Bank mergers to affect India's insurance sector

Bank mergers in India are likely to impact the insurance sector as many insurers have select banks as their bancassurance partners.
Bancassurance is the sale of life, pension and investment products through the branch network of a bank.
The recent merger announcement of HDFC Bank and Centurion Bank of Punjab Ltd is expected to impact the business of Aviva Life Insurance Co Ltd and ICICI Lombard General Insurance Co Ltd.
Centurion Bank is the bancassurance partner for these two insurers.

The arrangements might be discontinued because HDFC Bank sells life and non-life insurance policies of group companies HDFC Standard Life Insurance Co Ltd and HDFC General Insurance Co Ltd.
After the opening up of the insurance sector, banks have come to occupy an important role in insurance distribution, particularly for private life insurers.
Banks procure nearly 40 percent of the fresh business for life insurers. It is not surprising therefore to have life insurers whose very lifeline is their banking partners.
Insurers find recruiting and training individual agents a time-consuming and costly process. There are also issues like agency attrition and small-sized policies procured by agents.

For new private life insurers who want to achieve fast revenue growth, banks are the only source of business.

Banks also find that selling life insurance products is a lucrative activity.

Normally bancassurance deals are for three years and each bank can represent only one insurer as a corporate agent.

However, new private life insurers are finding it difficult to sign up a banking partner to sell their products as early entrants have already inked distribution agreements with them.

Realising their vital role, banks are now dictating the terms of the bancassurance deals. In some cases banks are demanding commission and other fees totalling nearly 70 percent of the first year premium on a policy, say industry experts.

Some banks have started representing a new life insurer at regular intervals.

For instance, Aviva Life had recently inked a bancassurance deal with the Bank of Rajasthan, which has switched life insurance partners in recent times.

Initially, the bank vended policies of Birla Sun Life Insurance Co Ltd. It changed over to Life Insurance Corp of India (LIC) before signing up with Aviva Life.

V. Srinivasan, chief financial officer of Bharti Axa Life Insurance Co Ltd, said that the one bank-one insurer concept was not right and would lead to skewed scenario.

"A bank has a wide variety of customers. No single insurer can satisfy the needs of all the bank customers. A bank should be allowed to be a broker and sell the policies of different insurers," he told IANS.

Indo-Asian News Service