What does bancassurance mean in the banking system?

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oi-Shubham Kumar

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The term Bancassurance is associated with the partnership or merger between a bank and the insurance company. In this reconciliation, the insurance company sells its product through the bank to the bank’s customer. The bank and the insurance company agree on a term, which allows both parties to come together and offer each other services and platforms to sell insurance to the bank’s customer.

In the bancassurance arrangement, the companies, the bank and the insurance company, get benefits. The bank has a wide range of insurance policies to offer to its millions of customers, while the insurance company has an open platform with millions of customers to sell its insurance policies.

This helps banks to receive commission (non-interest income) from the insurance business in addition to interest income, while the insurance company expands its market reach and customer base. The bank acts as an intermediary, helping the insurance company to reach its target consumer and thus increase its market share.

What are the advantages of Bancassurance?

1. Customers benefit since they can obtain a variety of insurance policies through their bank.
2. Banks benefit from this scheme because they derive additional income from the sale of insurance products.
3. Bancassurance allows insurance companies to expand their customer base and market reach.
4. This arrangement benefits both parties involved and hence it is growing globally.

Purpose of the bancassurance agreement

In the bancassurance agreement between the bank and the insurance company, the main objective of the bank is to act as an intermediary in the sale of the product of the insurance company, helping the company to build a large customer base and expand its market reach. Bancassurance is beneficial for both parties. In the past two years, it has once again enjoyed immense popularity in banking and insurance. Europe and America are the greatest examples of this association. Now it is starting to gain popularity in India and other emerging countries around the world. For example, in the latest movement, Federal Bank and Start Health Insurance enter Bancassurance.

Bancassurance has been the subject of much debate over the years, with many critics claiming that it gives banks too much power over the financial sector and should therefore be avoided. A few governments have banned bancassurance to achieve this goal. Nevertheless, the global expansion of bancassurance has not slowed down.

Article first published: Friday, December 10, 2021, 3:24 p.m. [IST]

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