Key Financial Terms in Insurance

KEY Financial Terms in Insurance

1. Bancassurance

* It is an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base.

* This partnership arrangement can be profitable for both companies.

* Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers.

* Bancassurance is an efficient distribution channel with higher productivity and lower costs than traditional distribution channel.

* In the United States, Bancassurance was prohibited until the repeal of the Glass Steagall Act in 1999

* Bank insurance model (BIM)

* The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company.

* BIM differs from classic or Traditional Insurance Model (TIM) in that TIM insurance companies tend to have larger insurance sales teams and generally work with brokers and third party agents.

* An additional approach, the hybrid insurance model (HIM), is a mix between BIM and TIM. HIM insurance companies may have a sales force, may use brokers and agents and may have a partnership with a bank.

* BIM is extremely popular in European countries such as Italy, Spain, France and Austria

* Bancassurance encompasses a variety of business models.

Integrated models (where the Bancassurance activity is closely tied to the banking business).

Advice-based models (where there is less integration and the distribution is based on using professional insurance advisers to sell to the clients of the bank).

Open architecture models.

* Bancassurance companies in India:-

SBI life insurance Company

LIC is tied up with Vijaya bank, Oriental bank of commerce, Corporation bank

ICICI Lombard

Barclays – MetLife India

Axis bank –...