The Hindu Business Line : Insurers begin to look beyond bancassurance channels

Mumbai, March 23 Bancassurance — selling insurance policies through banks — is turning out to be an unreliable model for insurance companies. Analysts say some insurance companies may soon lose a large chunk of their business from bancassurance.

This is because banks are setting up their own insurance ventures on one hand and changing insurance partners, lured by the hefty premium offered by a competing insurer, on the other.

Under insurance regulation, each bank can tie up with only one insurer but the insurer can have tie-ups with more than one bank.

According to industry observers, with more insurance companies starting operations, competition has intensified and there is a huge premium on securing an arrangement with a bank.

Upfront premium offered to banks for changing the insurance partner is said to be Rs 25-45 crore. For, private insurers, bancassurance accounts for a significant portion of their business.

The public-sector banks that are setting up their owninsurance ventures include Bank of Baroda, Union Bank of India, Bank of India, Canara Bank, Oriental Bank of Commerce, Andhra Bank, IDBI and Allahabad Bank.

Life Insurance Corporation of India is set to lose its tie-up with Andhra Bank (its highest contributing bancassurance partner) and Oriental Bank of Commerce, once their joint ventures come through.

Bank of Rajasthan has seen three different insurance partners. It first tied up with Birla Sun Life, and then moved to LIC before switching to Aviva Life.

Alternative channels

Insurance companies are now looking at alternative channels such as brokerages and retail chains to bridge the gap.

Although bancassurance accounts for just 2 per cent of LIC’s new business premium, it is bracing up for the challenge. It has hired 800 people for referral tie-ups with several brokerages and regional rural banks.

“We are also in talks with several retail chains for selling insurance,” said a senior LIC official.

For Aviva India, bancassurance was the capital-friendly way of making inroads into the Indian market in a short span of time. In 2002, as much as 70 per cent of the company’s business came from bancassurance. This has now dropped to 50 per cent. Aviva, which has a tie-up with Canara Bank, recently infused Rs 250 crore capital primarily to strengthen the agency channel.

“We plan to double our agency force to 66,000 in 2008 and increase our branch network to 222 branches,” said Mr Bert Paterson, MD and CEO, Aviva India.

For HDFC Standard Life Insurance, bancassurance and other alternative channels contribute around 42 per cent of the business. The company’s bancassurance tie-ups with Bank of Baroda and Union Bank of India will end once these banks begin their own insurance operations.

“We are trying to ‘derisk’ the situation by expanding our field force. Our agency force, which is around 1.5 lakh, will be expanded to 3.5 lakh by the end of fiscal ’09,” said Mr Deepak M Satwalekar, MD and CEO, HDFC Standard Life Insurance.

For banks this may not have any major impact, apart from reorienting staff to the products offered by the new companies. While the new companies will have their staff, the bank staff would continue to sell the insurance products as well, as they have the requisite experience, said Mr D Krishnamurthy, General Manager, Retail, Bank of India.

Bank of India’s insurance company jointly with Da-ichi and Union Bank of India is expected to start operations in another six months, he added. Currently Bank of India has a tie-up with ICICI Prudential Life and the premium generated by the bank is approximately Rs 1.5 crore, Mr Krishnamurthy said.