2. • Until 1956, private insurance
companies Insurance: The
• In 1956, life insurance was
nationalised Indian Profile
• In the same year, LIC was
created absorbing
154 Indian insurers, 16 foreign
insurers and 75 provident
societies totalling 245 Indian
and foreign insurers
• From1973, General Insurance
business was nationalized. 107
insurers were amalgamated
and grouped into four
companies, as subsidiaries of
General Insurance Corporation
of India
3. Deregulating Insurance Sector
• In 1999, IRDA Act was
passed
• Subsidiaries of GIC
became Independent
Cos
• Private Insurance
Allowed since 2000
• FDI at 26% initially
• Increased to 49% in
2012
4. • Bank branches distributing insurance products is
called bancassurance
• In UK, Barclays tried and Failed
• France and Spain allowed it from 1990
• Until then, Central Banks did not allow it
Bancassurance
5. Compulsions of Banks in India
• Competition and Pressure on Interest Income
• Need for Fee Based Income
• Insurance Companies’ subscription to Perpetual
Bonds of banks to satisfy Basel Norms
• Core Banking & Internet Banking
6. Compulsions of Insurance Companies
• Using the Network of Bank
Branches
• Widespread Geographical
Reach
• Bank Branches in Rural Areas
• Need to Scale up the Business
Quickly
• Well Trained Banking
Personnel
• Banks as Financial
Supermarkets
• Leveraging on Internet
Banking
7. The Consumer Angle
• Easy Access due to Universal Presence of Bank Branches
• Multi-Benefit from Single Location
• Easiness of Payment
• Banker’s Knowledge of Customer Profile
• Easy Verification of Customer Details
• Permanent Employees of Banks
8. Business Models
• Banks as Distributing Agents
• Banks as Joint Promoters
• Insurance Companies becoming Subsidiaries of Banks
• Associate of Banks held by the same Holding Company
9. Basel Norms and Bancassurance
• Basel Norms Require the banks to have risk
weighted capital as a percentage of the loan
portfolio of bankers
• Banks carried on with a meager capital
• Criteria applied was deposit loan ratio
• Banks have to raise equity capital for the existing
loan portfolio
10. Perpetual Bonds and Preference Shares
• All the banks need to raise equity capital
• Giving loans is a routine, public issue is not
• When all the banks need to raise equity, it becomes
impossible
• RBI allowed banks to issue perpetual securities of
15 years, renewable at the option of the banks
• Insurance companies have massive funds to
subscribe to these securities
• Banks are forging alliances with insurance
companies to access these funds
11. Micro-Insurance
• Government is encouraging
microinsurance as part of inclusive
development
• It carries low premium for the risk
coverage of huts, livestock or any
other small asset of rural
population
• IRDA prescribed that every
insurance company should cover
the social sector and rural areas
• They can reach only through rural
bank branches
12. Problem Areas
• Bank Personnel lack training in marketing insurance
products
• Banks are accustomed to serve customers at the
place of business and not at the place of the
customers
• Bankers have to divide their time between
marketing banking products and insurance products
• Servicing policy holders is another task the bankers
are not accustomed to
• Working Hours Oriented Service
13. General Problems of Insurance
• Bankers have started having reservation about the
survival of foreign insurance companies
• Failure of Insurance Companies will affect the image of
the banks
• Packing insurance products as investment products
• Administrative and other hidden charges
• Near Bankruptcy of AIG
• Increasing Complaints regarding settlement
