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One of the more recent examples of financial diversification is 'banc assurance', the term given to the distribution of insurance products through branches or other distribution channels of banks. The concept that originated in France now constitutes the dominant model in a number of European countries.

In France 70 per cent of new business premiums come through this distribution channel, 69 per cent in Portugal, 63 per cent in Spain and so on. Projections by insurance giant Aviva peg the distribution share of banc assurance at 33 per cent by 2010, making it the single largest distribution channel. In Asia, the share of this network is small but growing rapidly. In China for instance, this accounts for more than 20 per cent of the urban market in insurance in 2003. (It is, however, interesting to note that in some countries bank regulations prohibit bancassurance and it is this regulatory diktat rather than conscious strategic choice that has harnessed the growth of this marketing channel.) In India the concept of bancassurance appears to be gaining ground quite rapidly both through commission based arrangements and joint ventures between banks and insurance companies. According to SBI Life insurance estimates, about 15 pr cent of the gross premium of new players in FY 2003 came through bancassurance and is estimated to grow further.

While have examined the motivations that banks have for taking insurance products on board, the incentives for insurance companies to run to banks for marketing and distribution support particularly in India need to be examined. Before that it is useful to review the traditional channels of insurance distribution. Internationally and in India, the bulk of distribution is done through the direct sales force (DSF) of insurance provides followed by insurance brokers. Direct marketing and more recent innovation such as internet marketing constitute only a minor fraction of the total distribution effort. According to the SBI Life insurance estimates, about 15 per cent of the gross premium of new insurance players in financial year 2003 came through bancassurance.

There are various a model through which bancassurance operates internationally. In the so called integrative model, branch bankers themselves directly sell insurance products. In the specialist model, specialized personnel of the bank or the insurance company have specific knowledge and training of insurance to sell these products Bancassurance could operate through 'strategic alliance' models involving a simple 'marketing' tie-up or through 'full integration' where the bank sells insurance products under its own brand and undertakes all other functions associated with insurance. In India, this scheme, until now, operates largely through strategic alliances or joint ventures. Under RBI regulations, the maximum equity that a bank can hold in JV with an insurance company is 50 per cent, subject to the fact that bank has a net worth of Rs. 500 crore, its Capital adequacy ratio is 10 per cent or more and has a reasonable level of non performing assets. The insurance Regulatory and Development Authority also sets guidelines regarding eligibility of corporate agents. Banking personnel who sell insurance products have to satisfy the same training and examination requirements as insurance agents.

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E. Jeevitha,
Faculty,
Department of Management Studies and research,
Tamilnadu College of Engineering, Coimbatore.