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BANCASSURANCE
A BANKER'S PERSPECTIVE
S.Muralidharan
WHAT IS BANKING?
BANKING IS:
Financial intermediation, Advisory &
Distribution
= Bancassurance is a legitimate banking
activity.
WHAT IS INSURANCE?
Insurance is the
means of protection,
at an affordable cost,
from a risk with
unaffordable consequences.
BANKING EVOLUTION
Disintermediation is rife.
Margins shrinking (the 3-9-3 rule of banking)
Customer convenience - "Financial Mall"
Strong competition: inter-se & non-banks
New competition - internet, mobile companies,
Post- crisis,
A forced return to "Utility Banking" likely
Curbs on profitable lines of business
= Need for acceptable new sources of income
BANKING EVOLUTION COMPETITION FOR CUSTOMERS
Acquiring and retaining customers getting
tougher
High-profit customers weaned away by nimble
smaller banks
Large retail banks have large customer base
and long reach; now through online too.
They can leverage on their reach and customer
base
More products = better customer retention +
more income.
INSURANCE EVOLUTION
EXPANDING PRODUCT LINE-UP
Life, Health, Assets, etc ("Traditional" lines)
Marine and trade-linked
Savings (Traditional, Unit-Linked), Loan
protection, Pensions, various Hybrids.
Weather and similar risk insurance
Default swaps and other exotics
Insurance has moved from underwriting to
derivatives and fixed income to marketrelated investments.
INSURANCE EVOLUTION
TOUGHER REGULATORY ENVIRONMENT
Regulatory activism & consumer protection
Control on pricing & expenses = lower sales
remuneration and lowered interest in selling
Complex products have earned a bad name
= Independent direct selling teams are losing
interest
Sellers bundling investment advice and
product sales.
INSURANCE & BANKING OVERLAP OF INTERESTS
Banks have the customers Insurers need
Insurance selling can generate the income
banks need
Banks have the "reach" insurers lack
Customers (still) trust the (Indian)Banks
Banks are attempting to become Financial
Malls. Insurance is a key product.
Insurance products can help Banks retain
customers for a longer term
BANKING AND INSURANCE A MARRIAGE MADE IN HEAVEN?
NOT QUITE
LIKE HUMAN MARRIAGES, THIS ONE ALSO
NEEDS CONSTANT FINE-TUNING AND
PARTNERS NEED TO WORK ON IT.
TWO BANCASSURANCE MODELS
- Ownership-defined
Bank owns Insurance arm and distributes
latter's products."OWNED" BANCA MODEL
(SBI, ICICI etc).
Bank contracts to distribute products of thirdparty insurers. "AGENCY" MODEL (LIC and
Banks)
A HYBRID of the two (AXIS/MNYL) with
nominal ownership stake
TWO BANCA MODELS
Defined by who sells
PURE Banca model in which the Bank staff sell
Hybrid Sales model in which Insurer's staff or
agents, placed in the Bank, sell
TWO BANCA MODELS Exclusivity-based
The insurer is a pure Banca company and sells
only through its "parent bank" (B2B 1 Model)
The insurer sells through other banks (B2B 2)
The insurer sells through other distribution
channels (B2B & B2C)
WHAT IT CAN MEAN
Each model has specific implications to the
bank which owns it / distributes its products
Degrees of ownership and exclusivity also has
important implications.
HOW BANCA WORKS
Insurer produces products
Bank distributes
Two models for selling
Bank is paid commission on sale
"Owner" Bank receives dividends
Servicing - two options
STP for effectiveness - systems integration
Training & MIS provided by Insurer
Systematic review and course correction
BANCA SUCCESS FACTORS
A study identified critical success factors for
banca
1. Systems integration
2. Senior Management Commitment to
insurance
3. Integration of products (branding)
Also important,
1. Sales culture and clear positioning of
insurance
BANKERS' CONCERNS
1. Capital consumed
2. Income potential
3. Product portfolio integration
4. Systems integration
5. Complement & enhance Banking Products
6. Additions of profitable services
7. Customer retention / satisfaction / delight
8. Selling skill availability / development
9. Reverse risk flow
BANKERS' CONCERNS
Animating sales teams
Controlling sales teams
Sales incentives etc - issues abound
Customer ownership / data protection
PRODUCT INTEGRATION
European Experience: Banca works best when
products are integrated
Banks usually in the short term savings
MFs medium term
Insurance long term, Pensions even longer
= Insurance completes savings spectrum
+ Provides Risk Cover
Not direct competition for bank deposits
Key element of Financial Planning & Advisory
Needs sophisticated selling
CAPITAL CONCERNS
An issue in "owned banca" models
Insurance is capital-intensive
Insurance investments reduce Bank capital an ongoing issue
Insurance Break-even takes long
Owner-Banks need to be patient
RoI: Low and Slow.
Income from dividends & valuation of insurer
Valuations market conditions dependent
Income Potential
PAST:
High sales commission
NOW:
Regulators stamping out high commissions
In India product pricing requires IRDA approval;
high "margins" not possible
Bundled products like "loan-linked insurance"
used to have high margins - no more.
Insurers resorting to innovative compensation
Insurance Income disappointing banks.
SYSTEMS INTEGRATION
A study revealed systems integration as a key
success factor for Banca success.
Banking front end should facilitate sale, after
sales servicing and claims management.
Should facilitate viewing customer savings
pattern and propose appropriate products
Customer should be able to make premium
payments, and receive receipts at the Bank
Insurance seasonality could cause traffic jam in
Bank's systems.
COMPLIMENTS BANK PRODUCTS
Fear of cannibalisation real.
Risk of cannibalisation not high
If sold well, it can complement Bank products
Insurance does not compete in terms of:
tenor
returns
purpose
risk cover
To be complimentary, needs to be sold well
ENHANCE BANK PRODUCTS
Loans with built in death risk cover
Loans with unemployment cover
Loans with health cover
Mortgage loans with death risk cover
"Gap" cover for car loans. Etc etc
RETAIN CUSTOMERS
Banks face competition from new sources:
Online, mobile Cos, Credit Cards, etc.
Need to protect against poaching
Offering all segments of life-time financial
services is an effective protection
Retail Customers using >4 products
dramatically more profitable
Banking equivalent of a Mall is as attractive
SELLING SKILLS DEVELOPMENT
Advantages depend on selling ability
Bad selling can cause problems
Need to develop ability to analyse need and
sell appropriate product
Must become part of Bank's normal training
But....
It is not seen that way.
Seen as a burden and an intrusion
Need greater training commitment from Bank
RISKS IN BANCA
Depends on the model. Ownership most risky.
Insurance losses can affect Bank capital
Constant demands for capital infusion
Poor RoI
Low income if valuation not captured.
Banking contagion can spread to Insurance
Risk to Bank due to mis-selling insurance
Customer dissatisfaction with Insurer can affect
his view of distributing Bank Brand
BRAND MANAGEMENT
To be effective, insurance must be integrated
well with Bank brand
Exposes the Bank to insurance problems
Unsolved issues can cost the Bank dearly.
If done well, can add to Bank Brand, valuation
Can bring new customers and retain old ones.
Bank regulators not happy with brand
integration.
COMPLIANCE
Two regulators = twice the problems
Indian regulators wish the businesses to be
kept distinctly separate even at front end
Cannot leave insurance customer data on
Bank's system and vice versa = promised
economies don't follow
Composite statements like in Wealth
Management first step in integration.
CONTROL & ANIMATION OF
SALES
Control and animation of Sales Teams poses a
challenge. Less so in "Agency" Banca model.
Insurance needs to be "sold". Works only with
incentives.
Banks not used to incentive structures.
Imaginative solutions required.
Clarity needed on who controls salespeople.
Separate deptt works. Has some issues too.
Line Management must accept ownership
WHO OWNS THE CUSTOMER?
The Bank? The Insurer?
Ideally it should be the Bank.
For effectiveness, all customer ownership
should be with the Bank - Regulations don't
permit it
In practice, each has its own database.
Reluctance to share data
For greater benefits from Banca, higher data
integration required.
Changes in regulation likely?