Scope of Bancassurance - IPASJipasj.org/IIJM/Volume5Issue9/IIJM-2017-09-20-3.pdfGrowth of bancassurance in India-In India, bancassurance has now secured its position as a key distribution

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A Publisher for Research Motivation ........ Email:[email protected] Volume 5, Issue 9, September 2017 ISSN 2321-645X

Volume 5, Issue 9, September 2017 Page 16

ABSTRACT Insurance is a cover used for protecting oneself from the risk of a financial loss. It is important to understand that risk is a part of any person’s life. Insurance is risk coverage against financial losses and should not be taken as an investment instrument. Bancassurance is an alliance between the insurance companies and banks for the sale of insurance products through banks. According to IRDA, ‘bancassurance’ refers to banks acting as corporate agents for insurers to distribute insurance products. Bancassurance is an attractive and profitable component that complements to the existing activities and services offered by banks. The main purpose of the paper is to study the scope of Bancassurance. The present study deals with the objectives (1) to study the level of awareness among the customers regarding bancassurance (2) know the preferred buying channel of customers specifically between banks and insurance company sales channel and (3) understand the reasons behind success or failure of bancassurance. To analysis the above mentioned objectives, data has been gathered through primary data. A sample frame of 200 individuals is selected from the target population. Keywords: insurance, bancassurance, investment instrument, risk, insurer

1. INTRODUCTION Insurance has a long history in India. The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. Today insurance is growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the country’s GDP. The distribution channel refers to the routes by which the product prepared by the producers reaches the ultimate consumers. In other words, it is the mechanism by which products are directed to customers either through intermediaries or direct. As a result the distance between producers and the consumers are bridged by the distribution channel.The most upcoming distribution channel is Bancassurance. Bancassurance has grown at different places and taken shapes and forms in different countries depending upon demography, economic and legislative prescriptions in that country. It is most successful in Europe, especially in France, from where it started. Bancassurance is a new buzzword in India. It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian Banks to distribute insurance products. The Bancassurance is the distribution of insurance products through the bank's distribution channels. It is a phenomenon where in insurance products are offered through the distribution channels of the banking services along with a complete range of banking & investment products & services. Bancassurance is the collaboration between a bank and an insurance company wherein the bank promises to sell insurance products to its customers in exchange of fees. It is a mutual relationship between the banks and insurers. One of the most desirable traits of such an agreement is the low finance required by both the parties. Bancassurance can then be considered as nothing more than sharing of resources already present in an organisation. It is a series of merges, tie ups and joint ventures between banks and insurance companies. The following are the advantages of bancassurance

Distribution of insurance products is more penetrative due to wide range of bank branches. The productivity of bank staff is enhanced by offering a wide range of services. Suitable strategy can be selected to deliver more value to the customers. Banks can develop more innovative products and services – customized to include banking characteristics. Choosing of target segments is easier because of the existing customer base of banks.

Bancassurance started in France in the 1980s, and spread across different parts of Continental Europe since, it has spread its wings in Asia – in particular, in India. In India, bancassurance is contributing significantly in new business

Scope of Bancassurance

Ashima Saxena

Jagannath International Management School, IP UNIVERSITY




growth, especially among the private sector companies. Bancassurance is tied up with commercial banks, cooperative banks and regional rural banks. It is expected to account for 13% in life and 5% in non-life business during next five years. In India, more banks have come to realise the value of their distribution network and are reportedly trying to discard existing channels in favor of financial service sector including insurance companies. Only standardized products are sold through bank channels specific products such as credit card or bank loans. Unit linked products are also being offered by bancassurers. Banks have developed more sophisticated investment products that have more financial content. Accident and health products are being offered by banc assurers.

2. REVIEW OF LITERATURE

Basu and Hollway (2002) in their study titled “Distribution of Insurance” indicated the background of new entrants, their business strategies and various developments that are likely to influence the market. After the opening of insurance sector in India, many insurance companies have entered the market with new distribution strategies. These companies are offering different saving plans, term benefits, riders and a wider range of products. From the study, it is evident that private life insurers will have to concentrate on their distribution strategies in order to capture the untapped insurance market. (1)

Krishnamurthy (2005) in the study -“Bancassurance is the most cost effective channel to make insurance products available to masses” shows how the development of bancassurance has taken place in India. The study examined the current training programme for bank employees. He further indicated that four years ago, bancassurance in India was a concept but today it is a reality. Indian Life insurance players including LIC have a specialized marketing team for this channel and premiums income collected represents 25% to 70% of gross total premium income. The study revealed that in SBI Life, bancassurance business represents about 70% of total business and more than 2 million bank customers took insurance through this channel bancassurance is believed to be the most cost effective channel to make insurance products available to masses through widespread bank branches network. (2)

Karunagaran (2006) discussed in the paper titled, “Bancassurance- A Feasible Strategy for Banks in India”, the objective to explore the scope for bancassurance models as feasible source of sustainable income to banking sector by exploiting the synergy in context of India having the largest banking network on one hand and lower insurance penetration and density on the other hand. It was concluded in the study that going by the present pace, bancassurance would turn out to be a common phenomena rather than an exception in future in India. It would be a ‘win-win situation’ for all the parties involved i.e. the customer, the insurance companies and the banks. (3) Manocha and Chitkara (2012) in their study titled “The choice of customers towards distribution channels of life insurance industry” evaluated the factors affecting the choice of customers. The objective was to study the concept of insurance, distribution channels of life insurance and know the preferences of customers towards the choice of distribution channels like advisors, bancassurance, brokers and corporate agents etc. for buying insurance plans. It was concluded in the study that Indian insurance industry relies heavily on the traditional agency distribution channel, there is need to develop alternative distribution channels of independent intermediaries, bancassurance, direct marketing and Tele-Marketing etc. (4) Growth of bancassurance in India-In India, bancassurance has now secured its position as a key distribution platform, and is widely attracting the attention of banks, insurers, regulators and policy planners. India is known for its large variety of banks and extensive branch networks, and over the last few years, these branches are increasingly being utilized to serve the insurance needs of over 400 million bank customers. (5)

3. OBJECTIVE OF THE STUDY The proposed research study is undertaken to investigate the following objectives –

Bank distribution- 93% of the life companies are using bancassurance channels.




To study the level of awareness among the customers regarding bancassurance. To know the preferred buying channel of customers specifically between banks and insurance company sales

channel. To understand the reasons behind success or failure of bancassurance.

4. RESEARCH METHODOLOGY Hypothesis- Ho: There is no significant difference among the distribution channel. H1: There is significant difference among the distribution channel. Ho: There is no difference among the awareness of bancassurance in respect of age of the respondent. H1: There is difference among the awareness of bancassurance in respect of age of the respondent. Research design- The marketing research undertaken in this project is constructed on the paradigm of Causal research. The research carried out in this project is based on primary data through questionnaire and surveys. Target population: Target population is the aggregation of elements from which the sample is actually selected. For efficient analysis, the target population is –

The customers who are using bancassurance. The customers who buy insurance policy directly through insurance company.

Sample frame: In this project, a sample frame of 200 individuals is selected from the target population. 5. DATA ANALYSIS Primary data analysis Based on the objective, a well structured questionnaire was formed and the following clearly represents all the related data and their interpretation in a detailed form.

Age of respondents Age No of respondents Percentage 20-30 60 34

30-40 41 23 40-50 40 22 50-60 30 17 60 and above 7 4

In the above pie-chart, out of two hundred respondents, sixty respondents are below thirty years of age, forty one respondents are between the ages of thirty to forty, forty respondents are between the age of forty to fifty and thirty seven respondent are above fifty years of age.- Testing of Hypothesis using Chi-Square Test

AGE OF RESPONDENTS




Chi-square symbolically written as is a statistical measure used in the context of sampling analysis for comparing a variance to a theoretical variance. It is a non parametric test. It is used to make comparison between theoretical population and actual data. It is applied in statistics to apply goodness of fit. The general formula for Chi-square test is:

Where O= the frequencies observed E= the frequencies expected Degrees of Freedom= n-1

Age O E O-E (O-E)² ∑(O-E)²/E

20-30 60 40 20 1600 40

30-40 41 40 1 1 1 40-50 40 40 0 0 0 50-60 30 40 -10 100 2.5 Above 60 7 40 -33 1089 27.22 Total 200 200 70.2

The table value of Chi- square at 95% confidence level, 5% significance level and three degrees of freedom is 7.815.

The calculated value of is 70.2 much higher than this table value and hence null hypothesis (Ho) cannot be accepted. We will accept the alternative hypothesis (H1). We can thus, conclude that there is difference among the awareness of bancassurance in respect of age of the respondent.

1. How would you classify your level of awareness about insurance policy through banks?

Level of awareness about Bancassurance

No of respondents Percentage

Good 45 22.5 Average 113 56.5 Poor 40 20 Never heard of it 2 1 Total 200 100

From the above, it can be observed that 57% of respondents have the average level of awareness about bancassurance and 20% of respondents have poor awareness level which clearly shows the reach of bancassurance to its customers.




The other main objective behind such question is to identify the efficiency of banks as the distribution channel. Only 1% of respondents have no idea about bancassurance which evidently explains that banks have efficient distribution channel.

2. Have you purchased any insurance policy through banks?

Purchased insurance policy through banks No of respondents Percentage Yes 117 58.5 No 83 41.5 Total 200 100

As surveyed, 58% of the respondents have purchased an insurance policy through bank, which explains that bancassurance is a growing sector. This however does not mean that the effectiveness of insurance company in providing sales be underestimated as 42% of respondents have purchased an insurance policy through insurance companies, excluding banks which shows the presence and importance of direct selling in this sector. 2.1 If yes, what motivated you to purchase insurance policies through banks (you can tick more than one)-

Reasons behind purchase No of respondents Percentage Security and safety 50 26 Trust 60 31 Brand superiority 22 11 Convenience 63 32 Others 0 0 Total 100




It is observed that 32% of respondents feel that the main motive for purchasing insurance policy through banks is the amount of convenience on the part of customer. Bancassurance provides huge amount of convenience since Bank has tied up with insurance companies so that customers can avail of insurance service at the branches. Trust, security and safety are the following reasons for the same. It also helps us to know the reasons behind the success of bancassurance. 2.2- If no, you did not buy insurance through banks because of-

Reasons behind not purchasing No of respondents Percentage Lack of confidence 19 20 Lack of awareness about services 45 47 No added incentives by banks 20 21 Others 11 12 Total 200 100

It is clear that 47% of respondents feel that there is lack of awareness about services provided by the bank. Bank employees should be well equipped with the knowledge about the products of the concerned insurance company. 21% of respondents don’t find any added incentive, meaning thereby that the customers may feel that they are coerced into buying insurance, while taking loan from the bank and they don’t get any additional benefit from it.

3. Rate the following points as per your preferred distribution channel (1 being highest)-

Distribution channel No of respondents Percentage Banks 82 41 Insurance company 90 45 Agents 28 14 Total 200 100




From the above, it is clear that 45% of respondents prefer insurance company as the intermediate for their purchase of insurance product. But on the other hand 41% of respondents prefer bank as its distribution channel, which is quite close to the preference for insurance companies. So it is evident that bancassurance is a boom for an insurance companies. Testing of Hypothesis using Chi-Square Test The general formula for Chi-square test is:

Where O= the frequencies observed E= the frequencies expected Degrees of Freedom= n-1

Distribution channel O E O-E (O-E)² ∑(O-E)²/E

Banks 82 66 16 256 3.87 Insurance companies 90 66 24 576 8.72 Agents 28 66 -38 1444 21.87

Total 200 200 34.46 The table value of Chi- square at 95% confidence level, 5% significance level and three degrees of freedom is

7.815.The calculated value of is 34.46 much higher than this table value and hence null hypothesis (Ho) cannot be accepted. We will accept the alternative hypothesis (H1). We can thus, conclude that there is significant difference among the distribution channel.

4. While selecting distribution channel for insurance product, how would you consider the following

Factors Extremely Important

Very important

Somewhat important

Not very important

Not at all important

Convenience 75 97 24 4 0 Recommendation of friends & relatives

11

63

85

34

7

Advertisement 14 106 54 21 5 Service quality 158 37 3 2 0

This question is set with a view point to know the customer preference in terms of convenience, recommendation of friends and relatives, advertisement and service quality. It helps us to understand the customer thought process while buying insurance product. It is important for the insurance company to know whether convenience and service quality is more important or advertisement and promotion attract more customers. 49% of respondents consider convenience




and 79% of respondents consider service quality as very important tool for their decision on choosing distribution channel.

It will be helpful in future to know the push-pull strategy. In this context, push refers to the convenience and service quality given by the insurance companies to their customers, whereas pull refers to the method of attracting customers, like advertisement and promotion, to buy insurance products. Insurance companies should give more emphasis on their push strategy.

6. FINDING From the above study, it is clear that there is a difference among the awareness of bancassurance in respect of

age of the respondent. Many people have a fair idea about bancassurance and that their banks sell various insurance products. But still

few people don’t know about bancassurance as a concept. It is observed that 58% of the respondents have purchased an insurance policy through bank, which explains

that bancassurance is a growing sector. It is seen that customers have a lot of convenience and trust on the banks, and because of which

customers buy insurance from banks. It is also seen that the most preferred distribution channel for the customers is insurance companies.

7. CONCLUSION The success of bancassurance greatly depends upon banks ensuring excellent customers relationship; therefore banks need to strive towards that direction. The fact that the banking operations in India, unlike in other developed countries, are still branch oriented and manually operated vis-à-vis highly mechanized and automated banking channels, viz., internet banking, ATMs, etc. are all the more conducive for flourishing of bancassurance. It’s a win-win strategy for the banks as well for the insurance companies, as the banks get their commission for selling the insurance products and in the same way the insurance companies get the wide spread networking of their branches. The prospect of bancassurance is also bright as it is one of the most preferred distribution channels among the customers who wish to buy insurance products. With more incentives and focus in the in specified areas the bank can even have the potential of making more customers to buy insurance products from banks. With bancassurance, company can also take the advantage of more customer base and can become more competitive. Thus, in the coming years Insurance Companies will definitely play a predominant role in the bancassurance industry and thereby can contribute more to the upliftment of the company. REFERENCES [1] Basu, Heerak., Hollway, Richard.(2002) “Distribution of insurance”, available at www.mindbranch.com,on May

8, 2007. [2] Krishnamurthy, S.(2005) “Bancassurance is the most cost effective channel to make insurance products available

to masses”, Asia Insurance Post, August, 2005, pp. 28-29. [3] Karunagaran A. (2006), “Bancassurance: A feasible strategy for banks in India”, RBI occasional paper, Vol.27,

No.3 [4] Manocha ,Sanjay, Chitkara, Subash Chand. (2012) “A study of choice of customers towards distribution channels

of life insurance industry,” The International Research Journal of Commerce and Behavioral Science, Vol.1, No.7, pp.19-27 available at www.theinternationaljournal.org, on May 11, 2012.




[5] India Bancassurance Benchmarking Survey 2010-2011 {Source-http://www.towerswatson.com/assets/pdf/1775/India-Bancassurance-Benchmarking-Survey.pdf}

[6] Sethi, naveen , marketing management, bancassurance- an emerging concept in India, ibexi solutions, http://www.ibexi.com/papers/Bancassurance.pdf

[7] Chang, P., J. Peng, and C. Fan. 2011. A Comparison of Bancassurance and Traditional Insurer Sales Channels. Geneva Papers on Risk & Insurance 36, no. 1, (January 1): 76-93. http://0-www.proquest.com.alpha2.latrobe.edu.au/ (accessed May 12, 2012).

[8] Lin, W.. 2009. A study of relations among service quality differences, post-purchase behavior intentions with personality traits, and service recovery strategy as intervening variables. International Journal of Commerce & Management 19, no. 2, (April 1): 137-157. http://0-www.proquest.com.alpha2.latrobe.edu.au/ (accessed May 8, 2012).

[9] www.irda.gov.in [10] Investors words, bancassurance, 2012, http://www.investorwords.com/6738/bancassurance.html AUTHOR

Ashima Saxena received the MBA degree in banking and insurance from Amity University and B COM degrees from University of Delhi. Presently, she is doing her PhD. in finance from Manav Rachna International University. She started her career with Axis bank and then shifted to academics later on. She is working with Jagannath International Management School, under IP University.

Scope of Bancassurance - IPASJipasj.org/IIJM/Volume5Issue9/IIJM-2017-09-20-3.pdfGrowth of bancassurance in India-In India, bancassurance has now secured its position as a key distribution

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