'Opportunistic’ banks curb bancassurance growth'
Lack of norms governing cross-shareholding between banks and insurers, high commissions can destroy this distribution channel, warns Swiss Re.
By TNN |
MUMBAI: Greedy banks could hamper the growth of bancassurance, one of the fastest-growing distribution channels for insurance products. In a report on bancassurance, the world’s largest reinsurer, Swiss Re, has said since insurance is not a part of banks’ books, some of them regard selling insurance as opportunistic and do not have incentives to nurture this business.
The reinsurer in its latest Sigma report has said two factors could restrict growth of bancassurance: regulations governing cross-shareholding between banks and insurers are generally less liberal in emerging markets, which complicates adoption of more integrated business models.
In addition, many banks in emerging markets are taking an opportunistic approach and they may charge high, and in some cases, unreasonable commissions.
Insurers in India said banks push products with high commissions and even missell them. There have been several instances where private and foreign banks have marketed unit-linked insurance plans as ‘investment schemes’ with an add-on cover. “The entry of alternate channels such as bancassurance should have brought down commission levels, however, banks are demanding the same level of commissions paid to individual agents,” said an insurer.
Competition is also prompting insurers to pay upfront signing amounts to banks in return for a commitment to sell a certain amount of policies. According to Swiss Re, in India bancassurance is expected to respectively account for 13% and 15% of life and non-life business in the next five years. The report also talks about a trend, where banks are moving to distribution of insurance policies from multiple companies rather than sticking to one firm.
“Even where bancassurers still operate in an integrated manner, the reliance on a single supplier is being challenged by a shift towards multiple suppliers. The experience of banks successfully distributing both in-house as well as through third-party investment funds offers a useful analogy,” the report said.
It added that the variety of investment funds offered at a bank’s counter is no longer dictated by the manufacturing capability of the bank, but by customer needs. “Bancassurers will also increasingly look to distribute a wider range of products to meet customer needs,” the report said.
In India, banks have begun to understand the value of their distribution networks and are discarding existing distribution agreements and entering into insurance joint ventures on their own. They are also keen to distribute policies of third parties to increase their fee income.
However, insurers said allowing banks to distribute policies from multiple companies would result in their pushing those products with the highest commissions. At present, banks’ distribution of insurance is governed by corporate agency regulations, which does not allow an agent to represent more than one life insurance company.
Despite the challenges, Swiss Re is optimistic on the future of bancassuarance. Banks will gain marketshare by selling more sophisticated products as against the present simple tailor-made products, the report said. Also, the imminent growth in healthcare and pension business is expected to open up new distribution opportunities for banks in insurance.
The reinsurer in its latest Sigma report has said two factors could restrict growth of bancassurance: regulations governing cross-shareholding between banks and insurers are generally less liberal in emerging markets, which complicates adoption of more integrated business models.
In addition, many banks in emerging markets are taking an opportunistic approach and they may charge high, and in some cases, unreasonable commissions.
Insurers in India said banks push products with high commissions and even missell them. There have been several instances where private and foreign banks have marketed unit-linked insurance plans as ‘investment schemes’ with an add-on cover. “The entry of alternate channels such as bancassurance should have brought down commission levels, however, banks are demanding the same level of commissions paid to individual agents,” said an insurer.
Competition is also prompting insurers to pay upfront signing amounts to banks in return for a commitment to sell a certain amount of policies. According to Swiss Re, in India bancassurance is expected to respectively account for 13% and 15% of life and non-life business in the next five years. The report also talks about a trend, where banks are moving to distribution of insurance policies from multiple companies rather than sticking to one firm.
“Even where bancassurers still operate in an integrated manner, the reliance on a single supplier is being challenged by a shift towards multiple suppliers. The experience of banks successfully distributing both in-house as well as through third-party investment funds offers a useful analogy,” the report said.
It added that the variety of investment funds offered at a bank’s counter is no longer dictated by the manufacturing capability of the bank, but by customer needs. “Bancassurers will also increasingly look to distribute a wider range of products to meet customer needs,” the report said.
In India, banks have begun to understand the value of their distribution networks and are discarding existing distribution agreements and entering into insurance joint ventures on their own. They are also keen to distribute policies of third parties to increase their fee income.
However, insurers said allowing banks to distribute policies from multiple companies would result in their pushing those products with the highest commissions. At present, banks’ distribution of insurance is governed by corporate agency regulations, which does not allow an agent to represent more than one life insurance company.
Despite the challenges, Swiss Re is optimistic on the future of bancassuarance. Banks will gain marketshare by selling more sophisticated products as against the present simple tailor-made products, the report said. Also, the imminent growth in healthcare and pension business is expected to open up new distribution opportunities for banks in insurance.
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