap those with a sales drive. Here banks excel. They have a captive and growing customer base they can exploit to cross-sell products.

Rahul Bajaj, chairman of Allianz Bajaj Life, says there are three kinds of bank customers: those who come for banking products, those to come to buy an insurance product and the third, someone who does both.

"The latter produces a win-win situation for both the bank and its insurance partner," he adds.

Allianz Bajaj Life CEO James Walton claims that 25 per cent of new business has come through its banking tie-ups. It has tied up with Standard Chartered Bank and Syndicate Bank. Aviva Life associate director (bancassurance) Rajesh Relan equally sees bancassurance as a major success story for India.

"About 72 per cent of our total premium collection comes from this channel alone," he points out. Aviva has four bank partners -- ABN Amro, American Express, Canara Bank and Lakshmi Vilas Bank -- each of which caters to a separate clientele base.

ICICI Prudential Life CEO and managing director Shikha Sharma says, "Maximum contribution from alternate distribution channels comes from the bancassurance route, followed by corporate agents and then direct marketing."

Today, aside from the infrastructure and resource limitations, insurance companies face the task of communicating the importance of bancassurance tie-ups down to the lowest level. LIC chairman S B Mathur points out that banks are facing manpower problems, forcing them to shift their personnel from one branch to another.

The state monolith is requesting banks to keep the dedicated insurance-selling employees at the insurance desk at the new branch where he has been transferred.

Of course, incentives for the staff would also help. But the Banking Regulations Act does not permit financial incentives for bank employees. Insurance partners are therefore resorting to other means.

"We are willing to give support from all sides to ensure smooth functioning of our partnership," says the marketing chief with a European-based insurer.

This company, which has tied up with a large public sector bank, has given out hundreds of mobiles to the bank's dedicated insurance sales employee. On the sale of 15 policies a month, the company even takes care of the individual's petrol bill.

But unlike in the West where sales through the banking network have been a roaring success, the Indian banking sector has far to go. Especially when it comes to sales through public sector banks. Unlike insurance agents, what banks lack is the sales culture.

Selling an insurance product is different from selling a banking product. LIC executive director A K Shukla says that despite the creation of awareness in the country, insurance continues to be sold and not bought. In contrast, customers approach banks to buy a product and hence bank employees need not be as aggressive in selling.

Unlike its private sector counterparts, which have tie-ups with foreign and private sector banks, the LIC faces a major challenge pushing sales through public sector banks, the key issue being its inability to incentivise bank employees to hawk its products.

That's probably why Mathur does not see bancassurance succeeding beyond 10-15 per cent of total sales in the country.

The LIC has targeted 5 per cent of total premium income to come through its various bank partners, with a substantial percentage from Corporation Bank. Corporation Bank has already earned the LIC a premium income of over Rs 3,500 crore (Rs 35 billion) in the current fiscal.

Nevertheless, the management of banks is clearly upbeat on the bancassurance tie-ups, as they see this adding significantly to their bottomline by way of fee-based income. Union Bank has targeted an annualised fee-based income of Rs 1.2 crore (Rs 12 million) from the sale of HDFC Standard Life's products. It aims to sell about 1,000 life plans every month.

"Taking an average premium income of Rs 5,000 per policy, this gives us about Rs 6 crore (Rs 60 million) in premium mobilisation and taking an average commission of 20 per cent, we expect the bank to earn a fee-based income of Rs 1.2 crore," Union Bank chairman and managing director V Leeladhar said earlier.

Despite the numerous bancassurance tie-ups, Allianz Bajaj's Walton does not expect all partnerships to succeed. "It all depends upon evolving the right model for the particular bank," he explains.

In the case of Stanchart, Allianz Bajaj has deputed its own employees to work side by side with the bank staff, who identify prospective customers. In its venture with Syndicate Bank, partly on account of union issues, it has trained the bank employees to hawk its risk products.

Banks are equally finicky on whom they choose as their bedfellows. Says Syndicate Bank chairman and managing director Michael Bastian: "We prefer to tie up with an insurance set up that does not have a bank within the group." There is always the chance, and hence fear, of data being captured by rival banks.

If insurance in India is to succeed, it can only be through the bancassurance channel. The LIC has already given it thought and proposes to take strategic holding in greater number of banks if its alliance with Corporation Bank is a success.

Even as the LIC holds 3 to 5 per cent share in a number of banks today by way of its investment portfolio, this has not prevented these entities from tying up with other private insurance players.

Bancassurance is obviously here to stay.