Mumbai:
The alternative channel distribution of financial products
is emerging as one of the big business opportunities for
India's commercial banks. Bancassurance, the first test
case for selling the insurance products through alternative
channels, has been gaining ground among the banks.
According
to sources in the insurance industry, around 20 per cent
of fresh life insurance business (in terms of premium
income) is getting generated through banking channels.
Says
Birla Sun Life Insurance senior vice-president (alternative
channels and group life) P Nandagopal: "Bancassurance
contributed around 22 per cent of the total business of
the company during fiscal 2002-03."
Birla
Sun Life has already tied up with 10 commercial banks
in the country and another six are in the offing to sell
its life insurance products. The company has generated
Rs 30 crore through the bancassurance route.
In
the case of a life insurance company like Aviva, the sources
say, the proportion of sales through bancassurance is
as high as 73 per cent. For MetLife, fresh business through
the bancassurance route is around 60 per cent.
Going
by the rationale that a customer will trust the branch
manager of his local bank more than an agent, the insurance
and mutual fund industries are relying increasingly on
banks for selling products.
"Building
adequate incentives for bank employees selling policies
is one of the prime factors making this distribution channel
more active," says Nandagopal. Almost all banks in
the country now have bancassurance tie-ups with insurance
companies.
Says Bank
of Rajasthan chairman P K Tayal: "During the last
fiscal we made a business of over Rs 1 crore through bancassurance.
We have set a target of Rs 5 crore for this year. Around
100 employees have been trained to sell insurance products."
It
is estimated that there are over about 18-crore bank accounts
in India. If a bank sells one insurance policy to each
of these accountholders over a period of five years with
an average first-year premium per policy of Rs 5,000 and
an average commission of 15 per cent, banks can earn a
total commission of Rs 13,500 crore (going by a simple
back-of-the-envelope calculation: Rs 5,000 x 15 per cent
x 18-crore accounts). This is only from life insurance
and pension policies, the industry sources add.
Says
IDBI Bank product head (insurance) Lubna Usman: "It's
a win-win situation for both banks and insurance companies.
It a logical extension for banks as they sell other financial
products such as housing loans and car loans and there
is virtually no risk factor involved in bancassurance."
Says
SBI Life Insurance CEO R Krishnamurthy: "During the
previous fiscal, 12 per cent of our premium collection
came from bancassurance. Our target this year is 30 per
cent. When others talk about bancassurance, it means referral
of the bank and the agents sell the policies. In our case,
it is the bank's staff that sells the policies. We believe
that the former model might not be sustainable as you
might be breaching client confidentiality."
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