1. Structural Classification
a) Referral Model
Banks intending not to take risk could adopt ‘referral model’ wherein they purely part with their client data base for business lead for commission. The actual transaction with the prospective client in referral model is done by the staff of the insurance company either at the premise of the bank or somewhere else. Referral model is nothing but a simple arrangement, wherein the bank, while scheming access to the clients data base, parts with only the business leads to the agents/ sales staff of insurance company for a ‘referral fee’ or commission for all business lead that was passed on. In fact a number of banks in India have already resorted to this approach to begin with. This model would be suitable for almost all types of banks including the RRBs /cooperative banks and even cooperative societies both in rural and urban. There is larger scope in the medium term for this model. For, instance banks to begin with resorts to this model and then move on to the other models.
b) Corporate Agency
The other form of non-risk participatory distribution channel is that of ‘corporate agency’, wherein the bank staff is trained to appraise and sell the products to the customers. Here the bank as an institution acts as corporate agent for the insurance products for a fee/ commission. This seems to be more practical and appropriate for most of the mid-sized banks in India as also the rate of commission would be reasonably higher than the referral arrangement. This, However, is prone to reputational risk of the marketing bank. There are also realistic difficulties in the form of professional knowledge about the insurance products. Besides, confrontation from staff to handle totally new service/product could not be ruled out. This could, however, be overcome by severe training to chosen staff packaged with proper incentives in the banks coupled with selling of simple insurance products in the initial stage. This model is best suitable for majority of banks including some major urban cooperative banks because neither there is sharing of risk nor does it involve huge investment in the form of infrastructure and yet could be a good source of income. Bajaj Allianz stated to have established a growth of 325 per cent during April-September 2004, mainly due to bancassurance strategy and around 40% of its new premiums business (Economic Times, October 8, 2004). Interestingly, even in a developed country like US, banks stated to have preferred to focus on the distribution channel similar to corporate agency rather than underwriting business. Several major US banks including Wells Fargo, Wachovia and BB &T built a great distribution network by acquiring insurance brokerage business. This model of bancassurance worked well in the US, because consumers generally prefer to purchase policies through broker banks that offer a wide variety of products from competing insurers (Sigma, 2006).
c) Insurance as Fully Integrated Financial Service/ Joint ventures
Apart from the above two, the fully integrated financial service involves much more inclusive and intricate relationship between insurer and bank, where the bank functions as entirely collective in its operation and selling of insurance products is just one more function within. Where banks will have a counter within sell/market the insurance products as an internal part of its rest of the actions. This includes banks having wholly owned insurance subsidiaries with or without foreign participation. In Indian case, ICICI bank and HDFC banks in private sector and State Bank of India in the public sector, have already taken a lead in resorting to this type of bancassurance model and have acquired considerable share in the insurance market, also made a big stride within a short span of time. The great advantage of this approach being that the bank could make use of its full potential to reap the advantage of synergy and therefore the economies of scope. This may be suitable to comparatively larger banks with sound financials and has better infrastructure. Internationally, the fully integrated bancassurance have demonstrated advanced performance (Krishnamurthy, 2003). Even if the banking company forms as a subsidiary and insurance company being a holding company, this could be classified under this category, so long as the bank is selling the insurance products alongside the normal banking services. As per the present regulation of insurance sector the foreign insurance company could enter the Indian insurance market merely in the form of joint venture, therefore, this type of bancassurance seems to have emerged out of necessity in India to an extent. There is great scope for further improvement both in life and non-life insurance segments as GOI is reported have been actively considering to increase the FDI’sparticipation to the upto 49 per cent.
2. Product-based Classification
a) Stand-alone Insurance Products
In this case bancassurance involves marketing of the insurance products through either referral arrangement or corporate agency without mixing the insurance products with any of the banks’ own products/services. Insurance is sold as one more item in the list of products offered to the bank’s customer, however, the products of banks and insurance will have their relevant brands too, e.g., Karur Vysya Bank Ltd selling of life insurance products of Birla Sun Insurance or non-life insurance products of Bajaj Allianz General Insurance Company.