International Journal Of Marketing, Financial Services & Management Research ____________________ ISSN 2277-3622

Vol.3 (4), APRIL (2014)

Online available at indianresearchjournals.com

BANCASSURANCE - A SWOT ANALYSIS

DR ANURAG KUMAR

ASSO PROF.,
ACCURATE INSTITUTE OF ADVANCED MANAGEMENT,
GREATER NOIDA.

ABSTRACT
In view of globalization and liberalization, new trends are emerging in the arena of financial
services almost throughout the world. The general trends are bundling (combining) of various
segments of the financial industry. Banks, insurance companies, mutual funds, etc. all are
competing for new business in each others domain and cross-sectional activities are taking place
in the financial services sector. The latest example of this type of activities is the selling of
insurance products through banks which is technically known as Bancassurance.
Bancassurasncse is a concept that has rewritten the way in which insurance products are
distributed in many parts of the world.
This paper focus on meaning of Insurance and bancassurance, need for bancassurance, and also
emphasized on Strength, weakness, opportunity and threat (SWOT analysis) of Bancassurance

KEY WORDS: Bancassurance , SWOT Analysisi, Banking.

INTRODUCTION OF INSURANCE
Insurance has assumed universal significance. Insurance companies provide social security and
promote individual welfare. They reduce risk and help to raise overall productivity in the
economy. In the modern society human life and property are exposed to various kinds of risks
and uncertainties such as uncertainty of untimely death caused by accident, any severe disease,
etc, or risk of suffering from heavy monetary loss due to fire, earthquake, floods, sea-perils,
theft, burglary, embezzlement, etc. Insurance is a way of dealing with such risks. It protects
man from such risks and uncertainties in his personal and business life. In other words
Insurance protects man against the loss resulting from such risks or uncertainties. It, thus,
provides economic protection against losses that may incur due to chance events (such as death,
disability, economic losses, etc.) which may or may not occur during the effective time of the
insurance policy. However, it is to be noted that insurance does not avert the risk, it only reduces
the loss arising from the risk.

MEANING OF INSURANCE
Insurance can be defined in two ways financially and legally. Insurance protects man
from various types of risks and uncertainties in his personal and business life. It is, in fact, a
device of spreading the risk of one person on many persons. In other words, it is a way of
spreading the burden of loss of one person on a large number of persons through co-operative
efforts. This is the financial concept of insurance. In financial sense, it is an arrangement of
redistributing the cost of expected losses i.e. the collection of a small premium payment from
all exposed and distribution to those suffering loss. In brief, in financial sense insurance is a

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International Journal Of Marketing, Financial Services & Management Research ____________________ ISSN 2277-3622
Vol.3 (4), APRIL (2014)
Online available at indianresearchjournals.com

method of averaging the risks. The legal concept of insurance focuses on contractual
arrangement under which one party agrees to compensate another party for losses. Making it
more clear , in legal sense insurance is a contract by which one party for a consideration of a
certain amount promises to pay the other party a certain or ascertainable sum of money on the
happening of a certain specified event. Thus, while financial concept of insurance gives
emphasis on funding of losses, the legal definition of insurance focuses on contract which is
legally enforceable and which clearly spells out the legal rights and duties of all parties related to
the contract.

HISTORY OF INSURANCE
The history of insurance is as old as human civilization. Evidences are on records that ideas of
insurance have been used by the Babylonians, the Greeks and the Romans centuries ago .The
word Yogakshema In Rig Ved - the most sacred book of Hindus suggests that some form of
community insurance used to be carried on by Aryans in our country well over 3000 years ago.
Insurance in the present form actually originated in England some time during the 12th and 13th
centuries. The oldest form of insurance was in the nature of Marine Insurance. The next type of
insurance to start was Fire Insurance during the 14th century. The third in the list of development
was Life Insurance during the 15th and 16th century and the last in line was Accident Insurance
during the 19th century mainly because of industrial revolution of 19th century giving birth to
scientific and technological development and also associated with various types of accidents.

BANCASSURANCE
Meaning
Bancassurance services have evolved in different parts of the world subject to the
political, economic, social and regulatory conditions prevailing in the country concerned. The
word bancassurance is a combination of banque or bank and assurance which means that
both insurance and banking services are provided by the same corporate entity. In a broader
sense it includes different methods of collaboration between banks and insurance all over the
world. Thus in a broader sense it is a strategy adopted by banks or insurance companies aiming
to operate in the financial service market in a more or less integrated manner. It is inter-linkage
of different financial services as well as the distribution of these products. However, in practical
sense it refers to an arrangement wherein banks distribute insurance products developed by
an insurance company owned wholly or in part by the bank or those developed by
other insurance companies with which the bank has selling arrangement. Insimple words
it means distribution of insurance products through banking channel. The word bancassurance
includes terms such as Allfinanz (in Germany), Integrated Financial Services and
Assurbanking. The concept of bancassurance first started in France in 1980 followed by
Germany, U.K., Spain, etc. where the merger of many banking institutions and insurance
companies took place. Netherland Insurance Company, a very big insurance company, with NV
& NMB Post Bank is worth mentioning in this context. Bancassurance is, thus, distribution of
insurance products through banks distribution channel along with complete range of banking
products and services, though its penetration varies across the different markets. Europe has
highest bancassurance penetration rate whereas penetration rate is lower in North America due
to regulatory restrictions In Asia, particularly in India and China, penetration is gaining
popularity because of the positive attitude of the regulatory authorities

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International Journal Of Marketing, Financial Services & Management Research ____________________ ISSN 2277-3622
Vol.3 (4), APRIL (2014)
Online available at indianresearchjournals.com

NEED OF BANCASSURANCE
With the growth in economies, the financial services sector is also rapidly expanding in the
different countries of the world. More and more financial service provider companies such as
banks, insurance companies, mutual funds, brokerage firms etc are coming into the existence and
are expanding their presence to tap the growing market. This resulted in increase in the
competition particularly in the insurance sector. The growing competition forced the insurance
companies to come with innovative techniques to market their products and services so as to
have access to large number of customers of the different sections of the society. At
this juncture banks with their vast infrastructure, huge geographical base and high
penetration in terms of customer reach of all sections emerged as potential distribution channel
for insurance products. It is in this context, the new concept which emerged due to union ( or
convergence ) of the two sectors ( insurance and banks ) was termed by financial experts as
Bancassurance. Thus, in broad sense the convergence of banking and insurance industry is
taken as bancassurance.

TERMS RELATEDTO BANCASSURANCE

(i) Assurbanking:
Assurbanking is an arrangement under which insurance company, besides providing insurance
services also perform banking services. Thus, the convergence of insurance and banking
companies under which insurance company sells the banking products also is termed as
assurbanking. This co-existence of insurance and banking business is very much popular in
foreign countries. If an insurance company starts banking business, there are three major areas of
banking activities which can be performed by insurance company. These activities are: premium
collection through cheques, settlement of claim amount and payment of Pension amount under
Pension Plans.

(ii) Telecassurance:
Number of Mobile Phone users is increasing day by day. Presently there are more than 90.30 Cr.
mobile phone users of different cellular phone operators in India. In order to get access to this
large number of customers of urban as well as rural areas, insurance companies make
arrangement with the mobile phone operators for distribution of their insurance products. The
distribution arrangement between an insurance company and a mobile phone operator is termed
as telecassurance. Under this arrangement the customer relation centres established all
over the country by these mobile phone operators may function as retail outlets for the
insurance company (Bharti AXA Life Insurance Company is using this channel and is providing
life insurance services and advice on financial protection at Bharti Airtels Relationship Centres
across the country.

(iii) Shopassurance:
Shopassurance refers to an arrangement under which an insurance company enters into tie-up
with a owner of retail grocery shop for selling insurance products. This alliance for distribution
of products of insurance companies through retail grocery shops has been named as
shopassurance. After the liberalization of Indian insurance, many Indian as well as foreign
companies have entered the Indian insurance market. These insurance companies have designed
specific insurance plans to capture the untapped rural insurance business. Shopassurance
provides good opportunities to these insurance companies for selling their insurance policies in

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International Journal Of Marketing, Financial Services & Management Research ____________________ ISSN 2277-3622
Vol.3 (4), APRIL (2014)
Online available at indianresearchjournals.com

villages through retail grocery shops. Bharti AXA Life and Future Generali are using this
channel and selling insurance with retail products.
However, it should be noted that channels telecassurance and shopassurance may create a sense
of insecurity in the minds of customers, as there is no insurance specialist to guide them while
purchasing the insurance products from customer relation centres or retail shops.

SWOT Analysis Of Bancassurance In India

The word SWOT stands for Strength, Weakness, Opportunity and Threats. Let us analyze
bancassurance in India from the SWOT viewpoint :

Strength
1. Vast Market:
India with more than 1.21 billion population provides a vast untapped market for insurance
products as 80% of Indian population is still without life insurance cover. The insurance sector
has still huge potential market in rural and semi-urban areas of the country. Banks with huge net-
work of branches in urban and rural areas and with access to large number of customers are in a
much better position to sell insurance products.

2. Skilled Professional:
Banks are now better equipped with highly skilled professionals who can have better
understanding of complexities of insurance products and can carry out insurance selling activity
successfully.

3. Other:
It is a well tested concept in the European countries and is the
Most suitable way of selling investment based insurance products.

Weakness

1. Lack of net-working:
Though gradually banks are adopting core-banking services (CBS), yet there are still a large
number of banks which lack net-working among their branches which are a must to sustain the
bancassurance.

2. Low Income:
Though there is a vast population in our country yet the majority of the population has a very low
income. As per an estimate 37.2% of the population ( about 410 million people) remains poor,
making India home to one third of the worlds poor people(82) .This low income makes them
unable to spend extra money on the purchase of insurance products.

3. Other :
Inability of banks to access the interior remote areas of villages or hilly areas, lack of sales
culture in banks, etc.

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International Journal Of Marketing, Financial Services & Management Research ____________________ ISSN 2277-3622
Vol.3 (4), APRIL (2014)
Online available at indianresearchjournals.com

Opportunities

1. Corporate Clients:
As already mentioned, banks have access to a large number of customers retail as well as
corporate. This gives an opportunity to banks to utilize its relation with customers for the
purpose of marketing the insurance products. It is a common observation that Bank customers
trust on banks is more than on insurance companies.

2. Data-Base:
As compared to insurance companies, banks have huge data base regarding the financial
position, investment capacity, spending habits, etc.
of their customers. This can be properly analysed and leveraged to sell the insurance products.

3. Branch Net-work and Infrastructure:

Banks have vast infrastructure and a huge net work of branches and have large customer
base. There are about 86500 branches of banks(83) and approximately each branch caters to
around 15000 customers. This gives a great opportunity to insurers to reach out through banks a
large number of individuals who need insurance products to fulfill their insurance requirements.

4. Personalized Services:
Banks not only have access to a large number of customers but they have also direct ( or face to
face ) contacts with their customers. This enables them to provide personalized services to their
customers. In addition to meeting their day to day banking requirements, banks can provide
them personal assistance regarding payment of insurance premium, transferring policies,
settling their claims, etc.

5. Penetration Into rural Areas:

Banks huge network of branches in rural areas makes easier the penetration of bancassurance
into rural areas also and that too at less cost. Banks with direct contacts with their customers are
in a better position to understand the specific needs of rural customers. This helps banks to
customize the insurance products and sell them accordingly.

6. Fee-based Income:
Bancassurance provides banks an opportunity to raise their fee- based risk-fee income.

7. Financial Requirements:
Banks have face to face contacts with their customers .Hence they try to solve all types of
financial problems (relating to banking and insurance) of their customers. Thus customers get an
opportunity to avail both types of services banking and insurance under one roof.

Threats
1. Professionals Reluctance:
The success of bancassurance in our country depends mainly on co-operative attitude of bank
employees. Though banks have a large pool of professionals yet they show less interest in selling
the insurance products. They are also reluctant to train themselves for this additional work. This

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International Journal Of Marketing, Financial Services & Management Research ____________________ ISSN 2277-3622
Vol.3 (4), APRIL (2014)
Online available at indianresearchjournals.com

poses a threat to the success of bancassurance in our country. This requires a change in thinking
of bank professionals and work culture in bank.

2. Customers reluctance:
The success of bancassurance venture requires awareness about insurance among the people in
general and bank customers in particular. But bank customers are generally reluctant in
purchasing insurance products and that too from banks. This poses yet another challenge for the
success of bancassurance in our country.

3. Other:
Period of life-insurance contract is usually very long, banks generally lack marketing skill for
insurance products, bancassurance models prevalent in India are in experimental stage, etc.

REFERENCES
1.Management of Financial Institutions, R.M. Srivastasva, ibid, Page No. 541
2.Pratiyogita Darpan 2011, Volume II , Page 43
3.Source: www.world bank.org.in-India country overview (September 2010)
4.Theory And Practice Of Insurance, Md. Arif Khan, ibid, page 15
5.Principles And Practices Of Ins., Mool Motihar, Sharda Pustak Bhawan,
Allahabad, Edition 2007, Page No. 28.
6.Insurance And Risk Management, P.K. Gupta, HPH, Mumbai, Edition 2011, Page 49
7. Financial Institutions and Market, L. M. BHOLE, TMH, New Delhi, Edition 2008,
Page No. 11.1
8. Theory And Practice Of Insurance. Md. Arif Khan, Educational Book House, Aligarh
Edition 2010, Page No. 15.
9. SBI Monthly Review, March 2005, Dr. Subodh Kumar, Associate Professor, H.N.
Garhwal University, Page No. 128
10. Insurance- Principles And Practices, Prof. M.N. Mishra, BHU, S.Chand & Sons,
New Delhi, Edition 2010, Page No. 67
11. Problems and Prospects of Bancasssurance : Evidence from India - by
12 .Dr.K.Ramesha, Professor, National Institute of Bank Management, Pune, India,
Page 3 ( Source : Google Search)
13. The Act pertaining to financial services here did not permit the convergence of
banking and insurance. Hence their regulation delayed the entry of
bancassurance . Later on, the Act was amended and banks started
collaborating with insurance companies. The merger of City Bank and
Travellers Group can be quoted here.
14. Hindustan ( News Paper ) dated 22nd March, 2012
15. The Indian Banker, December 2008, Page No.45

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