Bancassurance turns into an assurance that is not bankable

Bancassurance has under-delivered till now. Mis-selling by untrained personnel, fat upfront fees from insurers—ultimately drawn from customers—and lack of customer service has been ailing the ‘future’ of the insurance distribution channel

The Insurance Regulatory and Development Authority (IRDA) had set up a committee in 2009 to look into how the bancassurance channel can be more efficiently utilised and re-engineered to meet the needs of tomorrow. Based on the recommendation of the committee, banks may soon be allowed to sell products of two sets of insurers—two in the life insurance sector and two in the general sector, as opposed to banks currently selling products of one life and one general insurer.

The committee report clearly suggests that the banks have a lot of catching-up to do on the productivity front. They would also be well-advised to allocate a greater share of their resources to bancassurance activities, since these banks are ideally positioned to leverage on their existing clientele for distribution of insurance products at a negligible additional cost.

The report quotes Deepak Satwalekar, former chief executive officer, HDFC Standard Life, "Banks are unwilling to assume any responsibility, or risk, of the result of their mis-selling. The RBI (Reserve Bank of India) is also wary of banks taking on the role of a 'broker' as it would mean that they assume the role of a 'principal' in the sale process with the consequential responsibility and potential risk. Possibly, banks are better aware of the deficiency in the sales process practised by them and hence their reluctance to assume any risk arising thereon. It is rather unfair that banks expect insurance companies to assume the risk arising out of their deficient sales process. If bankers believe that they are well-trained professionals, they should have no hesitation in taking on the liabilities arising from their sales."

Hefty fees

The report states that several banks charged hefty fees for entering into the referral agreement, over and above the fee which was linked to sale. Further, upfront fee was being collected for providing infrastructure for locating an insurer's staff and advertisements in bank premises. IRDA had earlier issued guidelines on referral arrangements. Most insurance companies are circumventing the Referral Agreement circular No. 004/2003 issued by the Authority by interpreting the wordings to their advantage, thereby paying the higher referral fee to the banks.

The regulator is concerned that the iniquitous relation between the insurers and the banks will ultimately put the insurers at risk of under-pricing the risk of doing business and overcharging the customer to pay the banker. The insurer ends up paying a fat upfront fee running into tens of crores of rupees. At least 1/4th of the prospective business, training costs, infrastructure costs, bank brochures, expenses towards transactions, incentives, travel, and entertainment for the bank staff are some of the heads under which the insurer is fleeced. The accounts at both ends are opaque and the payouts exceed the prescribed commission by a large measure.


Due to the asymmetry of the relationship, an insurer has hardly any say in the manner of marketing of their products. The regulations prescribe that insurance products have to be sold only by trained persons. Only persons familiar with features of the products and the risks they cover can do justice to the customers.

Banks at present do not have trained persons in all branches, which means that solicitation is happening through untrained personnel. This opens up the possibility of mis-selling by bank staff, which in turn shifts the liability to the insurance company. The risk of mis-selling and the insurer being held liable is higher in products which also have savings features. As banks are not directly under IRDA for regulatory purposes, this poses a challenge to the insurance regulator in the prevention of mis-selling. Opening up the sector for multiple tie-ups for banks with insurers carries the danger of aggravating the problem of mis-selling by banks.

Regulations shall mandate that the bank staff be fully trained in handling insurance products so that the sale process is transparent and the policyholder gets full disclosure of the features of the product. There is a need to strengthen the certification criteria for bank sales personnel for the purpose of selling health insurance, ULIPs (unit-linked insurance products), pension and other complex products. One-time rigorous training may be given to the sales personnel of a bank, with added stress on complex products. The training of bank staff is an important task of the insurer and the substantial sales force of the bank can be trained only in a phased manner because of business contingencies.

Hence, the substantial initial period of the tenure will elapse before a banker is equipped with the necessary skills and the ability to sell insurance products in a proper fashion. Further, as the term of an agreement nears the end, the banker looks forward to new tie-ups which will provide them with higher income. This will put the relationship in cold storage even before the agreement has come to an end. In order to ensure that the instability does not affect the relationship between the banker and the insurer, the committee has recommended that the tenure of the agreement between the banker and the insurer shall be not less than five years.

Lack of customer service

The data on bancassurance reveals the preponderance of single-premium products.  This brings in the aspect of service to be provided by the bank as an agent to the policyholder. An agent is supposed to be accessible to the policyholder and be an active interface and facilitator on all policy or claim-related matters. The exclusion of regular premium products from this channel can well be an indication of deficit in the servicing aspect of insurance. This can also mean that the bank channel is more focused on new premiums, which results in higher commission. Till recently, the tie-ups between banks and insurers lasted for a year or two. The short term of the tie-up resulted in the major burden of servicing falling on the insurer. This also prevents an insurer from taking a long-term interest in training of the bank staff in insurance-related subjects. This has also resulted in many policies going 'orphan' when the tie-up ends. The bank customer, being loyal to the bank rather than the insurer, has also resulted in the switching of an insurer by the policyholder along with the bank.

This has pushed the insurer's costs upwards as first-year expenditures are typically much higher. This militates against the long-term nature of the insurer's business model and is a cause of concern for the regulator.




3 years ago

Nothing can be worse than the toxic partnership of Standard ch.Bank ,as referral partner of Bajaj Allianz Life insurance Co,till 2010.The bank ,with its illiterate staff regarding ulip products,only experise in misselling and churnning.Though ,any referral partner not authorised to sell insurance products from its premises/or else where.Insurer connivines to fraudulant activity,as the referral partner in dictating terms,being large business provider to bank.Whatever leads provided by bank.insurer obliges,resulting damage to the pocket of policyholders.


6 years ago

The best solution would be prohibit banks to sell as agents/brokers, but allow them to give space in their premises to multiple insurance companies where employees (not agents) of such company will be posted to facilicate direct selling of the policies. Since customer can have access to multiple products from multiple insurers, they can take a better decision. Banks can get a flat fee per desk provided & insurer would anyway have to spend that on agents or its own infrastructure. That might be a win-win, if done in a legal way (no unofficial kick-backs from insurer to bank managers/staff).


6 years ago

The Banks ought to stick to improving banking services. No amount of training can equip them to deal with either general or life insurance covers. It is not their core activity and end up in mis-selling and they certainly can't render after sales services because they are simply not geared or have domain knowledge. They end up in misguiding the customers. Bottom line simple Banks must not assure!

B R Sanjay

6 years ago

Bankers are today BYANKERS. Mangers refuse to give you OD facility if you refuse to buy 3rd party products. RBI should step in and tell Banks to do Bank Activities but can continue to sell 3rd party products as a separate company altogether and not withing the Bank Premises.


6 years ago

Insurance and investment are two sepraet thing why govt. is allowing product like ULIP and crying for misselling.

Madhusudan Thakkar

6 years ago

To add insult to injury IRDA may permit Banks to tie-up with TWO INSURERS.
Why similar thing is not thought for IFAs?To begin with all agents who have completed at least 3 years should be allowed to sell policies of more than one company.

Melvin Joseph

6 years ago

At the time of privatisation of Life Insurance in 1999-2000 , most of the banks tied up with LIC of India for distribution of Life Insurance. Lack of involvement from the bank employees,lack of support from their unions, lack of training etc. resulted in most of the bancassurance tie up resulted into a name sake business for the banks.
Later, aggressive private sector Life insurance companies created huge revenue models for banks, with high commission products. This was an eye opener for most of the banks to explore their luck in distribution.
Every bank want to participate in this growth story and the fee based income has grown very well in the last 5-7 years.
Life Insurance sales and after sales service depends a lot on the bonding between the policy holder and the agents. Successful insurance agents built their business on this trust factor only. When it comes to a bank employee and a policy holder, this bonding is not happening and this resulted in lot of policies getting lapsed due to service issues.Transfer of bank employees, lack of follow up to service these orphan policies etc. added to the issues.
While, the banks were concentrating on their fee based income, customers were taken for granted with policies which are front loaded with huge expenses. Lots of bank employees enjoyed incentives and foreign trips, at the cost of customers. There were many incidents, where a policy has become a mandatory condition for sanction of any loan!
With each banks going to distribute multiple Insurance products, the competition will become more unhealthy, and customers will be again exploited to large scale looting.
The insurance regulator should join IBA to control this channel to save the potential customers from this.
While individual agents were doing Misselling in retail, Banks were doing misselling in Whole sale.


raj pradhan

In Reply to Melvin Joseph 6 years ago

good comments

Sezal Glass sells float glass biz to Saint Gobain for Rs686 crore

“With the sale proceeds, the company will be 100% debt-free, with reserves to fund growth and expansion,” Sezal Glass Ltd CMD Amrrut Gada said

Sezal Glass said it has sold its float glass business along with its Gujarat-based manufacturing unit to Saint-Gobain Glass India for a consideration of Rs686 crore.

“With the sale proceeds, the company will be 100% debt-free, with reserves to fund growth and expansion,” Sezal Glass Ltd CMD Amrrut S Gada said in a statement.

The sale of the float glass business was approved by the company’s shareholders by postal ballot and the binding business transfer agreement was executed on 31 May 2011, the company said.

The company’s floating glass facility at Jhagadia Industrial Estate in Gujarat has the capacity to produce 550 million tonnes of glass per day.

“As part of the overall transaction, Sezal Glass and its principal promoters have undertaken non-compete obligations with respect to the float glass business with Saint Gobain for a period of five years...,” Gada said.

On Thursday, Sezal Glass ended 3.35% down at Rs4.33 on the Bombay Stock Exchange, while the benchmark Sensex declined 0.05% to 18,384.90.


IndusInd Bank launches Point of Sale acquiring services

Atos Worldline India to establish merchant establishment network for IndusInd Bank

IndusInd Bank has signed an agreement with Atos Worldline India (Venture Infotek) for Point of Sales (PoS) acquiring solutions. Under this agreement, Atos Worldline India will be setting up MasterCard and Visa PoS acquiring network for IndusInd Bank across India. Atos Worldline India will also help IndusInd Bank to establish a merchant establishment network.

With this agreement, Atos Worldline India will help merchants to open accounts with IndusInd Bank. IndusInd Bank will promote PoS acquiring business amongst its existing customer base and newly acquired customers whereas Atos Worldline India will provide the necessary support to the merchants to encourage and improve usage of PoS terminals deployed at merchant establishments of IndusInd Bank.

On Thursday, IndusInd Bank ended 4.24% up at Rs23.35 on the Bombay Stock Exchange, while the benchmark Sensex declined 0.05% to 18,384.90.


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