Bancassurance

Updated on March 19, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Bancassurance Meaning

Bancassurance is a combination of bank and life assurance companies. It is a partnership between a bank and an assurance company to sell life assurance and other insurance products to a bank’s client. They also offer insurance benefits to the bank’s customers. By doing this, both companies earn a profit.

bancassurance

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Bancassurance (wallstreetmojo.com)

Staff from banks also get more incentives and can become more productive. It is easy for life insurance companies to get clients’ data from a bank because of which time required for data collection is reduced. It is a two-way business because a bank can sell the insurance company’s products and offer bank products to the insurance clients.

Key Takeaways

  1. Bancassurance is a partnership between banks and insurance agencies to advise life insurance and other commodities to the bank’s clientele.
  2. Bancassurance is of two types, namely Life Insurance Products and Non-Life Insurance Products, involving plans such as Term Insurance, Endowment Plans, and Health and Marine insurance, respectively.
  3. Bancassurance has numerous benefits, including complete financial solutions, professional expertise, existing relationships, and profitability.
  4. While bancassurance has many benefits, it also involves a huge manpower cost and is limited to a few products only.

Bancassurance Explained

Bancassurance is the selling of life insurance products via banks. Banks and life insurance companies come together to do business in partnership. It is useful for both the banks and insurance companies because here, the bank sells the product of insurance companies to their clients, and the bank also offers bank products to those insurance clients.

The insurance company offers a policy to the client in which customers have to pay premium payments every year. Insurance companies will give you a lump-sum payment, known as a death benefit. It is one of the securities which the owner buys this product as security. Therefore, if any accidental death happens in the future, this bancassurance product will help the owner’s family because the family gets lump-sum cash.

In bancassurance, banks can easily earn profits without handling too much risk. Banks need to sell insurance company products, and in return, the bank will get a commission. Banks will get more benefits by offering life insurance products because they will get a chance to build good relationships with customers. In addition, life Insurance companies will organize specialized training for bank employees, which is an added benefit for the bank.

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Features

Let us briefly discuss and understand the different features of bancassurance products through the points below.

  1. Banks cannot pay a premium on behalf of the customer.
  2. It can use only two insurance companies in one bank.
  3. All commissions are disclosed in the annual accounts report.
  4. A bank always focuses on its banking business.
  5. For an insurance company, a bank’s network is useful for the sale.
  6. Do due to periodic assessment.
  7. Bancassurance improves profitabilityProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance.read more.
  8. It increases customer lifetime value.
  9. It can offer all the financial facilities under one roof.

Types

A bancassurance specialist is generally appointed to brief the customers on the different products based on their scenarios. Let us understand its types through the discussion below.

Types of Bancassurance

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Bancassurance (wallstreetmojo.com)

#1 – Life Insurance Products

  1. Term insurance plans
  2. Endowment plans
  3. Unit linked insurance plans.

#2 – Non-Life Insurance Products

  1. Health insurance
  2. Marine insurance
  3. Property insurance
  4. Key man insurance

Models

Bancassurance products are distributed or sold in different manners. Let us understand the different models through the explanation below.

bancassurance Model

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Bancassurance (wallstreetmojo.com)

  1. Pure Distributor Model – In this model, the bank offers a product of insurance companies. They offer more than one company’s product. Insurance companies pay commissions to the bank like management fees, etc.
  2. Strategic Alliance Model – In this model, there is a linkup between the insurance company and the bank. Bank will offer only those products which the insurance company wants to sell.
  3. Joint Venture Model – The bank participates in product and distribution design in this model. There is joint decision-making and high system integration for infrastructure utilization.
  4. Financial Service Group – In this, all the facilities of financial activities are under one roof.

Benefits

When a bancassurance specialist explains the products in detail, more often than not customers find value in the products such as financial solutions, security and so on. Let us discuss a few of these benefits through the points below.

  • Bancassurance provides a complete financial solution by considering all the customer’s needs and by studying all the requirements they want.
  • There is no issue with trust because customers buy products from a bank and have an existing relationship with the bank.
  • It offers all the facilities like mutual fundsMutual FundsA mutual fund is a professionally managed investment product in which a pool of money from a group of investors is invested across assets such as equities, bonds, etcread more, loans, accounting, etc., with insurance products under one roof, making it more convenient for the customer.
  • Bank has the professional expertise to give proper advice to buy which product by studying their background. Bancassurance requires less time for the process because the bank already has access to their data and documentation.
  • It offers both services under one roof, so it is easy for a customer to access. It will improve overall customer satisfaction so both insurance companies and the bank will profit and customer satisfaction.
  • Staff from both the companies will get more incentives thus will get motivation for their work, and as a result, staff will give better service to the customer, and because of that, new customers also come and join.
  • It is useful both ways, like a bank gives clients to life insurance companies, so it is profitable for them. In return, it is beneficial for banks also because they sell banks’ products to the insurance clients so that the bank also gets profit.
  • It contains both bank and insurance company work so the requirements of employees will increase. It is more beneficial for insurance companies to work with banks because banks are available in some rural areas, so the marketing of insurance products will be easier.
  • The main advantage for the customers is that a customized insurance product at a reduced price because it cuts the operational cost, and experts are also available for guidance. It is helpful for increased premium turnover also.

Drawbacks

Despite the best efforts from the team to curate specialized bancassurance products, there are a few factors that are not pleasing to either the customers or the employees. Let us discuss them below.

  • The initial investment for bancassurance is more, and it also requires more employees.
  • It is useful for selling a few products only.
  • They need to arrange training for those who will handle these processes because of a lack of vision and awareness.

Frequently Asked Questions (FAQs)

How does bancassurance benefit consumers?

Bancassurance can benefit consumers as it can provide a great choice of insurance products through a medium of trusted banks and can get access to numerous lucrative insurance products.

How do banks earn from bancassurance?

Banks earn interest from the commission from the insurance companies when they partner up with those companies. The banks earn a steady income from the commission while bearing little to no risk in the process.

What are the types of bancassurance?

Bancassurance has two main types: Life insurance and Non-Life Insurance Products. Insurance Products include plans such as Term Insurance and Endowment Plans, and Non-Life Insurance Products involve products such as Marine and Property Insurance.

Recommended Articles

This article has been a guideto Bancassurance and its meaning. Here we explain its models, types, features, and benefits in detail. You can learn more about financing from the following articles –