In the bancassurance model, insurance companies sell their products via banks. Insurers leverage the partner bank’s network while the bank earns a commission per sale. Originating in France in the late 1980s, bancassurance got a new meaning with digitisation. In the era of high internet and smartphone penetration, bancassurance rapidly transformed from the traditional distribution of insurance products through banks to a user-friendly digital platform that customers could use for their banking and insurance needs. Digital bancassurance has brought convenience for the customer.
India also adopted this business model after the IRDAI was established in 2000. Insurance companies in India have significantly benefited from banks acting as advocates and catalysts for the growth of the industry.Â
Insurtech innovations for educating customers, refining product offerings, enhancing services, and leveraging digital delivery systems have played a key role in the expansion of insurance distribution channels, like bancassurance. While agent selling is still the largest channel, a diversified mix of digital and manual channels has been instrumental in getting bancassurance 33% of the share in the Indian market. To meet the IRDAI’s “Insurance for All by 2047” goal, insurance companies in India must simplify customer journeys and enable frictionless access across distribution channels.
Why are Banks a Suitable Distribution Channel
Over 909 million Indians live in rural areas, which account for more than 60% of the country’s population. Insurers face two key challenges in reaching this cohort: convincing people about the importance of insurance and making it accessible to them at affordable premiums.Â
Banks Allow Greater Penetration
Even the so-called pan-India insurance companies face barriers in the underserved segments. On the other hand, banks have already reached over 75% of the Indian population. This has been partly driven by various government schemes for spreading awareness and opening zero-balance accounts. What has penetrated rural India is internet connectivity. In fact, active internet users in rural areas, at 442 million, have surpassed the numbers in urban India. This makes digital channels suitable for expanding the insurance industry cost-effectively.Â
Banks Have Gained Trust
Most of the population that is underserved or unserved by insurance visit banks and meet their relationship managers for financial advice. Banks have also embraced the opportunity and become one-stop solutions for banking, credit, investment, and insurance. These factors make bancassurance an excellent option for fulfilling the country’s insurance needs.
Customer Insights
Banks have access to valuable consumer data and insights into different target groups' spending habits and money mindsets. This helps insurance companies to identify and bridge the gaps between customer requirements and their products to maximise their impact.
Bancassurance Adoption Challenges for Insurance Companies
Minimise the mis-selling of insurance products via banking channels. While the government has increased regulatory oversight, insurers must educate their banking partners about their offerings.
Commission capping may compromise banks' insurance product recommendations due to lowered incentives. Stricter disclosure policies are critical for protecting customer interests.
Delinking the banking staff’s performance appraisals or financial benefits from their insurance-selling targets is critical to maintaining the integrity of the financial advice offered.
India is a rapidly developing country, and maintaining relevance and responding to dynamic customer needs is essential.
Insurtech Empowers Banks and Insurance Companies
Cutting-edge Insurtech solutions enable insurance companies to extract greater value from bancassurance-based distribution channels. Dynamic profiling and higher visibility into customer interactions help reduce a prospective customer’s journey through the sales funnel. It also empowers banks to create personalised offerings and define protocols for each distribution channel to optimise conversions. A simplified user interface helps offer a better experience and reduces friction during conversions.Â
Insurtech Partnerships Drive Bancassurance Growth
Since banks and insurance companies operate in a regulated environment, they have limited flexibility to innovate and experiment. Insurtech companies in India understand the consumer need for simplicity, flexibility, and customisations in all products and services they use. Insurtech companies have deep experience developing digital infrastructure and platforms that meet the needs of banks, insurance companies and consumers. These integrated platforms ensure transparency through the customer journey. Insurtech also enables banks to cross-sell their services and insurance products by leveraging consumer data to discover opportunities and report them in real time. Automating tedious tasks, such as underwriting, claims processing, KYC, AML, and policy issuance and renewal, eases the manual workload and reduces the chances of error or mis-selling.Â
Bancassurance through Insurtech: Key Benefits
The extensive reach of banks, combined with the digital capabilities offered by Insurtech to make insurance products more visible and accessible, drives deeper penetration.
Insurtech-powered customisation allows banks and insurers to offer tailored products and services. This increases conversion rates, improves customer satisfaction, and boosts retention.
Insurtech allows both parties to cross-sell their products and services. Bancassurance can prove instrumental in driving inclusion by leveraging banks' presence and outreach across unserved population groups.
Insurtech enables insurance companies to leverage the banking infrastructure with APIs. This may reduce operational costs, and may allow insurance companies in India to offer lower premiums and greater value for customers.Â
Insurtech facilitates bancassurance models to maximise the use of existing technology, making the insurance industry more ESG-centric. This is becoming increasingly critical for retaining the environmentally conscious customer base.
Insurtech to Drive Sales for Banks in India
There are several opportunities for Insurtech-powered bancassurance growth in India:
Data analytics can help banks to develop more targeted pre-quote offers.Â
Target marketing communications at the discovery stage can improve conversion rates by 2% to 4%.Â
Anonymisation of cross-industry data enables data security, preserving customers’ PII (personally identifiable information).
AI-powered insights can help insurance companies to improve their propensity models. Including variables other than credit scores and categorising leads based on their likeliness to purchase insurance products can improve the conversion rate by 10% to 30%. Insurtech can also make propensity models dynamic to target different consumer personas according to their financial behaviours, income, dependents, etc.
The biggest advantage of leveraging Insurtech for bancassurance is the ability of banks and insurers to create seamless omnichannel experiences. Streamlined journeys significantly improve lead management and reduce drop rates from the purchase funnel.
Improving the operationalisation of digital channels for personalised delivery of offers, advice, products, and services is critical for the success of bancassurance. This is where Insurtech comes prepared with advanced tools to manage and unify interactions and improve the lifetime value of a customer.
Embrace the Emerging Business Model
Both Insurtech and bancassurance are poised to grow through 2024 and beyond. The key benefit for insurance companies is that the combination of Insurtech and bancassurance converts insurance into a “pull” instead of a “push” product. The partnership makes insurance contextual, accessible, and affordable. Together, these trends can reshape the insurance industry. Bancassurance can drive open finance growth, allowing revenue diversification and integration of financial services.
Bancassurance and Insurtech's collaboration is poised to revolutionise the insurance industry landscape, much like digitisation did to banking in India.
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