By Dr. P. Nandagopal, Founder CEO, Upsure
The marriage of Banks and Insurance companies will soon be celebrated on its silver jubilee. It was in the year 2001 that the first alliance between banks and insurers in India was consummated.
Aditya Birla Sun Life Insurance (then known as Birla Sun Life Insurance, BSLI) took a bold and pioneering lead in tying up with banks to sell its insurance products.
It was the beginning of a new era of private insurers taking on public sector behemoths, while early birds like ICICI Prudential and HDFC Standard Life focused initially on safe and time-tested agency channels to build their businesses, BSLI quietly and strategically invested in Bancassurance.
That early mover advantage catapulted BSLI to the top two ranks in the private sector in no time. Suddenly Bancassurance became a favourite conference circuit topic, consultants had a free run pontificating on the benefits of Bancassurance and everyone tried to get into this bandwagon.
This version 1.0 of Bancassurance revolved around who had better products, service support and focus on servicing. In this first round, BSLI won hands down with its razor-sharp focus on Banca. Its ULIP portfolio superbly fits into the Mutual Fund-Wealth Management skill set of its MNC bank partners like Citi, Deutsche bank, BNP Paribas catering to the affluent class along with IDBI and HDFC Banks in the mid segment. This period of merit-based matchmaking on relationship fit rather than upfront inducements lasted till 2005.
While BSLI initially got away with little or no extra inducements, the market forces soon took over. There were more suitors for the banks in the distribution starved life insurance domain, banks were flooded with offers of more commissions, extra rewards, free foreign trips and dedicated staff to help banks sell insurance. As insurers were allowed to tie up with as many banks as possible but banks were restricted to tie up with just one in each category of life and general, the asymmetric equation suited the early mover insurers and the rent seeking banks for some time.
Listening to the success story of BSLI where 70% of its business came through Bancassurance from a formidable portfolio of 17 banks covering every customer segment from super affluent to low income, boards of rival insurers pushed their management to unleash a mad scramble for Bancassurance. Insurers, loosened their purse strings to pay hefty sign on bonuses to the banks for a distribution tie up. Things became so desperate that insurance companies without a bank tie up gave up on their growth plans and became easy targets for acquisitions. Those without banking partners and could not be acquired withered away.
This period of slit throat market growth favoured companies with stable Banca partnerships where banks moved beyond distribution partnerships into strategic stakeholding of the insurance businesses. Version 2.0 of this Bancassurance lasted for over 15 years, till one fine day, IRDAI decided to change the rules of the game and made Bancassurance open for nearly all, freeing up the tied nature of the business into an open architecture where any bank can tie up with any insurer (up to 9 for now).
This open architecture unlocked a huge window of opportunity for the left out insurers to wake up and begin their pursuit of bancassurance, to get a slice of the ever growing pie. The trend of financial inducements continued, manpower support and extra bonuses were offered but soon banks realized that it was too much of chaos managing multiple insurer teams and their wide variety of products.
Insurance products are more complex and non-transparent than mutual funds. Banks have to find a way to mitigate the noise quickly, cut the complexity and yet increase their run rate, now that they have multiple partners to leverage on.
Then the birth of Bancassurance 3.0 happened with the advent of new digital technology that made easy the seemingly difficult task. Multiple insurers, dozens of products and thousands of staff are all aligned in user-friendly web and mobile interfaces, the new age customers are comfortable with.
Bank customers no longer visit the bank branches or fill in a long application form to buy insurance. It’s also not required for the banker to try hard to show the relative merits of multiple products they are selling. With just a click or two, in a digitally assisted interface, bank staff can share the web page link with the customer and chat digitally to answer her questions and get the payment via UPI. All this can happen in minutes and not hours or days.
In the new financial year 2024, IDFC First Bank became the first parent of this Digital Bancassurance Ver 3.0. It took a game changing step to convert 100% of its manual bancassurance business into Digi Banca, leveraging technology that seamlessly connected the bank and its sales channels with multiple insurers in real time.
On a personal note, I could say it’s amazingly fulfilling to initiate and watch the show of all the 3 phases of Bancassurance, from its early avatar to its latest Ver 3.0.
I believe Bancassurance will further mutate into newer and more customer friendly versions with the advent of AI. Watch this space for more exciting offerings.