Introduction to Bancassurance
Your bank must have suggested you insurance policies of a certain insurance company. When there are so many options available as far as insurance companies go, have you ever wondered why your bank suggests that one insurance company in particular? This is because the bank has an arrangement with the insurance company which is known as bancassurance.
Through bancassurance, the bank sells the insurance company’s insurance to its customers. This arrangement is beneficial for both the bank and the insurance company. Let us understand this bancassurance in a little more detail.
What is Bancassurance?
Bancassurance refers to the agreement between a bank and an insurance company through which the bank sells the insurance product of the concerned insurance company to its customers. This is an arrangement through which both the bank and the tied insurance company can gain significant profits.
The insurance company has the benefits of selling its products to a wider base of customers without having to pay broker commission which helps to increase the sales of the company by giving such companies a larger market exposure. The bank on the other hand benefits by gaining the additional revenue which is earned by selling the insurance product of the tied insurance company.
The primary role that the bank plays in the bancassurance arrangement is to act as an intermediary for selling the insurance product of the insurance company and helping the company to achieve a large customer base and improve its reach in the market.
Over the years, bancassurance has also been subject to a lot of controversies with many opponents arguing that such an arrangement gives too much control to the banks over the finance sector and hence should not be entertained. With this objective, a few countries have also banned bancassurance. Even so, it has not stopped the global growth of bancassurance.
Advantages of Bancassurance
Bancassurance is an arrangement between banks and insurance companies through which the insurance companies can sell their products to the bank’s customers. Such arrangement comes with a lot of advantages which are as follows:
- It is convenient for the customers as they can get access to different insurance policies through their bank.
- Banks benefit from this arrangement as they get the added revenue that is earned by selling the insurance policies.
- Insurance companies get a wider customer base and larger market reach through bancassurance.
- This arrangement brings profits to both the parties involved due to which it is growing globally.
