Bancassurance

Bancassurance Meaning

Bancassurance is the combination of bank and Life Assurance Company. It is a partnership between bank and Assurance Company to sell products like life assurance, and other insurance products to a bank’s client, they also offer insurance benefits to the bank’s customers and by doing this both companies earn a profit.

Explanation

Bancassurance is nothing but selling 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.

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

bancassurance

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Importance

In bancassurance, banks can easily earn profits without doing any risky work. Banks just 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. Life Insurance Company will organize specialized training for bank employees, which is an added benefit for the bank.

Features

  1. Bank 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, the network of a bank 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 of Bancassurance

There are two types:

Types of Bancassurance

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#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 men insurance

Bancassurance Models

bancassurance Model

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  1. Pure Distributor Model – In this model, the bank offers a product of insurance companies. They offer more than one company’s product. For that, insurance companies pay commission 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 insurance company wants to sell.
  3. Joint Venture Model – In this model, the bank participates in product and distribution design. There are 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

  • Bancassurance provides a complete financial solution by considering all the needs of a customer and by studying all the requirements they want.
  • There no issue with trust because customers buy products from a bank, and they have their existing relationship with the bank.
  • It offers all the facilities like mutual fundsMutual FundsA mutual fund is an investment fund that investors professionally manage by pooling money from multiple investors to initiate investment in securities individually held to provide greater diversification, long term gains and lower level of risks.read more, loans, accounting, etc. with insurance products under one roof, so it is 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 the service under one roof, so it is easy for a customer to access so it will improve overall customer satisfaction so both insurance companies and the bank will get profit along with 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 in both ways like a bank gives clients to life insurance companies, so it is profitable for life insurance companies. In return, it is beneficial for banks also because they sell banks product 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 get increased. It is more beneficial for insurance companies to work with banks because banks are available in some rural areas, also 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

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

Conclusion

As we see all the advantages and disadvantages, we can say that it is a good idea to combine both bank and Life Insurance companies as it is beneficial for both. It is also good for customers because bancassurance offers all the facilities under one roof.

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

For that level of insurance expertise, they will take training sessions so that all the bank employees will get ideas or knowledge about it.

Recommended Articles

This article has been a guide to what is bancassurance and its meaning. Here we discuss the importance, types, and features of bancassurance along with its models and benefits. You can learn more about financing from the following articles –

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