Impact of Bancassurance on Banking-Insurance Sector in India

Bancassurance is an agreement between banks and insurance companies to sell insurance products to bank customers. An insurance company develops a product line for bank customers as part of their collaboration, which is then distributed through bank branches, a hotline, or internet banking platforms. Though the insurance density had progressed significantly since its inception in 2000, the insurance penetration remained low even after two decades of liberalisation in the insurance sector.

Bancassurance is an agreement between banks and insurance companies for providing insurance services (life or non-life) to the bank customers on behalf of the company. Here the banks act as the distribution channels for the insurance products (IRDA 2001). The need and scope for bancassurance reflects through the records of insurance companies, which show that the middle classes used to take at least one policy for self or for the family. For an economy to flourish with a strong and vibrant financial sector, a more diverse and efficient financial and banking services is required. India holds a humongous figure of about 200 million middle-class population, which could be an opportunity for the insurance firms (Bhusan and Murtaza 2014).

The significance of the insurance sector in an economy’s macroeconomic development is well-understood and earliest
tableacknowledgements of this can be found in the proceedings of the United Nations Conference on Trade and Development (UNCTAD 1964). In the hour of calamities like earthquakes, Covid-19, fires, floods, cyclones, among others, one should have financial aid to deal with the aftermath. India’s economic growth is determined by the economy’s ability to absorb shocks. Both financial and climatic shocks are important for India and having an efficient and stable insurance market in place will determine India’s growth performance (Ray et al 2020). The liberalisation of the Indian insurance business has resulted in the entry of several insurance firms, causing a multitude of options for customers, both in terms of service providers and products. The insurance business in India is anticipated to grow fast due to the largely untapped market that still exists (Bhatia et al 2018).