Enhancing Insurance Access And Distribution Through Bancassurance And Insurtech Partnerships

Considering how fundamental a need such as financial protection is, it is astounding that close to 40 crore Indians do not fulfil it. A 2021 NITI Aayog report underscores earlier surveys, revealing a significantly underinsured Indian population. Access barriers, misconceptions associating insurance with affluence, and the undervaluation of insurance needs contribute to this substantial gap.

The vast size of the country, the huge rural population, and a traditionally lackadaisical attitude towards financial planning make it very difficult to sell insurance in India. Moreover, life insurance companies do not have the kind of pan-India presence that could have helped them reach out to the masses directly, but banks do! And they have the added advantage of being trusted by their customers. These factors, and some others, have led to the rise of bancassurance in recent years.

Bancassurance blends banking and insurance services under one umbrella. In such agreements, banks provide insurance products (life or non-life or both) and related services to their customers on behalf of insurance companies. Banks thus act as a distribution channel for insurance products. The New Business under the bancassurance channel reportedly had an overall life insurance (Individual Plus Group) premium of INR 41,096 Cr in 2020-21, which increased by 24.5% to INR 51,188 Cr in 2021-22.

The bancassurance model has something for each stakeholder: customers, banks, and insurers.

Banks: A Preferred Distribution Channel

Banks have, for quite some time now, been helping retail customers with balancing their investment portfolios. Banks are familiar and easily accessible. Customers look at their banks with a sense of trust, and if their bank talks to them about insurance, they are likely to take it as sound advice from someone qualified to give it. Indeed, banks can provide a comprehensive view of where insurance fits into one’s financial planning, making it easier for consumers to see the benefits. 

Almost every bank today aspires to be a one-stop financial shop for its customers. Having customers come to you not merely for their banking needs but for investments and insurance as well, helps in strengthening customer loyalty and enables you to generate significant additional revenues and increase the return on assets.

From an insurer’s standpoint, banks are a very cost-effective distribution channel. Insurers can leverage the latter’s nationwide network of branches, including those in rural areas. We have seen insurers around the world successfully adopt the Bancassurance model to gain traction in markets where the insurance penetration was low. 

The data and insights that banks possess about the financial standing, spending habits, investments, and purchase capability of their customers can be used to customise and promote insurance products for maximum impact. In the fiscal year 2022-23, banks contributed significantly as corporate agents, constituting 5.93% in non-life premiums and 17.44% in new business premiums for life insurance.

Bancassurance: Key Concerns In Adoption

While bancassurance has emerged as a promising model for expanding insurance coverage in India, it is not without challenges. 

One significant concern is the potential for misselling through banking channels. In response, the government is taking steps to enhance regulatory oversight. 

Proposed measures include capping commission charges to prevent financial incentives from compromising insurance recommendations and enforcing stricter commission disclosures during policy sales. 

Additionally, delinking bank employees’ performance appraisals from insurance sales targets aims to alleviate pressure on staff. These regulatory efforts are essential to safeguard consumers and maintain the integrity of the financial advice provided through banking channels. 

Integration With Insurtech & Key Benefits

As bancassurance confronts challenges in the evolving landscape, the integration of insurtech becomes increasingly vital. Both banks and insurance companies operate in heavily regulated environments and are therefore limited in their ability to experiment and innovate, at least in comparison to insurtech companies.

Insurtech can help customers make well-informed choices among various insurance offerings. Customers today expect simplicity, flexibility, and ease of use in whatever they do. Insurtech helps banks and insurers co-create integrated, digital insurance platforms that enable a transparent, hassle-free buying process. 

It equips banks with omnichannel distribution capabilities and enables them to easily provide loan cover and cross-sell a wide range of insurance products. Last, but not least, insurtech helps insurance companies automate tedious yet important tasks such as underwriting, claims processing, and policy issuance and management.

Conclusion

India is currently the fifth largest insurtech market in the world, growing at a brisk rate of 32-34% per year. Insurtech, in conjunction with the bancassurance model, is gradually making insurance a “pull” product as opposed to the “push” product that it has traditionally been. 

The partnerships that we are seeing between banks, insurers, and insurtech firms bode well for the BFSI sector; they will make insurance contextual, affordable, and accessible and help in bridging protection gaps in the country. They will transform India’s insurance landscape much the same way as FinTech transformed banking. It will be a big and important contribution towards building a strong nation with resilient communities.