Mukul GuptaCFO & Head BancassuranceBajaj Allianz Life Insurance, India

Bancassurance

A High Potential for Growth……

The 3rd Middle East Insurance ForumMarch 20-21, 2006

Ritz Carlton, Bahrain

“There is no stronger force than an idea whose time has come.”

Victor Hugo(19th Century French

Novelist)

Banks & Insurers across the World have realized Bancassurance is the distribution channel, which would help them achieve economies of scale and boost their revenues in the 21st Century

AgendaImpact of Bancassurance on Increasing Insurance Penetration and Realizing Growth – India Case

Global Bancassurance Trends Industry Evolution - IndiaThe Bancassurance OpportunityCase Study : BALIC & Standard Chartered BankCase Study – BALIC & Syndicate Bank

Global Bancassurance Trends… The key factors impacting development of

Bancassurance across the globe are: Regulatory Environment in the country

Banking Habits – Is Visiting the Bank natural to customers? Europe - Bancassurance accounts for the 35% of the sales in

the European life insurance market and is the dominant distribution channel in a number of South European countries such as Belgium, France, Italy, Spain and Portugal.

US – Bancassurance started developing post the crumbling of barriers set by the Glass-Steagaal Act in late 1990s

Asia – Bancassurance is in its nascent stage in Asian Life Insurance Market but is developing very rapidly due to presence of Brick & Mortar Model of Banking in most of the Asian countries.

Banks dominate Life distribution in Southern Europe, and making progress in Northern Europe…Distribution channels - Life

82%72%

65% 60%50%

19% 19% 14%0%

10%20%30%40%50%60%70%80%90%

100%

Banks, post off ice Insurance co. Employees Agents Brokers - IFAs Others

Success of Bancassurance vary through out Europe due todifferent regulatory environment in each country

Recent Bancassurance Trends in Asia…

Estimates of New Business generated from Bancassurance in 2004

0

10

20

30

40

50

60

Countries

Perc

enta

ge

Due to presence of Brick & Mortar Model of Banking, Bancassurance is increasing its Market Share very rapidly

In India, Bancassurance accounts for 22% of the sales by Private Insurers

Distribution Agreements

Strategic Alliances Joint Ventures Financial

Services GroupLow Degree of integration High

•Banks distribute life insurance products (stand-alone or bundled with bank products) in return for fee income

•No or little sharing of customer DB

•Limited investment

•A higher degree of integration in product development, service provisions and channel management

•Possible sharing of customer DB

•Requires investments in IT and sales personnel

•Clear mutual ownership of products and customers

•Sharing of customer DBs

•Requires strong and long-term commitments from both sides

•Operations and systems can be fully integrated•A high capability to leverage on banks’ existing customer and other services provisions•One-stop financial services•Potential for fully integrated products

Low

High

Control Resource commitment

Ability to satisfy customer needs – value added

Reward opportunityManagement complexityConvergence of interest

Choice of Bancassurance Model Depends upon Strategy & Environment…

Insurer•Sales & marketing expertise for insurance

products•Profit maximization selling insurance

products•Strong technical expertise•Product know-how•Financial strength•Brand

Bank•Customer base and

relationships•Distribution network•Brand

50% 50%Insurance

Bancassurance partnership and distribution agreement to clearly address:•Volume targets

•Type of products to be sold

•Sharing of margins between product and distribution

•Sharing of CRM system

•Management responsibility of the product factory

•Require solid legal contract / servicing agreements

Who bring what to the Partnership…

Key Success Factors…

Sales & Distribution

Model

Commitment of Partners

ProductOfferings

Motivation &

Training ofBank Staff

Selection of CustomerSegments

Selection of Partner

Industry Evolution…

No. of Players

LIC Monopoly

No Private Players allowed

Private Players allowed12 new insurers

13 Private Players

Pvt Insurers gain over 28%

share

Up to 1999 1999 till 2004 2005 onwards

Regulatory Environment

Primarily Agency driven regulations

Bancassurance regulations become

clearerMultiple models

allowed- CA, Referral, Broking

Primarily Agency driven regulations

Distribution Focus

Agency only800K Agents

Agency model replicated

Bancassurance in development

stage

Confidence in Bancassurance

BA takes 20% + share among Private Players

Fastest Growing Distribution Channel

Products Traditional – Endowments,

Money Back Plans & Wholelife

Emergence of Unit Linked Products

ULIPs are the most popular products,

accounts for 75% of Sales through Private

Insurers

• Banks are major players in the Indian Financial system:

• 66,000 branches (32,000 rural and 14,700 semi urban)• Enormous retail account base of 440 mn deposit accounts• Total deposit base of Rs. 14 trillion (USD 300 bn)

• Large Structure governed thru’ Regulations• Four Categories of Banks – Foreign Banks, Nationalised Banks, Private

Sector Banks and Co-operative Banks catering to distinct customer segments

• Over 2500 Banks spread nationally and geographically

• Banking Habits of Customers• Propensity to Visit Bank Branches • High Trust in the Banking System• Bank Managers looked upon as “Financial Advisors”

The Bancassurance Opportunity…Real Potential Still to be

Unleashed

Only Tip of the Iceberg, in terms of penetration, has been touched with less than 2% customers of State Owned Banks insured

The Bancassurance Opportunity…

Insurance14%

Government bonds5% Bank deposits

38%Mutual Funds

1%

PF/Retirement funds14%

Shares & Debentures1%

Over 65% of Household financial savings are in short term instruments

Source: RBI Annual Report,

All Data for Yr 20003-04

Incremental Financial Household Savings – ‘04

Case Study : Standard Chartered Bank & BALIC Standard Chartered Bank – Largest Foreign Bank in India

Catering to the High NetWorth clients and the Mass Affluents’

83 Branch Offices with presence in 25 cities

Customer Base of 2.50 million

Deposit Base of over Rs. 135 billion (USD 3 bn)

Client Habits : Savvy Customer Base with both high branch traffic and Off-Site Banking habits.

Joint operations were rolled out in January 2002 with 25 FSCs covering 30 Bank Branches.

Model A designated persons stationed

in each Branch selling Insurance.

Selling thro 11 Channels of Distribution :- Branch Banking, Priority Banking, Outbound Sales Team, Mortgages, Credit Cards etc

Over 250 Sales Staff dedicated selling Insurance in these Distribution Channels

Dedicated Operation Staff for processing SCB Proposals

Fortnightly Saturday Schools for Sales Staff

Case Study : Standard Chartered Bank & BALIC

Results The Benchmark for the

Indian Industry for Bancassurance

Bancassurance contributes 20% of total income from Retail Banking operations

Avg Productivity per person is over 12-15 policies per month and Avg Ticket Size stands at USD 1,100.

Projected GWP of USD 100 mio for FY 05-06 & earnings to Bank to be in range of USD 25-30 mio

Regular UnitLinked Products fit in the clients needs of the Bank.

Distributions servicing different Customer Segments

In-Branch Sales Team

Out Bound Sales Team

Dedicated Relationsh

ip Managers

Relationship Managers

Channels of Distributions

Retail Walk-in

customers

Loan Customer

s

High Networth

CustomersSMEs

New Customer

s

Distributions Catering to Different Customer Segments

Channel Distribution : Standard Chartered Bank…

72%

12%

15% 1%

Branch Banking Priority OBST SME

Branch Banking / Walk-ins Contribute over 70% of Insurance Sales

Case Study : Syndicate Bank & BALIC

Syndicate Bank – Nationalised Bank with a dominant holding by the Government

Catering to Middle Class and Rural Base

1500 Branch Offices with presence in 500 cities and town

Customer Base of over 17 million

Deposit Base of over Rs. 462 bn (USD 10.2 bn)

Client Habits : Branch Walk-ins for transactions with advice from the Branch Staff / Manager for all financial decisions

Bancassurance tie-up with Bajaj Allianz in October 2003

MODEL• Integrated Model Implemented with the Bank Staff being

regularly trained to directly sell Insurance to its customers.• Phase wise Roll Out started in Oct’ 03 with 11 Insurance

Managers covering 40 Branches. • Currently over 500 branches covered, with 250 Bank

employees selected as Insurance managers & over 75 employees of BALIC, to promote insurance sales

• Projected GWP of USD 25 mio for FY 05-06 & Earnings to Bank to be in range of USD 5-8 mio

• Traditional endowment, Pension Product and Mortgage Reducing Term Assurance are the key products sold.

• Among the most successful Public Sector Bank Distribution tie-up in India. Over 50,000 policies sold annually

Case Study : Syndicate Bank & BALIC

Thank You

Annexures

13 Private players in the market today:

6 Bank owned insurers- HDFC Standard Life, ICICI Prudential, ING Vysya, Metlife, OM Kotak, SBI Life

7 Independent Insurers- Bajaj Allianz , Birla Sun Life, Aviva, Max New York Life, Tata AIG, Reliance Life and Sahara Life

LIC – The state Insurer is the dominant player with over 70% of the market share

Total Life Market Size at Rs. 250 billion (USD 5.5. Bn)

Insurance Industry in India…

Consideration for Banks…

16 2/3 %

16 2/3 %

16 2/3 %

16 2/3 %

16 2/3 %

16 2/3 %

1

1. Increase in Fee Based Income

2

2. Reduce reliance on interest spreads as the major source of

income

33. Leverage extensive

customer base4

4. One stop shop for all Financial Services

5

5. Reduce risk based capital req. for the

same level of revenue

6

6. Provide integrated financial services tailored to the life cycle of customers

Consideration for Insurers…Immediate access to

New Markets

Increase in Market Penetration

Reduce reliance on traditional

distribution channel

Combine Cost Saving & Increased

Profitability

Develop new financial products more efficiently

Improve sales effectiveness & after

sales service

Insurer

Distribution Agreements

Strategic Alliances

Joint Ventures Financial Services Group

European Life bancassurers progressively abandon the intermediary role to gain access to long-term profits (bank-owned model)

France: bank-owned units = 56% of total Life & pension premiums vs. 44% for the distribution agreement

Spain

Netherlands, branch networks

Germany: numerous cross share-holdings between banks & insurers make acquisitions or mergers more difficult Italy

Asia: mainly distribution agreements & strategic alliances, other models facing regulatory restrictions

SingaporeS Korea,

India, China, Japan

US: mainly distribution agreements & banks acquiring large brokers. Concentration on Life products.

Bancassurance Models Worldwide…