Bancassurance – What’s in it for banks?

Bancassurance has for long been thought to be the ideal insurance ‘agent’. And, with good reason too. But, how does bancassurance benefit banks? Here are some of the key benefits for the banks themselves:

• Maximising existing resources 

The dual utilisation of resources to generate income is one of the foremost benefits that accrue to banks. They have no requirement to set up a separate infrastructure or separate facilities for the revenue stream from insurance products. The additional costs that would have otherwise been incurred in setting up a separate unit for insurance products is completely avoided. Banks use their own, existing premises and employees to sell the bancassurance products. Insurers are also very forthcoming to help banks to package products attractively and take charge of training their employees as well. These factors help reduce costs significantly for both insurers and banks and go a long way to improve profitability. The ROA for banks is also increased.   

• Non-interest income and increasing profits

In bancassurance models, banks generate risk-free income by way of commissions from insurance carriers. The primary and only risk carrier is the insurer and the banks earn a steady stream of income just by facilitating and placing insurance business with their own customers. The fees that banks earn for the placement of insurance, is interest-free and boosts the bottom line for the banks. Many studies done in the Indian bancassurance context prove its positive impact on the profitability of banks. 

• Improving customer loyalty and retention

Most banks have built a reputation of trust and stability over their many years of operation. Their customers have a tremendous sense of loyalty to the bank as it comes to be perceived as a symbol of trustworthiness. Banks by their very nature are conservative and not known to take undue risks. So, when they offer customers a product, the product is by and large accepted for what it is said to be. Banks are also careful to do their due diligence before adding anything to the portfolio of offerings that they have for their customers. As insurance is considered to be a financial product, by adding it to their portfolio of offerings, banks are seen to provide an integrated financial services solution and in doing so, they improve customer relationships, build customer loyalty and improve customer retention levels.  

• Upskilling Tellers and Branch Staff

Apart from including insurance products in their portfolio of offerings, banks enlist the help of insurers to provide specialised training for their staff to be able to thoroughly understand the products and learn how best sell the products to meet specific customer needs. Banks also use the expertise of insurers to develop and launch attractive incentive plans for their employees.  In this way, banks keep their employees motivated, and help them to build the skills needed to sell bancassurance products. 

• Enhancing Customer Lifetime Value

Increased loyalty and retention brings a higher customer lifetime value (CLV) per customer which is a very important metric for banks. Banks take this aspect into consideration when they decide to offer a new product to customers. Always looking to improve the CLV value of their customers, banks are well placed to leverage both traditional as well as innovative insurance products to bring value not only to their customers but to themselves as well.

• Diversifying the Customer Portfolio

Banks already have a relationship with their customers selling them an amalgamation of financial products. With Bancassurance, insurance is added to the mix, diversifying the customer portfolio. This makes the banks literally a one stop solution for all financial needs and transactions. By offering customers the entire gamut of financial products, banks not only diversify their customer portfolio but they also open up a new and risk-less channel of income. 

• Access to Customer Data and Funds 

The banks have greater access to funds that would otherwise be kept with life insurers, who sometimes benefit from tax advantages that accrue as a result. The availability of real-time, authentic customer financial data from banks allows insurers to segment customers more appropriately and to develop and fine tune specific insurance products for each refined customer segment. The access that banks have to their customer’s data gives them the ability to work with insurers to create products that would meet the specific needs for each customer segment. Banks would also be able to offer products at an appropriate time to their customers. For example, if there is a payment made through the bank to a maternity hospital, the bank can offer to not only update banking records but also offer a child insurance plan. 

What is seen as a clear thread running through all of the advantages of Bancassurance for banks is the unmistakable fact that it is the widespread adoption of digital technology as the enabler. Leveraging the power of new and emerging technologies in the right way to enhance transactions, operations and processes while at the same time ensuring that security interests are paramount is possible only with the power of strategically planned and implemented digital technologies. 

Neutrinos provides innovative, cost-effective, secure, and reliable technology solutions for Insurance companies such as yours to help grow their business and increase customer relationships. We would love to connect and discuss how we can be of assistance to you. Reach out to our experts at: https://goneutrinos.com/contact-us/ 

References: 

1. https://www2.deloitte.com/cn/en/pages/financial-services/articles/insurance-insights.html
2. https://asianbankingandfinance.net/retail-banking/commentary/bancassurance-in-asia 
3. https://rgare.com/docs/default-source/brochure/rga-global-bancassurance-products-by-profitability-2019.pdf?sfvrsn=167247f1_2
4. https://www.leadsquared.com/advantages-of-bancassurance/