Open architecture bancassurance model needed: Survey

Chennai, July 8 (IANS) Private life insurers are in favour of banks floating a separate distribution outfit to sell insurance policies in a focused manner, says a survey by a leading insurance consultancy company.

There are many life insurers in the country who do not have bancassurance (banks selling insurance policies) partners, as each bank can tie up with only one insurer. As a result, these insurers are demanding banks be allowed to sell more than one insurer’s products as life insurance is basically a game of distribution.

‘The bancassurance channel is expected to generate around 40 percent of the private life insurers business. Currently this channel contributes around 25 percent,’ R. Krishnamurthy, managing director (products, distribution, markets, risk consulting) of Towers Watson India, told IANS.

Towers Watson India has done the bancassurance survey.

Krishnamurthy said the need of the hour for bancassurance channel to succeed is to have an open architecture model, allowing banks to tie up with more than one insurer.

‘However, open architecture needs a great deal of responsibility on the part of the intermediary. The banks should own up the complete sales process and maintain complete control over its customer database and offer the prospects a need-based advice.’

He said open architecture is a big challenge for the banks now given the current imperfect state of bancassurance model which is driven by commissions and pushing of products.

‘Shifting to open architecture needs three things on the part of banks – (a) stopping of referrals or sharing of data base (b) have whole time sales people to do the need based analysis for the prospects and (c) setting up dedicated distribution companies through suitable changes in regulations,’ he added.

On the issue of high rate of surrenders of policies sold by banks (25-45 percent), he said: ‘The low persistency rate (renewal rate) in bank channel is largely due to mis-selling or the ticket size that has no relationship to policyholder’s paying capacity.’

He said under referral arrangements (banks sharing their customer database with life insurers) most banks do not know about the kind of policies sold to their customers by the insurer concerned and having no inclination to follow up for renewal premium.

About profitability of the bancassurance channel for the insurers, who even pay a huge ‘sign up premium’, high commissions and reimburse other charges, he said: ‘It is difficult to comment on the profitability of the channel at this stage, given the limited years of experience. Life and non-life insurers are counting on the volume build up through bancassurance.’

On activating bank branches in selling insurance policies, Krishnamurthy, citing the survey, said all branches of private banks sell insurance products. In the case of government-owned banks, only 50-60 percent of the branches are selling the policies.

‘The key challenges in activating a public sector bank branches are in appropriateness of the product to the local customer populace, lack of motivation and knowledge on the part of branch staff. Insurers are also apathetic towards low ticket policies generated from some of the bank branches,’ he added.

He agreed that the age profile of government-owned bank employees and their customers are skewed in favour of the middle-aged, but said this is not a great handicap in selling policies.

‘There are unmet insurance needs of that segment. Few insurers have sat with their bank partners to design specific products to suit the not-so-young people,’ he said.

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