Home / Opinion / In pursuit of bancassurance

In normal times, this rush would have been the joy of any banker. Never in the living memory of banking have people stood in long queues for hours to deposit their money into banks. A bank’s business is to accept deposits for the purpose of lending. Everything else is incidental. But somewhere along the line, their business models have changed. A key element of banking business now is to sell insurance. When did the banks become insurance agents? If you peep into the past, in 2000 the Insurance Regulatory and Development Authority of India (Irdai) was just formed and many Indian business houses were queuing up for licences to start insurance businesses. Not many knew about how to sell their products other than through an agency force. If selling any product is tough, selling insurance is tougher. It’s mostly a push sale and to push, you needed force. In science, if force is measured in Newtons (N), then selling insurance needed force 8N as compared to selling fast moving consumer goods (FMCG) at, say, 2N. So, insurance companies went about setting up a large agency ‘force’ to overcome customers’ resistance to buy on their own.

Prior to the formation of the insurance regulator, I left a blue-blooded financial services company and moved to a four-member project team to set up one of India’s new private insurance companies. As a founding member, I was fixated with the idea that banks could sell insurance better than an agency force. Insurance is a financial product and banks understood matters of money better than an agent who worked mostly on the principle of pass-backs to hook customers. No one took me seriously then, except our chief executive officer. We formed a two-member ‘army’ in pursuit of bancassurance.

Banks were initially not comfortable with the idea of selling insurance; they believed they should only manage money. Their key performance indicator (KPI) was transactional efficiency—if you facilitate fast turnaround of customers at the teller counter, taking and giving money, the job is well done.

I got my first breakthrough when a large European bank signed up for what became a deluge later. We could sign up almost all leading multi-national banks to be our insurance agents. Signing up was one thing; selling was different. The well-paid banker dressed in a pinstripe suit did not know how to sell insurance. For a while, it appeared the experiment of bancassurance would fail. In the board room of the new insurance company, colleagues who were running the agency side, would showcase their perfect upward sloping sales graphs, while our numbers remained at zero.

The bankers were never in a hurry of ‘close the sale and move on to next’. They made elaborate presentations, with calculations of internal rate of returns (IRR) on life insurance policies and the story never made sense.

So, we changed tack. I asked the bankers to let me come with them to make the pitch. I shut down my laptop and talked to clients about their lives, aspirations, families and what were their worst fears. We hit the bull’s eye in the first client meeting—we collected a Rs50-lakh premium cheque, followed by another, and the flow never stopped. Everybody started to take notice. Bancassurance in India was born. Not just the multi-national banks, but the Indian private sector banks too jumped on to the gravy train. We were the blue-eyed boys. We roped in 17 large and medium banks to work as agents of our insurance company. Year after year, the growth curve of bancassurance grew upwards and soon surpassed that of agency. Our company became the second-largest private insurer in India, thanks to bancassurance. A mad scramble by other insurers followed. In the melee, I silently moved out to set up two more life insurance ventures; heading them from inception to substantive growth. I had worked closely with banks of all shapes and sizes. Perhaps, I learnt more about banks than insurance companies.

Soon, the shadows of mis-selling began to emerge. A vigorous distribution channel, meant to bring convenience and quality advice to customers, got corrupted. Customers were sold policies they never understood or wanted. There were cases of blatant cheating. Life insurance policies were sold as fixed deposits. If you want a loan, buy insurance. Want a locker? Take a policy. In this list of coercive selling, the latest entry is: if you wanted to exchange your old currency, you must buy insurance first. When the cash crisis hit banks, those who were worried included insurance companies too.

Many were recasting their third quarter business plans. Insurers got comfortable running the one-horse race. Why set up other channels, when you have captive banks and they have ‘captive’ customers? Insurance companies—whose core formula is to spread risks—ignored the concentration risks in their distribution models.

There is the creeping threat of digital payments, which could dilute branch banking. If no customer walks into the bank, no customer could possibly be sold insurance. Except when she wants a loan or a locker, a customer is not obliged to enter the premises. Bank staff could lose their personal touch with customers. The emotional bonding between the banker and the banked would weaken, watering down the power of bancassurance.

A new model may emerge: digitally embedded bancassurance. But this is a different devil. If the user interface shrinks from a sprawling bank branch to a desktop and then to 2x4 inch mobile screen, with attention spans of few seconds, it’s anybody’s guess how the “thick" sales process of insurance could be mixed with the “thin" user interface of banking apps. Demonetisation and the resultant drive towards digital payments could cause early ageing of traditional bancassurance, perhaps to pave the way for an altogether new model, that’s not only faster but fairer too to the end consumer.

P. Nandagopal, founder and chief executive officer, OpenWorld Insurance Broking Ltd.

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