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Bancassurance: meaning, models and rules
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Bancassurance is the arrangement in which a bank sells insurance products to its own customers through its branches, in partnership with an insurance company. The word joins "bank" and "assurance". A bank gains a fee income stream and the insurer gains a distribution network. The customer gets insurance at the place where they already do their banking.
The three models
| Model | What the bank does | Risk with the bank? |
|---|---|---|
| Referral | Passes customer leads to the insurer for a fee | No |
| Corporate agency | Sells policies as a registered corporate agent and earns commission | No |
| Joint venture | Holds equity in an insurance company with a partner | Yes, as a shareholder |
In India, most banks use the corporate agency model. The bank does not bear insurance risk, only sells and services policies.
Rules
- The RBI has laid down which insurance activities banks may undertake and the conditions for joint ventures. Banks must follow its guidelines on fees, customer consent and conduct.
- The IRDAI regulates the insurance side. A bank acting as a corporate agent must be registered with it, and the IRDAI sets the limits on how many insurers a corporate agent can partner with. Check the current norm at irdai.gov.in.
- Customers must not be forced to buy insurance as a condition for a loan or account. Regulators have repeatedly warned against mis-selling, so staff must explain the product and the premium.
Where it shows up in your syllabus
Government schemes such as PMJJBY and PMSBY are distributed through banks on this principle, with premiums debited automatically from the savings account. The insurers are regulated by IRDAI. Bancassurance also supports financial inclusion, since it takes insurance to people who rarely meet an agent.
Example
A customer takes a home loan and the bank officer suggests a term life policy to cover the loan. If the customer buys it, the bank earns a commission as a corporate agent. If the officer says the loan will not be approved without the policy, that is mis-selling, and the customer can complain to the bank, the IRDAI or the Insurance Ombudsman.
How bank exams ask about it
Look for the definition, the models, which bodies regulate each side, and "banks earn commission/fee on selling insurance products". Interview panels also like to ask about the advantages and risks of banks selling insurance. Put it in the insurance cluster of banking awareness.
Frequently asked questions
Does the bank carry the insurance risk?
Not in the corporate agency model. The insurer does. The bank only earns a commission.
Is bancassurance only life insurance?
No. Banks also sell general and health insurance, subject to IRDAI rules on the number of partners.
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- IRDAIIRDAI is the regulator of India's insurance sector. Full form, IRDA Act 1999, headquarters, board, functions and how banking exams ask about it.
- PMJJBYPMJJBY is a government-backed term life insurance scheme sold through banks. Cover, age limits, premium, renewal dates and exam facts to remember.
- PMSBYPMSBY is a government-backed accident insurance scheme sold through banks for a very small premium. Cover, age limits, premium, claim rules and exam facts.
- Financial inclusionFinancial inclusion means affordable banking, credit, insurance and pensions for low-income and rural people. Tools, schemes and how exams ask it.
- NBFCAn NBFC is a company that lends and invests like a bank but cannot take demand deposits. Meaning, types, scale-based regulation and bank differences.
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