Banking service is the oldest form of financial services and undoubtedly the one, which touches the largest number of lives. Banks have evolved over the years from pure deposits and credit management institutions, to now offer a broad spectrum of services and the future opportunities are getting even bigger.
Banks, being the most popular destination for financial services, are the ideal source for creating awareness and education in personal finance and risk management. Bancassurance services transform a bank from a mere depository of funds and facilitator of financial transactions to an educator of financial planning and risk management, creator of wealth and provider of financial protection.
In the government’s increased push for financial inclusion to bring the financially underserved masses into the mainstream of India’s regulated financial domain, it is important to keep in mind the role of insurance. Financial planning assures that people remain in the mainstream and do not revert to alternate, unorganised finance provides to meet untoward and unexpected expenses.
The regulatory environment is key to the growth of insurance ― through bancassurance and other channels. India’s Insurance Regulatory Development Authority (IRDA) allows banks to operate as a corporate agent or referral provider to one life and one non-life insurance company. Such a model is quite uncommon in other parts of the globe including both developing & developed markets If a bank was allowed to partner with several insurers, its capacity for dispensing risk management services to an increasingly wider circle of people would increase exponentially. But the promotion of insurance through the bancassurance channel depends as much on how proactive banks are in the promotion of insurance as on the regulatory environment.
And that level of proactive behaviour is determined by what the bank is permitted to sell. Different insurance products have different strengths, meet different individual needs. With millions accessing banks for various financial services, there are an equal number of insurance needs. This vast range of needs can be met through bancassurance services, only if the bank is allowed to sell a variety of products, a diversity that can be offered only if it can offer products from different insurers. Where banks can sell different investment products ― a range of mutual fund products from various fund operators, for example ― it is perplexing why they cannot promote a range of life insurance products from various insurers.
India has one of the lowest levels of life insurance penetration, at just under two per cent. This indicates poor individual financial well-being, and, equally, of national economic security, since the nation is as healthy as its individual components. To encourage people to better plan for financial security is crucial as much for the individual as it is for the nation. And promotion of life insurance through every possible channel ― including bancassurance ― becomes important in this context.
Banks are natural financial advisors to most people, and can effectively play the role of educator in financial planning. But as long as the range of insurance products that they can offer remains limited, the incentive and scope to educate will remain equally limited. They will be unable to correctly advise their clients about options and will be unable to offer right solutions, Insurance is, after all, an individual solution to a universally present need.