Emphasizing the Alliance between Bancassurance and InsurTech Partnerships
Embracing digital transformation, the financial services industry has witnessed astounding disruptions in recent years. Specifically, the integration of InsurTech, in collaboration with the bancassurance model, is said to remodel the way insurance packages are typically marketed. With this partnership, insurance is transitioning towards a “pull” product from its traditional status as a “push” product.
How InsurTech Aids Insurance Distribution
InsurTech plays a pivotal role in helping banks and insurance providers jointly engineer sophisticated, digital insurance platforms. These platforms simplify the buying process, making it transparent and free from bureaucratic red tape. This is particularly important as it addresses the staggering reality highlighted by a 2021 NITI Aayog report: a startling number of Indians, nearly 400 million, lack the basic necessity of financial protection.
The report identifies factors contributing to this gap. Main inhibitors include access barriers, the false equivalence of insurance with wealth, and a general undervaluing of essential insurance needs.
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The Challenge of Insurance Provisions
Given India’s vast terrain, substantial rural population, and traditionally indifferent attitude towards financial planning, distributing insurance becomes an uphill task. Life insurance enterprises lack the people reach necessary to connect with the masses. However, banks manage to bridge this gap to a significant extent, thanks to their pan-India presence and customer trust.
These factors have triggered the ascendancy of bancassurance. The bancassurance model fuses everything under one roof, with banks offering insurance products (both life and non-life) and related amenities on behalf of insurance firms. Therefore, banks serve as cost-effective distribution channels for insurance entities.
The Bancassurance Business: Analysis of Growth and Benefits
New Business under the Bancassurance channel saw a growth in the overall life insurance premium from ₹41,096 crores in 2020-21 to ₹51,188 crores in 2021-22, representing a growth of 24.5%. Furthermore, bancassurance presents an opportunity for stakeholders – banks, insurance companies, and customers.
Banks supplement their customers in balancing their investment portfolios. The integration of insurance in their offerings not only strengthens customer loyalty but also generates additional revenue and augments return on assets. On the other hand, insurance companies take advantage of banks’ widespread network of branches, including those in rural areas, making banks a cost-effective distribution channel.
The unique insights banks hold about their customers’ financial status, spending habits, and investment capacities can tailor-made insurance products for maximum impact.
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Addressing the Challenges: Regulatory Oversight to the Rescue
Despite bancassurance showing promise in proliferating insurance coverage in India, it brings along its set of challenges. A significant concern is the potential misemployment through banking channels. To combat this, the government is stepping up its regulatory surveillance, proposing measures that include capping commission charges to prevent compromised insurance consultations due to financial incentives and imposing stricter commission disclosures during policy sales.
The Indispensable Need for InsurTech
As bancassurance grapples with challenges in the shifting financial landscape, the assimilation of InsurTech becomes crucial. Lack of regulatory liberty severely restricts banks and insurance companies in their abilities to experiment and innovate. This is where InsurTech enters the scene, assisting customers in making informed decisions amongst numerous insurance offerings and advocating simplicity, flexibility, and ease-of-use in products.
Through its ability to help co-create digital insurance platforms, InsurTech enables banks to provide loan cover and cross-sell a diverse portfolio of insurance products seamlessly. It also aids in automating vital yet monotonous tasks such as underwriting, claim processing, policy issuance, and management.
India currently holds the fifth position in the global InsurTech market, experiencing a robust growth rate between 32-34% per year. By moving in tandem with the bancassurance model, InsurTech is reforming the insurance sector and transforming it into a “pull” product from a “push” product.
The Modern Vision for Banking and Insurance
Looking at the trends, banks today covet becoming a one-stop financial solution for their customer base. This ambition motivates them to diversify their products and services. The bancassurance business model has emerged as a reliable way to achieve this diversity and meet the mounting customer expectations. This platform, marrying banking and insurance, allows banks to not only cater to customers’ basic banking needs but also cover their investment and insurance requirements. Consequently, this robust and comprehensive approach contributes to reinforcing customer loyalty and growing the banks’ return on assets.
The Insurer’s Perspective: Seeing the Bigger Picture
From the insurers’ point of view, banks serve as a highly cost-efficient intermediary. Leveraging the bank’s extensive network of branches across urban and rural territories, insurers can make inroads into locations where they previously struggled to penetrate. In addition, bancassurance enables insurers to tap into the potential of banks’ substantial customer bases.
Additionally, insurers can harness the plethora of data that banks possess about their customers, including financial position, spending habits, investment preferences, and purchasing ability. This rich resource allows where insurance fits into one’s financial planning to develop personalized insurance products suited to individual requirements. It optimizes both the distribution and impact of insurance products in the market.
New Opportunities and Regulatory Challenges
In the fiscal year 2022-23, banks notably contributed as corporate agents, bringing in 5.93% in non-life premiums and 17.44% in new business premiums for life insurance. However, the emerging bancassurance model faces challenges, predominantly in the form of potential mis-selling via banking channels. Here, government regulation plays an essential role in safeguarding consumer interests, by capping commission charges, enforcing transparent commission disclosures on sales, and disconnecting bank employees’ performance appraisals from insurance sales targets. These steps aim to protect consumers while maintaining the integrity of financial advice.
The Future of Bancassurance: Indigenous InsurTech
While bancassurance continues to face challenges, bringing InsurTech into the mix broadens its appeal. Due to heavy regulation, banks and insurance companies find their hands tied when it comes to experimenting with innovative strategies. Contrarily, InsurTech companies operate with more latitude. Essentially, InsurTech equips banks with omnichannel distribution capabilities and wide-ranging opportunities to offer loan cover and cross-sell insurance products without hassle.
InsurTech: A Tech-Driven Path
InsurTech strives to ease the client experience, allowing customers to make well-informed decisions among various insurance offerings with utmost simplicity, flexibility, and ease of use. It aids in crafting streamlined, digital insurance platforms that promise a transparent, smooth buying process and the automation of tedious insurance tasks such as underwriting, policy issuance, claims processing, and management.
India currently nestles as the world’s fifth-largest InsurTech market, with a growth rate varying between 32-34% annually. InsurTech’s alliance with the bancassurance model is gradually causing insurance to evolve to a “pull” product from its traditional mould as a “push” product.
A Triad of Power: Banks, Insurers, and InsurTech
The increasing partnerships between banks, insurers, and InsurTech companies are ushering in great promise for the BFSI sector. They are making insurance hitherto perceived as complex, more contextual, affordable, and accessible. These partnerships are tipped to transform the insurance landscape in India, akin to the revolution FinTech triggered in banking. With these progressive changes, we move towards a vision of a stronger nation with resilient communities.
Positive Outlook for the BFSI Sector
As we witness growing banks, insurers, and InsurTech firm partnerships, prospects for the BFSI sector look promising. These alliances will reshape the country’s insurance landscape, comparable to how FinTech revolutionized banking. Undoubtedly, it will contribute significantly towards fortifying a stronger nation with resilient communities by making insurance contextual, affordable, and accessible, eventually bridging the country’s protection gaps.
Disclaimer:
The material in this article was compiled using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. The completeness and correctness of the material ensured with due diligence. It is required of users of this material to consult the relevant, applicable legislation. The data given may change without prior notice and does not constitute professional advice. As a result, Estabizz Fintech disclaims all liability for the results of using such material.
