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One of the key factors is that banks continue to command the highest trust among Indian savers and investors and of the total pool of financial savings of households, 3 per cent (the largest share) goes to bank deposits (RBI annual Report 2002). For any providers of new financial products, banks are the fastest and most 'trusted' channel to reach households. Besides, the bank branch network of 62000 is virtually impossible to replicate and would be indispensable in penetrating newer markets such as rural markets. Bank assurance also leads to a significant lowering of distribution costs for insurers.

Swiss Re estimates for the UK for instance peg average costs through bank assurance at roughly 25 per cent of the cost of selling through a direct sales force. The cost reduction is the corollary of a sharp rise in the numbers of policies sold per employee that follows from enhanced customer access that bancassurance fosters. Bancassurance addresses twin needs of portfolio diversification by retail customers and integration of marketing.

Conclusion

The pertinent question is how far will bancassurance succeed when insurance is a product that is sold not bought in our country. Insurance needs hard selling but banks have never been aggressive about selling financial products. Says Pradeep Pandey "I agree that in our country insurance awareness is low but with falling interest rates, banks are on the look out for additional revenue and bancassurance can provide them fee based income - insurance is one outlet where income can be gained. And the cost that banks have to incur is minimal. With all the other infrastructure in place already, the cost is only about training a few individuals." Insurers are no doubt optimistic about the channel but it does come with a few limitations. While sale of insurance comes at a lower cost through this channel in comparison to the agency route and the insurance company gains much through the large bank network spread across the country the potential can be impeded if bank officials do not actively generate leads. If insurance in India is to succeed, it can only be through the bancassurance channel. Bancassurance is obviously here to stay.

References

Concluded.

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