As per the IRDA Annual Report FY2007-08, banks acting as Corporate Agents contributed 18.89% of the total individual new business premium for the private life insurance companies during FY2007-08. If LIC is accounted for, the contribution of bancassurance is further reduced to just about 8%, 7.97% to be precise. While the figures for FY2008-09, have not yet been released by the IRDA, the widespread expectation is that the contribution of bancassurance may have reduced further or remained pretty much the same. It does riase many questions about the effectiveness of bancassurance as a channel and its importance in the Indian context.
Let's me put the above in perspective. Most banks in the country today have a distribution arrangement with one life insurer or the other; in some cases multiple on account of the group insurance route allowed by the regulator. As at the end of June 2008, the total number of branches of Scheduled Commercial Banks including Regional Rural Banks and Local Area Banks stood at 76,518. In contrast to the above, at the end of March 2008, the number of offices of life insurance companies including that of LIC of India stood at around 8900.
The bank branches comprise of 31,127 rural branches (40.67%), 17,858 semi-urban branches and 27,533 urban and metropolitan branches. As against this, the offices of life insurance companies comprised of 939 metro offices, 1637 urban offices, 3540 semi urban and 2797 (31.38%) in other locations (consider rural).
So despite the access to a huge bank branch network, what is ailing bancassurance in India?
While there are numerous challenges and operational issues in terms of training, dedicating bank staff for insurance, incentivisation of staff, union issues, huge handholding on the part of the insurance company staff, etc, part of the issue also lies in how the entire bank branch network is structured.
It is a known fact that foreign banks and new generation private sector banks have taken to bancassurance much more than their PSU counterparts, displaying greater capabilities in terms of customer segmentation, use of technology, targeted products, dedicated staff, management buy-in, etc. It is worthwhile to note that branches of foreign banks are mostly concentrated in the urban and metropolitan areas with no presence in rural areas. Similarly, new private sector banks have just about 6.3% of their branches in the rural areas. What this has meant is, foreign banks and private banks with their enhanced sales and distribution capabilities and improved use of technology have effectively managed to target customers in the larger metros and to a certain extent Tier II and Tier III cities, making bancassurance an urban centric distribution model.
By some estimates, while foreign banks were earlier contributing a significant percentage (thought to be around 70%) of the new business premium collected by banks, the percentage has now come down. Large private domestic banks such as ICICI Bank, HDFC Bank and Axis Bank has emerged as dominant players. Even relatively smaller banks like Syndicate Bank are performing very well. However, the challenge is with PSU Banks and old private sector banks. They have yet to establish themselves as serious players in the bancassurance space.
Nearly half of the total bank branches are operated by nationalised banks, of which around 35% are in the rural areas. What is even more interesting is the fact that of the 34,426 centres (read locations) served by scheduled commercial banks, single office centres accounted for 38.3% of bank offices. In rural areas, 84.9% of the banked centres were single office centres. This is the real challenge. In rural areas, even banks (largely PSUs and old private sector banks) do not have the distribution capability, manpower support, etc. What many banks have been able to do is through the group insurance route cover members of Self Help Groups. However, the numbers covered continue to remain in thousands. Unless this puzzle is cracked, it would be difficult to envisage bancassurance playing a critical role in helping increase the penetration of life insurance in India which is currently pegged at around 4% (as per a recent Swiss Re Report).
Let's me put the above in perspective. Most banks in the country today have a distribution arrangement with one life insurer or the other; in some cases multiple on account of the group insurance route allowed by the regulator. As at the end of June 2008, the total number of branches of Scheduled Commercial Banks including Regional Rural Banks and Local Area Banks stood at 76,518. In contrast to the above, at the end of March 2008, the number of offices of life insurance companies including that of LIC of India stood at around 8900.
The bank branches comprise of 31,127 rural branches (40.67%), 17,858 semi-urban branches and 27,533 urban and metropolitan branches. As against this, the offices of life insurance companies comprised of 939 metro offices, 1637 urban offices, 3540 semi urban and 2797 (31.38%) in other locations (consider rural).
So despite the access to a huge bank branch network, what is ailing bancassurance in India?
While there are numerous challenges and operational issues in terms of training, dedicating bank staff for insurance, incentivisation of staff, union issues, huge handholding on the part of the insurance company staff, etc, part of the issue also lies in how the entire bank branch network is structured.
It is a known fact that foreign banks and new generation private sector banks have taken to bancassurance much more than their PSU counterparts, displaying greater capabilities in terms of customer segmentation, use of technology, targeted products, dedicated staff, management buy-in, etc. It is worthwhile to note that branches of foreign banks are mostly concentrated in the urban and metropolitan areas with no presence in rural areas. Similarly, new private sector banks have just about 6.3% of their branches in the rural areas. What this has meant is, foreign banks and private banks with their enhanced sales and distribution capabilities and improved use of technology have effectively managed to target customers in the larger metros and to a certain extent Tier II and Tier III cities, making bancassurance an urban centric distribution model.
By some estimates, while foreign banks were earlier contributing a significant percentage (thought to be around 70%) of the new business premium collected by banks, the percentage has now come down. Large private domestic banks such as ICICI Bank, HDFC Bank and Axis Bank has emerged as dominant players. Even relatively smaller banks like Syndicate Bank are performing very well. However, the challenge is with PSU Banks and old private sector banks. They have yet to establish themselves as serious players in the bancassurance space.
Nearly half of the total bank branches are operated by nationalised banks, of which around 35% are in the rural areas. What is even more interesting is the fact that of the 34,426 centres (read locations) served by scheduled commercial banks, single office centres accounted for 38.3% of bank offices. In rural areas, 84.9% of the banked centres were single office centres. This is the real challenge. In rural areas, even banks (largely PSUs and old private sector banks) do not have the distribution capability, manpower support, etc. What many banks have been able to do is through the group insurance route cover members of Self Help Groups. However, the numbers covered continue to remain in thousands. Unless this puzzle is cracked, it would be difficult to envisage bancassurance playing a critical role in helping increase the penetration of life insurance in India which is currently pegged at around 4% (as per a recent Swiss Re Report).
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