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Rahul Bajaj, chairman of Allianz Bajaj Life, says there are three kinds of bank customers: those who come for banking products, those to come to buy an insurance product and the third, someone who does both.

Impact on Retail Customer

While banks and insurance companies stand to gain, what impact does it have on the retail customer?

Retail saving choices are getting increasingly complex internationally and Idea is no exception. There is growing need for more diverse instruments and avenues of investment. This coupled with need of integrated financial 'one stop shops' to reduce the transaction costs associated with diversification.

Globally, insurance products are a major internment savings and this is likely to be the case in India as well as insurance penetration gathers steam. The issue of building brand equity is critical for new entrants into the insurance market. However, tying up with a bank might provide counter-productive if this objective is to be achieved. A number of surveys in the European market have shown, for instance, that in bancassurance partnerships, it is the bank's rather than the insurers brand that dominates and insurance brands often get stifled. The issue of integrating the bank's IT and other support systems also needs to be emphasized. If these are not dovetailed, the possibility of serious systems failure becomes real. Often this issue is relegated to the background and the obvious synergies between banks and insurers get more than their due emphasis.

Regulatory Perspective

From a regulatory perspective, bancassurance raises some key questions regarding anti-competitive behaviour. It is a basic tenet of competition law and regulation that the ownership of large networks is a significant barrier to entry thus insurers who tie up with ones with large networks could effectively keep out potential entrants. This might not have a immediate impact on the pricing of premium. The need to penetrate the untapped Indian market might keep premiums low at this state. However, over the medium to long term this could lead to monopoly power and high premiums. This is a regulatory issue that needs to be addressed as bancassurance gets under way in India either through the competition commission or through the insurance regulator's office. This is by no means an issue that is unique to bancassurance - the regulation of ATM networks and other payment systems in Europe has been a hotly debated issue. A possible solution is to have an arrangement by which all entrant insurers have access to bank networks.

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