Bancassurance, the key to universal coverage

Bancassurance is usually considered “win-win” for a bank and an insurance company as they enter into a tie-up for distribution of insurance products. But, if a vast section of the previously uninsured population can get insurance cover through this channel, the situation becomes “win-win-win”.

“Win” for the bank as it gets commission for selling insurance products (as a Corporate Agent) to its own customers, “win” for the insurer as it can reach more customers through the bank and “win” for customers (a large section of the Indian population is currently uninsured).

Now, a substantial portion of India’s population presently does not have the security of insurance coverage. According to a National Insurance Academy report nearly 60 to 70 per cent Indians remain uninsured. And the 30 per cent insured are found to be working in private and or government sectors. “This indicates that the insurance penetration is low among the self-employed people working in the unorganised sector, which accounts for over 40 per cent of the working population,” the report noted.

So, the Insurance Regulatory and Development Authority of India’s (IRDAI) move to set up a taskforce on the bancassurance distribution channel (on October 31, 2023) comes in the backdrop of lack of insurance coverage for a significant section of the population. The insurance regulator wants to perk up this channel so that its objective of “Insurance for All” by 2047 can be achieved.

Expanding horizons

CR Vijayan, ex-Deputy Secretary General of the General Insurance Council, emphasised that bancassurance can be a very useful channel for achieving higher insurance coverage. For insurers, the advantage of a bancassurance partnership is that a ready-made market (a bank’s customers) is available. “Banks can launch customised products for their customers. For example, most of the banks offer health insurance for their account holders. This way insurance companies can reach out to a section of people whom they would otherwise not have reached out to,” he said.

Pankaj Gupta, Managing Director and CEO, Pramerica Life Insurance, observed that banks — with their reach, trust with customers and ability to craft financial solutions — are uniquely positioned to assess customer needs and extend protection through appropriate insurance products. They play a pivotal role in expanding access to insurance. “Given that these customers have established relationships with their banks, the sales process is also simpler and underwriting and KYC is smoother. This reduces the cost as well as risk associated with distribution.”

“Banks are also in a position to place insurance solutions in the context of the overall financial needs of customers, thereby ensuring a holistic approach and a better customer experience,” he said. Gupta underscored that for insurance companies, long-term partnerships with banks leads not only to greater business stability and predictability, but also co-creating joint solutions and products to innovatively meet the needs of a diverse customer base.

Increasing access

Industry experts emphasise that an insurance cover (life, medical and accident insurance) is a fundamental pillar of financial security for everyone. And, Bancassurance is one of the fastest ways to achieve the “Insurance for All objective”.

Dheeraj Sehgal, Chief Distribution Officer – Institutional Business, Bajaj Allianz Life Insurance, opined that initiatives under the “Insurance for All by 2047” umbrella aim to make insurance products more customisable and accessible to people across the country. “One of the most significant enablers of this accessibility is bancassurance partnerships. Banks, with their extensive reach through the network of branches, can significantly bolster insurance awareness and penetration. The move to an open architecture, allowing banks to partner with up to nine insurance companies, has introduced more choices for customers,” he said.

Under IRDAI guidelines, a Corporate Agent (Composite) can have tie-ups with three insurers each in life, general and health segments.

Biju Menon, Chief Business Officer (CBO), Star Health and Allied Insurance, observed that bancassurance is transforming the insurance landscape since it brings significant benefits such as increased market reach, cost efficiency, cross-sell opportunities, enhanced customer trust and a diversified distribution channel for insurance companies. “Partnerships and a diversified distribution strategy will characterise the future of innovation for insurance companies, which in turn will lead to deeper insurance penetration,” he said.

An analysis of IRDAI data indicates untapped potential for expanding the reach of insurance coverage while augmenting the fee-based income for banks. The contribution of banks as corporate agents was 5.93 per cent of non-life premium and 17.44 percent of the new business premium for the life insurers in 2022-23, per latest IRDAI data. One of the ways, according to a senior IRDAI official, to reach the last mile in insurance coverage and make the insurance products available in all parts of the country is to leverage the vast bank branch network.

Nitin Mehta, Chief Distribution Officer, Bharti AXA Life Insurance, said that there is immense potential to transform the insurance sector and achieve the ‘Insurance for All’ goal by harnessing the combined strength of banks and life insurers. “Firstly, bancassurance capitalises on the immense trust and vast branch network of banks, enabling life insurers to bypass the limitations of traditional distribution channels and reach previously unbanked and under-insured segments, particularly in rural areas. “Secondly, the partnership allows for co-created micro-insurance products that are both affordable and cater to the specific needs of diverse customer groups,” he said.

Mehta cited the example of a low-wage earner purchasing a micro-term plan seamlessly integrated with his/her existing bank account. These bite-sized plans, catering to diverse needs and risk profiles, address affordability concerns — a significant barrier for many, he added.

While bancassurance is a useful distribution channel for increasing insurance coverage in the country, insurance sector veteran Vijayan suggested that insurers should also explore tie-ups with telecom service providers. Given that there are about 117 crore mobile phone subscribers, partnerships between insurers and telecom service providers by incorporating an element of insurance in mobile subscription plans could cover most of the Indian population.

(With inputs from G Naga Sridhar)