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Another regulatory issue related to 'binding' or the phenomenon through which banks offer a consolidated package of products at a single rate. This often involves cross-subsidization within the package. Thus a bank could charge an artificially low premium for an insurance product and subsidize it through a relatively high charge on say a credit card.

This form of 'bundling' not only impedes transparency of pricing but could also lead to 'unfair' advantage for banks offering bancassurance vis-a-vis stand-alone insurers. This might warrant regulatory intervention. Thus, while bancassurance does provide an apparently viable model for product diversification by banks and a cost-effective distribution channel for insurers, there are some potential areas of conflict between the two that need to be ironed out. The success of the partnership between the two entities depends on the right 'model' partnership. It is vital for this model to ensure that banks remain fully committed to promoting and distributing insurance products. This commitment has to come from both senior management in terms of strategic inputs and the operations staff who would provide the front end for these products. Prima facie, a formal collaboration between banks.

There are costs associated with setting up a successful bancassurance network. The proper training of bank personnel to understand and market insurance schemes is vital to the success of these ventures. There is also a need to invest extensively in IT and other support systems that would provide an integrated 'back-end' for banking and insurance services. Regulatory issues need to be addressed comprehensively and sorted out particularly with respect to competition and market structure problems. Given these changes, bancassurance and collaboration between banks and insurers has a long way to go in India.

Potential Areas of Conflict

While bancassurance does provide an apparently viable model for product diversification by banks and a cost-effective distribution channel for insurers, there are some potential areas of conflict between the two that need to be ironed out. While the benefits of bancassurance appear somewhat clear, prima facie to all participants, the potential areas of conflict should not be glossed over.

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