Banks to reap profit of cover

This year, banks will end up making profits of over 1,500 crore through the mundane job of selling life insurance. With commissions going over 35% of the first-year premium, perhaps no other business generates as high a margin as selling life insurance. Banks have come a long way since 2002 when they were first allowed to sell insurance products. Over the years, stakes have got very big in insurance distribution. With the law of diminishing returns kicking in as far as insurance agents are concerned, insurance companies are simultaneously looking at alternate channels — particularly bancassurance.

Earlier this week, Aviva Life Insurance made an offer to HDFC Bank to get the second-largest private bank to sell its insurance policies. According to sources, Aviva promised HDFC Bank a better deal than what it is earning. The bank, however, turned down the offer as it expected to make similar money from selling insurance for its group company HDFC Standard Life. While no deal took place, the offer itself was seen by the industry as an indication of the kind of big money that is to be made out of selling life insurance. In the game of distribution so far, there has been no relationship between the size of the distribution network and success in selling. State-owned banks, which account for over 90% of bank branches in the country, generate less than 10% of the bancassurance premium.

The most successful distributors of insurance have been private and foreign banks that already have built an expertise in selling third-party products such as bonds and mutual funds. Most successful sellers of insurance are — ICICI Bank, HDFC Bank, Citibank, Standard Chartered, and ABN Amro. Among state-owned banks, State Bank of India is gradually picking up sales of its insurance arm SBI Life. Union Bank too has had a focused approach to selling life insurance and is one of the largest insurance sellers among nationalised banks.

news source : http://economictimes.indiatimes.com/