Banks in India offers an array of financial products to its customers as an additional service. This is one of the most important revenue streams for the banks. These financial products can be used to build up a proper investment portfolio for the investor which could include products like fixed deposits, recurring deposits, life insurance, general insurance, mutual funds (both onetime investment and in the form of systematic investment plans) as well as Public Provident Fund (PPF).
Thus, is an investor who wishes to invest an amount of money, he can either choose from the vast range of products or distribute his investment in more than one product as per his requirements. So banks, with its huge database and the financial details of customers at their disposal, prove to be a very effective source of business for the insurance and mutual fund houses. Also since third party products are a great source of revenue for the bank, it is a welcome proposition for the banks too, to sell these products along with their core banking products like deposits and loan.
Banks as Investment Brokers and Distributors in India
The banks in India have been allowed by the Reserve Bank of India as per the Ordinance passed by the Indian Government in January 2015 to be insurance brokers and sell multiple products. According to this ordinance, the banks would need to follow the rules and regulations in accordance to the regulations set up by Insurance Regulatory and Development Authority of India (IRDAI) for insurance to be sold through brokers. Prior to this, the banks had been operating as corporate agents. This means that as per Sec (6)(1)(o) of the Banking Regulation Act 1949, the banks had the permission to sell products of only one life insurance company and one of a non-life insurance company. But now with this ordinance coming into effect, the banks can sell a range of life and non-life insurance products.
The bancassurance channel has always proved to be a high point of sales for the insurance companies and that is a major reason that the Reserve bank of India had passed the ordinance to allow the banks to sell as brokers. In 2015 the level of penetration in the market was 3.3%, which is a huge real number as the number of banks in India is no less than 80 and the total number of branches is more than 1,20,000.
Thus, you can easily understand the level of percolation of a product level knowledge needs to be done when such a huge data base is available for selling of the same product.
Advantages of Buying Insurance Policies via Banks
There are some added advantages that you can get when you buy insurance via a bank. They would be as follows:
- Long Term Relationship: The bankers sell the insurance products to the existing customers of the bank and thus you can rely on the authenticity of the information that they will pass on to you, as selling of the insurance is not their only forte and they would not want to spoil any long term relationships in order to sell an insurance product without a requirement. The bankers would rather try to hold on to the customer by maintaining the good will of the bank that they represent in order to enhance the attachment of the customer with the bank.
- Financial History: When a banker approaches to sell you an insurance product or any investment product then he is expected to have complete information about your financial health, your investment portfolio, your loan and credit history, etc. at the time of selling the product. Thus it would be a higher probability that he would be able to provide you with a product that suits your need and your portfolio.
- Trust Factor: When a staff of a reputed bank recommends a financial investment is an assurance in itself, as the banker cannot promise wrongly and then disappear. Thus, the trust factor of the bank is a huge commitment.
The importance of the physical presence of the bank and the regular availability of its bankers cannot be denied. At times there are complains about a mis-sell where the agent goes untraceable but when you buy insurance with a recommendation from a bank then the fear of losing contact post-sales is just not there.
- Large Establishment: The bank is a large institution with a huge database and thus they would want to hold on to their reputation. Even for the insurance companies the business flow from the banks are greatly welcome as the existing database with all financial details including assets and liabilities provides a ready market for the insurance to be sold which is way easier to do than to acquire business from the open market.
Disadvantages of Buying Insurance Policies via Banks
However, there are reasons where one might find an agent a better option to invest than to invest via the bancassurance structure.
- Post Sales Service: Post-sales service of an agent has proved to be remarkably different, good and customer friendly than that provided by the bancassurance employees. As in a bank, an employee has many customers to serve and that too for numerous products, thus the after-sales service quality generally turns out to be poor.
This is especially during the collection of renewal and getting out the benefits of the policy post maturity. This is because, the final fulfilment of the terms and conditions of the insurance policy is with the insurance company and there is very little that a banker can do, other than facilitate. Hence, after-sales service of an insurance policy is often not upto the expected standard and quality, as it would be for a core banking product like loans, deposits, etc.
This is where brokers and insurance agents play a more vital role. From service issues to renewal cheques to claims, they play quite an important role.
- Mismatch of Policy Expectation: Mis-match of policy expectation has been quite a concern for the bancassurance channel in most banks in India, as they often tend to focus on their monthly targets rather than on the customer’s requirements. This might lead to confusion about the policy expectation which hampers the overall relationship between the customer and the bank.
Banks have historically been quite an important source of insurance policies for insurers and they would continue to do so, at least in the near future. The digital platforms might soon change the direction, but the banking platform being quite an advanced one has been catching up on the innovation.
Whatever said and done, the policyholder is expected to do his own research and then purchase a life insurance policy which best suits his needs, as this is a long term commitment, unlike a general insurance plan which needs to be reviewed/renewed annually.
As a responsible and informed investor, you must check out what’s best for you from the multiple options available by doing a comparative study of products and then selecting the one that’s apt.