The driver for new players tapping of banks for distribution is their eagerness to reach a critical mass of business within a short time. LIC, GIC and its subsidiaries during their monopoly days invested heavily in setting up of branch network though some of the decisions were not necessarily out of business considerations. But there is absolutely no doubt that by tapping banks, insurance companies could build a mass base of customers through the extensive branch network of approximately 85,000 bank branches, of which more than 50 per cent is situated in the rural areas.
Bancassurance could be one way for new players to take on the might of the public-sector players who have set up their own extensive branch network. Bancassurance would also facilitate insurance companies to shift focus from highly competitive markets to markets where the competition has not yet caught up.
The success of the bancassurance would depend on banks and the insurance companies crossing many hurdles. While there is much hype about regulatory issues, many banks and the insurance companies have not thought about the implementation issues associated with bancassurance. Steps have been taken to address regulatory concerns and the time has come for them to focus on other operationalising issues.
Issues related to the operationalisation of bancassurance agreements are many and depend on the current state of parties to the agreements: banks and insurance companies. On one hand, some of the issues relating to customer ownership and impact of the deficiencies in insurance products on existing relationship have not been clearly understood by many banks.
Similarly, insurance companies are yet to find a way to imbibe insurance culture at the grass-roots level. Bank branches are expected to assist customers in the claim-settlement process since the agent is traditionally looked upon to provide this service.
One more issue, which will arise in bancassurance is whether banks will act as corporate agents or brokers in the distribution of the insurance products. The answer, of course, will lie in whether banking companies will like to be loyal to one principal and in doing so, will not assume a larger responsibility including those of mis-selling or they are loyal to their customers and work towards identifying suitable products for them.
(The writer is senior partner, business consulting, at Andersen)