Transcript Slide 1

BANCASSURANCE AND BEYOND –
A Banker Perspective
Ajay Vyas
Dy. General Manager
Central Bank Of India
Life Insurance Industry – Size & Players
2


Life Insurance Industry size 2011: `2,87,000 Cr
Expected Industry size* by 2020: 15,00K - `17,00K Cr

Cumulative capital investment: `26 K Cr

Employment (direct + indirect): increased from
~8.3lacs in FY2000 to over 32lacs in FY2009

Life Insurance penetration (total premium as % of
GDP as of 2010) in India stands at 4.4% vis-à-vis
Industrialized countries ~8.65% depicting a huge
growth opportunity

Currently there are 24 LI players (23 Private & 1
PSU) with many more players lined to enter.
1956-57
Life Insurance Corporation (LIC)
2000-2003
WAVE I - PRIVATE INSURER
HDFC Life
Max New York Life
ICICI Prudential
Kotak Life
Birla Sunlife
TATA AIG Life
SBI Life
ING Vysya Life
Bajaj Allianz Life
Metlife
Reliance Life
Aviva Life
2004 -2007
WAVE II - PRIVATE INSURER
Sahara Life
Shriram Life
Bharti AXA Life
Future Generali Life
IDBI
Federal
2008 -2011
WAVE III - PRIVATE INSURER
Canara HSBC OBC
Aegon Religare Life
DLF Pramerica
* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010
Star Union Dai-ichi
India First Life
Edelweiss Tokio Life
Phases in Life Insurance Industry
3
Growth of the in the Life insurance Industry in India can be split 3 phases :
Sole life insurer phase (Ist phase)
I.

LIC - sole life insurer with primary focus on agency distribution
High growth & investment phase (IInd Phase)
II.

YoY increase in overall
premium collection
Phase I
Phase II
Phase III
Private life insurance enter the sector - sizeable capital investment in setting up:
Distribution network, Training, Manpower, Facilities, Solvency requirements,
Contact centres, IT & related data centre etc:-

Immediate upswing in overall premium generation due to competition
Profitable growth phase (IIIrd phase)
III.

Improvement in maximizing capital utilization and consolidation of relatively non-productive units

Business conservation focus to increase renewal premium collection.

Surge in long term partnerships with established distribution entities (NBFC/Banks, etc:) to maximize
penetration with limited capital investment; Emergence of Bancassurance as a Key Enabler
Banking Industry in India
4

Total branches across all scheduled commercial banks in India : over 76,000
Branches
SBI & its Associates
Public Sector Banks
Private Sector Banks
Foreign Banks
Total
18,772
45,460
11,968
316
76,516
Customer base
Over 400 million customers

Increased customer awareness about financial products post globalization.

Banks aspiration to offer all financial products under one roof & position
“Bank as a ONE STOP SHOP”
Cross sell
Life insurance
Upsell
General Insurance
Wealth Management
Mutual Funds
Asset products
Equity – Demat

Opportunity to up-sell & cross-sell para-banking products through the existing banking network.

Para-banking activities lead to improved productivity of bank employees & to earn fee-based income.

Insurance products offer superior long term benefits both to bank & customer over the relationship period.

Emergence of Bancassurance – a Win-Win Proposition for both the Insurer & Bank.
Bank network source: RBI profile of banks in India as on 31st Mar 2011; Bancassurance is the sale of Insurance through Bank partner’s distribution network
The Bancassurance Opportunity…
5
Real Potential Still to be Unleashed
•
Banks are major players in the Indian Financial system:
•
•
•
•
Large Structure governed thru’ Regulations
•
•
•
76,000 branches (32,000 rural and 14,700 semi urban)
Enormous retail account base of 440 mn deposit accounts
Total deposit base of Rs. 1,49,473 billion
Four Categories of Banks – Foreign Banks, Nationalised Banks, Private Sector
Banks and Co-operative Banks catering to distinct customer segments
Over 2500 Banks spread nationally and geographically
Banking Habits of Customers
•
•
•
Propensity to Visit Bank Branches
High Trust in the Banking System
Bank Managers looked upon as “Financial Advisors”
The Bancassurance Opportunity…
6
Incremental Financial Household Savings
Government bonds
5%
Insurance
14%
Bank deposits
38%
Mutual Funds
1%
o
Co
p
s
nk
ba
lS
al
Sm
2%
s
1%
g
in
av
's
FC
%
10
%
14
Shares & Debentures
1%
NB
y
nc
re
r
Cu
PF/Retirement funds
14%
Over 65% of Household financial savings are in short term instruments
Bancassurance – a Win-Win Proposition
7
Advantages for Bank partner

Increased customer loyalty from offering all
Advantages for Insurance Companies

financial products & services under one roof – One
Stop Financial Institution

Improved usage of its distribution network

Improvement in sales skills of employees enabling
distribution network

Additional source of premium generation

Low operating costs leading to higher efficiency

Geographic advantage: Access to banks exclusive
better sale of other banking products & services;

Increase in employee productivity & profitability

Insurance revenues - fee based income

Additionally upfront revenues can be utilised for
fuelling banks growth aspirations & capital
customer base

Long term valuation benefit creation through equity
JVs by leveraging the bank brand and presence
Demographic advantage: Access to all the customer
segments

Access to banks captive customer base

Increased brand awareness through mutual
requirements

Immediate access to established brand and wide
association

Profitable growth opportunity
Bancassurance – a Win-Win Proposition
8
Comparative between other income and profit -2010-11(Rs in Crore)
BANK
PROFIT
CBI
OTHER
INCOME
1265
UNION Bank
2039
2081
Allahabad
1389
1423
BOI
2681
2488
Indian Bank
1182
1714
PNB
3613
4433
1252
Traditional
source of
income
Shrinking
Margins
Low Interest
Income
Capital
Requirement –
Basel II
Threat of NPA
Partnership Matrix…
Bank
Insurer
•Customer base and relationships
•High footfalls at Bank’s retail outlets
•Distribution network
•Large sales force.
•Brand
50%
•Sales & marketing expertise for insurance products
•Profit maximization selling insurance products
•Strong technical expertise & Product know-how
•Financial strength
•Brand
Insurance
50%
Bancassurance partnership and distribution agreement to clearly address:
•Volume targets
•Type of products to be sold
•Sharing of margins between product
and distribution
•Sharing of CRM system
•Management responsibility of the
product factory
•Require solid legal contract /
servicing agreements
New Initiative Department
Partnership arrangements between Banks & Insurers
10
Arrangements
Description of the arrangement
Examples
Corporate Agency
Bank signs a distribution arrangement with the
Insurance Company
Mostly prevalent in the market
 LIC –Central Bank Of India
 HDFC Life – Indian Bank
 Tata AIG – United Bank of India
Cross Shareholdings
Bank and the insurance company agree to have
cross shareholdings between them.
A member from each company might join the board
of directors of the other company

Mostly prevalent in the Japanese market
Joint venture
(Brownfield)
Bank joins as an equity stake holder in an existing
insurance company.


Axis Bank – Max New York Life
PNB – Metlife (IRDA approval awaited)

Reliance Life
Acquisition
Bank wholly or partially acquires an insurance
company.
(Reliance Life acquired AMP Sanmar Life)
 ICBC - AXA
(ICBC has acquired 60% stake in AXA Minmetals Insurance group)

Manufacturer
(Greenfield)
Bank starts its own Insurance Company



SBI – SBI Life
HSBC, Canara Bank & OBC – HSBC Life
Bank of Baroda , Andhra Bank– India First
IDBI – IDBI Federal
Bancassurance Growth In India
INDIVIDUAL NEW BUSINESS OF LIFE INSURERS - CHANNEL WISE
11
CHANNEL
Individual Agents
Corporate AgentsBanks
AMOUNT OF PREMIUM (IN Cr)
2010-11
2009-10
65665.52 65289.25
2008-09
2007-08
2006-07
55327.54
66515.43
54605.30
11062.63
8688.68
6737.38
6329.22
3363.17
% OF TOTAL
Corporate AgentsOthers*
(13.30)
(10.60)
(9.69)
(7.97)
(5.57)
2957.75
3510.76
3380.54
3461.89
1825.89
Brokers
1471.80
1128.50
773.62
473.73
331.63
Direct Selling
2016.32
3389.85
3310.33
2642.71
235.33
83174.03 82007.05
69529.41
79422.97
60361.32
TOTAL
Source: IRDA
Customer Insurance Need matrix
BANK
ATM
CASA
Checking
Phone Banking

Credit Card
Overdraft
Business Loans
Mortgage
Personal Loan
Vehicle Loan

Time Deposits
Foreign Currency
Shares
Trading/Financing
Mutual Funds

Transactions
Investment
Lending
Protection
Education
Assets & Savings
Health / Medical
Life
Travel
Accident Life

Insurance Products complete the financial relationship of the
New Initiative Department
Bank with the customers
Revenue maximization through life insurance
13
•
•
•
•
Bank Product
Insurance
Attachment
possibility
Product
Additional Revenue
Benefit for the Bank
1
CASA

Individual LI & Group LI

2
Personal Loan (PL)

Group Credit life

3
Home Loan (HL)

Group Credit life

4
MSME loan

Group Credit life

5
Recurring Deposit (RD)

Group Term Plan

6
Fixed Deposit (FD)

Group Term Plan

Typically a banking customer is sold only individual life insurance products generating “x” revenue
But, a bank customer on an average has 2 to 6 banking products
Insurance can be bundled/attached with all of them
Thus, opportunity for the bank to generate 2x to 6x revenue through offering multiple insurance products
Distributions servicing in Banking sector to different Customer Segments
Channels of Distributions
In-Branch
Sales Team
Retail Walkin customers
CCPC
Loan
Customers
Call Centers
New
Customers
Dedicated
Marketing
Managers
High Net
worth
Customers
Relationship
Managers
SMEs
New Initiative Department
Key Success Factors…
Motivation
&
Training of
Bank Staff
Selection
of Partner
Sales &
Distribution
Model
Selection of
Customer
Segments
Product
Offerings
New Initiative Department
The Bancassurance……… Way Forward
16
 Selection
of right insurance business model
 Segmentation of customers and Customization of Insurance
products for each.
 Mobilization of resource & right Corporate vision
 Training of Bank’s staff
 Process to be fine tuned.
(Policy issuance, communication & settlement of claims)
 Real time MIS & monitoring of business
 Customer grievances & redress mechanism
Prevalent Bancassurance Models in India
17
Bancassurance
Model
Distribution only
(Corporate Agency)
Description
Bank ties-up as a Corporate Agent with an insurer and sells the
insurance companies products to their retail and commercial
banking customers. Bank receives a commission payment on the
insurance products sold

Risk Profile
Banks take sales regulatory risk, insurers take all
manufacturing risks.
Bank buys a equity stake in the insurance company.
Bank sells insurance products of its joint venture insurance company.
Typically insurers take responsibility for controlling and managing risk.

Joint Venture
(Equity JV + CA)
Banks are responsible for distribution, and both take their
proportionate share of revenue and profit or loss.

Banks take sales regulatory risk and both insurers
and banks take
manufacturing risks to the extent they are not
reinsured
The ownership percentage can vary and other more complex
structures can be put in place to allow for different service companies,
offshore and onshore companies, and captives

Manufacturer
Banks sell and underwrites insurance products via a wholly-owned
insurance company.
Banks take both sales regulatory risk and
manufacturing/ underwriting risk
Considerations to be made by Bank
while choosing the Bancassurance Model
18
 Capital considerations - Basel and Solvency norms have the potential
Basel III Norms
Existing RBI Norm
Common equity
(after deductions)
4.50%
3.6%
Conservation buffer
2.50%
Nil
Countercyclical
buffer
0-2.5%
Nil
Common equity +
Conservation buffer
+ Countercyclical
buffer
7-9.5%
3.6%
Tier I (including the
buffers)
8.5-11%
6%
10.5-13%
9%
to cause significant capital pressure for banks that hold a greater than
20% share in any joint venture
 Banks have to make their decision on how to make best use of
capital - Use it for banking expansion or diversification into
insurance.
 Capital light Brownfield equity structure is the new trend which
could address some capital considerations - however it again
depends on bank commitment to deliver mutually agreed
insurance targets.
 A core choice is whether to take a risk free distribution income or a
risk-bearing and capital-intensive manufacturing model OR a
combination of both.
Source: Basel committee documents, RBI;
Total capital
(including the
buffers)
Key drivers influencing partner selection
19
Key points considered by Bank in
the Insurance co.
Credentials
 Strength of Promoters of the Insurance
company
 Brand & market capitalization of the
Indian promoter
 Brand, Global ranking & presence of the
foreign partner
 Capital Infused
 No conflict of Interest with Bank
 Bancassurance experience in India &
globally
 Multi-channel distribution experience
 Branches / Exclusive Services points across
the country
Key points considered by
Insurance Co. in the Bank

Brand strength & presence
 Distribution network, geographical &
rural/urban spread, customer touch
points viz. branches (RRB & own), ATMs
 Customer base, deposits & advances,
insurance penetration (specifically in
retail)
 Retail growth plans
 Bank’s future expansion plans
* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010
Key drivers influencing partner selection
20
Key points considered by Bank in
the Insurance co.
Product innovation & capability of new
product development
 Claim service guarantee commitments &
claim settlement performance
 Operations & IT capability
 Training & Development
 Strong Governance framework
 Break-even / Profitability projections &
shareholder value creation
Proposition
 Proposed partnership arrangement
 Business projections
 Commercials/ Equity offered (fixed &
variable)
Source: www.irda.gov.in,
BCG report:
Turning
10, Going
on 20, Swiss Re: Sigma
* -Value
creation
for India
theInsurance,
bank
from
proposed

Key points considered by
Insurance Co. in the Bank
Life Insurance business performance
 Sales process, Manpower / Specified
Persons, Products
 Insurance targets/ business projections
 Bank’s commitment towards the tie-up &
Long term partnership commitment
 Bank employee strength & management
vision
 IT Systems capability
 Synergistic aspects

- World Insurance in 2010
Current Bancassurance market scenario (1/2)
21

Increasingly banks are keen on looking to tie up through a Brown Field Equity JVs for a longer term
partnership with Insurance companies as it has major advantages:


Increase brand awareness : Prolonged brand association - increased new business at record growth rates

Valuation benefits : Longer term valuation benefits to both Banks & Insurance companies

Capital requirements : Relatively capital light structure to enter into the lucrative life insurance sector
IRDA to decide on allowing banks to partner with multiple partners:

2 Life Insurers & 2 General Insurers

2 Health Insurance & 1 ECGC

Customized wealth creation insurance products as per bank partner requirements

Banks consciously moving towards increasing sales of regular premium products
Current Bancassurance market scenario (2/2)
22
Models preferred by Banks:

Small & Medium Private Banks – Corporate Agency (CA) model

Large Private Banks – Equity JV / Manufacturer model

PSU Banks:


Medium & Small PSUs -Corporate agency model

Larger PSUs preferring Equity JV / Manufacturer model
As seen above - Banks with sizeable distribution network are now looking at entering into
equity model partnerships

Medium & Small sized PSU Banks with differentiated geographic footprints are coming
together to partner for mutually beneficial association (eg: IDBI & Federal bank)
Recent Joint Ventures & Bancassurance Tie-ups
23
Recent examples in the Green Field Equity JV tie ups:
 Bank of India, Union Bank of India with Daichi, Japan - Star Union Dai-ichi Life
 Canara Bank, Oriental Bank of Commerce with HSBC Life - Canara HSBC OBC Life
 IDBI Bank, Federal Bank with Aegis- IDBI Federal Life
 Bank of Baroda, Andhra Bank with Legal & General - India First Life
Recent examples in the Brown Field Equity JV tie ups:
 Axis Bank tie-up with Max New York Life
(10year partnership agreement; Axis bank offered ~4% stake in MNYL; deal valued at approx. 250cr-350cr)
 Punjab National Bank & Metlife India
(Deal yet to be finalized; 10 year partnership agreement; PNB offered ~30% stake (including free & discounted stake) in Metlife India; deal valued at approx. 600Cr)

Syndicate Bank currently in the process of finalizing its JV partner
(Syndicate bank is scouting for an appropriate insurance partner for Brownfield entry into the life insurance industry; Birla Sunlife)
Many other Banks considering entering Life insurance to encash distribution premium
and create “Valuation upside”
Note - Deal values as per unverified market intelligence
7/7/2015
European Rail
24
Winning is Everything
Thanks
New Initiative Department
25
Appendix
Considerations to be made by Bank
while choosing the Insurance Partner (1/2)
27
 Objectives of the venture should be clear and communicated to the Top management
 Assessment of the Insurance Partner in terms of :

Levels of expertise (in Indian market + globally), investment and/or assets brought committed for the venture

Alignment of cultures and management styles for effective integration and co-operation

Ability to develop tailored products with differentiated pricing for bank partner

Global ranking & Credibility of the Insurance partner and Bancassurance experience
 Assessment of the Bank’s potential with respect to:

Number of Points of Presence (PoP) (Bank Branches, ATMs, RRB branches, etc.)

Challenge in terms of activation of these PoP’s
 Operational Sales Model Support

Bank employees responsible for driving insurance sales with Manpower support from the Insurance partner

Relationship Managers assigned to cover specialized segments/channels of the bank, viz. Wealth Management SMEs,
Corporates, Asset business, etc.

Consent & support for regulatory (IRDA) certification of the bank employees
Source : TowersWatson -India Bancassurance Benchmarking survey
Considerations to be made by Bank
while choosing the Insurance Partner (2/2)
28
 Lead generation architecture:

Lead generation & capture process to be designed to capture insurance sale opportunities at all bank PoP’s

Manpower support from Insurer to be knowledgeable about bank branch business & customer profile and be able to
engage the bank staff effectively for lead generation

Investment in technology for data base mining, lead management and tracking
 Training & development

Adequate and well planned training architecture for Bank from the Insurance Partner

Insurer investment in a Bancassurance training platform to provide necessary training to the branch staff at various levels &
across various curriculum’s

Online training/refresher & knowledge repository for the bank branch staff
 Performance on Service Delivery parameters with focus on Service & Claims
 Customer Management & Support
 Performance Management systems viz. Management Information System & Reports
Source : TowersWatson - India Bancassurance Benchmarking survey
Constituents for an effective Bancassurance Partnership
29
Organization
Strategic
Management


Bancassurance
understanding &
importance to the
bank


Commitment &
objectives set from
the Top

Strong Visible
Leadership

Consistent focus –
Not just flavor of the
month

Mutually Agreed
Target

Proposition
Source

In-house and third
party product
provision
Simple Multi –
channel products
agreed with the bank
Proposition created
for mass market

Specific proposition
for High Networth
Individuals

Effective bundling of
products
Dedicated Insurance
Vertical at the bank
with an Insurance
head to manage
business sourcing
Service

Shared Services

Integrated low cost
service models

Single system

Straight through
processing
Sales


Distribution
Active external &
Internal lead
generation at
branches & worksites

Incentive/rewards
balanced with the
ban



Strong Compliance
focus

Guided Execution

Defined targets for
the bank branch
employee &
Financial Advisor

Assess multiple
insurance attachment
models
Face to Face,
Internet, Direct
telephone integrated
solution
Face to face
representatives for
business

Predict future
segment needs

Breakthrough
Propositions

Simple triggers

Active high volume
& high quality lead
generation

Cross sell & up-sell
supported by core
banking product
incentives
Focused sales culture
The blue boxes highlight the areas where particular differentiation can be achieved
Source: E&Y Report On Bancassurance - A winning Formula, July 2010
Customer
Industry Snapshot Key Financials:
30
(In INR Mn)
Gross Written Premium
Insurers
Capital as on
GWP/ Capital Ratio
2009-10
2008-09
31st
Mar 10
2009-10
Bajaj Allianz
114,197
106,245
12,107
9.4
ICICI Prudential
165,319
153,562
47,871
3.5
SBI Life
101,040
72,121
10,000
10.1
Reliance Life
66,049
49,325
29,743
2.2
HDFC Standard
70,051
55,647
19,680
3.6
Birla Sun life
55,057
45,776
24,495
2.2
Max New York
48,605
38,573
19,730
2.5
TATA AIG
34,938
27,475
19,205
1.8
AVIVA
23,780
19,929
18,888
1.3
Bharati AXA
6,697
3,604
13,053
.5
Future Generali
5,415
1,526
7,646
.7
New Initiative Department
30
Industry Snapshot - Profit and (Loss) breakup
Private Insurers
Bajaj Allianz Life
ICICI Prudential
Capital Infused
1,211
4,781
Shareholder Profit & loss (INR Crs)
Accumulated
Profit / (Loss) in
Balance
Sheet (INR Mn)
YTD Mar
10-11
YTD Mar
09-10
YTD Mar
10-11
YTD Mar
09-10
10,570
542.
10,387
(183)
8,076
258
(27,109)
(35,185)
SBI Life
1,000
3,663
276
6,212
2,549
Reliance Life
2,970
(1,293)
(284)
(28,032)
(26,739)
HDFC Standard
Life
2,013
(990)
(275)
(15,655)
(14,665)
Birla Sun Life
2,450
3,050
(435)
(17,225)
(20,275)
Max New York
19,20
1940
(209)
(8290)
(10230)
Tata AIG
18,88
518
(400)
(11580)
(16100)
New Initiative Department
31
List of Life Insurance Companies in India (1/2)
32
Sl. No.
Insurers
Bank
owned
Indian Partners
(shareholding %)
Foreign Partner
(shareholding %)
Regn.
No.
Date of
Registration
Operations
commenced in
---
512
1-Sep-56
1956-57
1.
Life Insurance Corporation of India
No
---
2.
HDFC Life Insurance Co. Ltd.
No
HDFC Ltd. (72.43%)
Standard Life Assurance, UK
(26%)
101
23-Oct-00
2000-01
3.
Max New York Life Insurance Co. Ltd.
No
Max India Ltd. (70%)
Axis Bank (4%)
New York Life, USA (26%)
104
15-Nov-00
2000-01
4.
5.
6.
ICICI-Prudential Life Insurance Co. Ltd.
Kotak Life Insurance Co. Ltd.
Birla Sun Life Insurance Co. Ltd.
Yes
Yes
No
ICICI Bank Ltd (74%)
Kotak Mahindra Bank (74%)
Aditya Birla Group (74%)
Prudential , UK (26%)
Old Mutual, South Africa (26%)
Sun Life, Canada (26%)
105
107
109
24-Nov-00
10-Jan-01
31-Jan-01
2000-01
2001-02
2000-01
7.
Tata-AIG Life Insurance Co. Ltd.
No
Tata Sons (74%)
American International Assurance
Co., USA (26%)
110
12-Feb-01
2000-01
8.
SBI Life Insurance Co. Ltd.
Yes
State Bank of India (74%)
BNP Paribas Assurance SA, France
111
(26%)
29-Mar-01
2001-02
9.
ING Vysya Life Insurance Co. Ltd.
No
Exide Industries (50%)
,Gujarat Cements (15%)
& Enam (9%)
ING Insurance International B.V.,
Netherlands (26%)
114
2-Aug-01
2001-02
10.
Bajaj Allianz Life Insurance Co. Ltd.
No
Bajaj Finserv (74%)
Allianz, Germany (26%)
116
3-Aug-01
2001-02
11.
Metlife India Insurance Co. Ltd.*
Yes
J&K Bank (25%),
M. Pallonji & Co. (31%)
4 Private investors (18%)
Metlife International Holdings Ltd.,
USA (26%)
117
6-Aug-01
2001-02
12.
Reliance Life Insurance Co. Ltd. (Earlier
AMP Sanmar Life Insurance Co. from
3.1.2002 to 29.9.2005)
No
Reliance Capital (Anil Dhirubhai
Ambani Company) (74%)
Nippon Life Insurance, Japan
(26%)
121
3-Jan-02
2001-02
* Punjab National Bank has acquired partnership in Metlife. The deal is awaiting IRDA approval post which the shareholding pattern will change
List of Life Insurance Companies in India (2/2)
33
Sl. No.
Insurers
Bank
owned
Indian Partners
(shareholding %)
Foreign Partner
(shareholding %)
Regn.
No.
Date of
Registration
Operations
commenced in
Aviva International Holdings Ltd., UK
(26%)
122
14-May-02
2002-03
---
127
6-Feb-04
2004-05
13.
AVIVA Life Insurance
No
Dabur group (74%)
14.
Sahara Life Insurance Co. Ltd.
No
Sahara India Pariwar (100%)
15.
Shriram Life Insurance Co. Ltd.
No
Shriram Group (74%)
Sanlam, South Africa (26%)
128
17-Nov-05
2005-06
16.
Bharti AXA Life Insurance Co. Ltd.#
No
Bharti Enterprises (74%)
AXA Holdings, France (26%)
130
14-Jul-06
2006-07
17.
Future Generali India Life Insurance
Company Ltd.
No
Pantaloon retail ( 25.5%), Sain
Advisory services pvt. Ltd. (49%)
Generali, Italy (25.5%)
133
4-Sep-07
2007-08
18.
IDBI Fortis Life Insurance Company Ltd.
Yes
IDBI Bank (48%) &
Federal Bank (26%)
Fortis, Netherlands (26%)
135
19-Dec-07
2007-08
19.
Canara HSBC OBC Life Insurance Company
Ltd.
Yes
Canara Bank (51%),
Oriental Bank of Commerce (23%)
HSBC Insurance, (Asia Pacific)
holdings (26%)
136
8-May-08
2008-09
20.
Aegon Religare Life Insurance Company Ltd.
No
Religare (44%),
Bennett, Coleman & Co (30%)
Aegon group, Netherlands (26%)
138
27-Jun-08
2008-09
21.
DLF Pramerica Life Insurance Co. Ltd.
No
DLF Limited (74%)
Prudential of America, USA (26%)
140
27-Jun-08
2008-09
22.
Star Union Dai-ichi Life Insurance
Yes
Bank of India (48%) &
Union Bank of India (26%)
Dai-ichi Mutual Life Insurance, Japan
(26%)
142
26-Dec-08
2008-09
23.
IndiaFirst life insurance company
Yes
Bank of Baroda (44%)
& Andhra Bank (30%)
Legal & General Middle East
Limited, UK (26%)
143
5-Nov-09
2009-10
24.
Edelweiss Tokio Life Insurance
No
Edelweiss Capital Ltd (74%)
Tokio Marine & Nichido Fire
Insurance Co., Japan 26%)
147
10-May-11
2010-11
# Reliance Industries Limited (RIL) & Reliance Industrial Infrastructure Limited (RIIL) has acquired Bharti’s stake in Bharti AXA Life. The deal is awaiting IRDA approval post which the
shareholding pattern will change
Regulatory environment in India
34
Insurance and Banking are two different sectors and are regulated by different entities
Reserve Bank of India (RBI)
• Regulatory Authority for all Indian Banks
• RBI norms pertaining to Bancassurance (refer appendix)
Insurance Regulatory Development Authority (IRDA)
• Insurance sector follows the guidelines provided by IRDA
• IRDA also specifies norms for bancassurance partnerships
RBI norms pertaining to bancassurance (1/2)
35
 Any Scheduled Commercial Bank can become corporate agent to a life insurance company and earn fee based income
provided

Net Worth of the bank > Rs 500cr

Capital Adequacy Ratio (CAR) > 10%

Net profit earned continuously for last 3 years

The track record of the subsidiaries, if any of the concerned bank should be satisfactory

Non Performing Asset should be reasonable
 JV will be allowed for financially strong banks that fulfill the following criterion:

In case of where a foreign partner contributes 26% of the equity with the permission of IRDA and Foreign Investment
Promotion Board more than one public sector bank or private sector bank can contribute in the equity of the Joint Venture

As subsidiary of a bank or any other bank will not be allowed to join insurance company on risk participation
Source : RBI Website
RBI norms pertaining to bancassurance (2/2)
36
 Banks which are not eligible for joint venture participation as mentioned on Slide 4 can do the following

Make investments up to 10% of the Net Worth of the bank or 50cr whichever is lower

The investment done is to provide Infrastructure or services support to the insurance company

Such participation shall be treated as investment and should be without any contingent liability for the bank

Capital Adequacy Ratio (CAR) > 10%

Non Performing Asset should be reasonable
Source : RBI Website
Key features of each model
37
Distribution (Corporate Agency)
• Capital free commission Income
• Utilization of the revenues earned in the bank
• Involves investment by Insurance company to help scale up insurance business of the bank &
achieve expertise. Risk borne by the insurance company
Joint Venture (Equity JV + CA)
• Relatively Capital Intensive (However, lesser than the Manufacturer model)
• Access to newer markets and distribution networks as both Banks & Insurance co. are thickly
bonded for a relatively longer term.
• Sharing of risks and costs with a partner
• Access to greater resources, including specialized staff, technology and finance
Manufacturer
• Most Capital Intensive way with highest risks
• Potential greater returns offered by certain core insurance products through the long-term
underwriting returns by manufacturing
• Complexity in manufacturing the product which calls for tie-up with a globally strong insurance
partner.
Equity partnership vs. Distribution relationship
38
High
Bank’s perspective
Advantages
 Increased
stability of the venture:
partnership, joint interest &
aligned incentive structures
 Ability to participate in product
design and Product customization
 Dedicated support provided by
insurance partner to ensure know-how
transfer
 Enhanced profitability: Commissions +
Manufacturing margins
BANK COMMITMENT
 Long-term
Low
Joint-venture
(Equity
partnership)
Insurer’s perspective
Disadvantages
Distribution
agreement
(Corporate
agency)
costs
sharing of customer
information
 Capital gain opportunity
 Flexibility due to shorter term of
partnership
 Limited
Disadvantages
 Increased
stability of partnership
allowing investments with longer
 Less flexibility to opt
gestation periods
 Common brand providing easier
out
 Could be capital
access to captive customer base

Increased business potential from
intensive
long-term common interests
 Increased bank employee buy-in
 Increased penetration across
bank branches & associates
 Limited
 Marginal
Advantages
control
profit
profit
sharing with bank
 Shorter
 No/Limited
sharing
 Direct competition
with peer banks for
sale of same
products (as Life
Insurance partner is
common)
 Increased
 Simpler
deal structure
investment requirements
 Reduction in unit costs from
increased sales volumes
 Lower
tenure of
partnership
 Decreased bank
employee buy-in
 Higher drain on
resources
 Brand & culture
diversity
Deal Structuring Options
39
Pure play equity – 10 year deals
• Bank provided with free equity / initial equity at discounted rate
• Bank partner has skin in the business to deliver commitments
• In certain scenarios equity reduction can be proposed if business is not delivered
• Primarily PSU banks are entering equity participation route to create valuation
• Bank prefers free equity with no or minimal capital investment
Step up equity - 10 year deals
• Bank provided with free equity / initial equity at discounted rate / step up at discounted rate
• Bank partner has skin in the business to deliver basis minimum business guarantee
• Incremental equity on business delivery on a terminal basis
• Structuring methodology to engage bank in delivering the business as per agreed potential
Equity + Distribution premium - 10 year deals
• Upfront Cash + free equity / initial equity at discounted rate / step up at discounted rate
• Structuring methodology for bank partner to have skin in the business basis minimum business guarantee
• Claw backs applied on cash by holding commissions or reduction in equity
Distribution premium upfront / premium year on year - 3 – 5 year deals
• Usually prevalent in Private or Foreign bank deals
• Cash paid upfront or structured basis year on year delivery of agreed business
• Structuring methodology for bank partner to have skin in the business basis minimum business guarantee
• Claw backs applied on cash by withdrawing commissions until business delivered
39