Multi - product distribution and cross selling is the new reality. Cross selling is simply selling additional financial services to existing customers. In fact, cross-selling is helpful in Customer Relationship Management (CRM). It gives the satisfaction of recognising customers' needs and meeting those needs with a useful product or service. Successful cross-selling is the result of recognising a customer need and meeting that need with a useful product or service. Right from saving accounts to term deposits to lockers to auto and home loans and personal banking services of credit cards, stock brokerage services, mutual funds and bancassurance, fall under cross-selling in financial products and services.

Integrated financial services (IFS)

Optimal IFS include the combination of insurance, banking and asset management under one holding company.

The first level of IFS is cross selling insurance products to banking customers and vice - versa.

The second level is the integration of product development between bank and insurance entities, resulting in blended financial products, offering a unique proposition to customers, both in the retail and the corporate market. Ex: "Guaranteed equity plans", ULIP etc.

The third level is the packaging of banking, insurance and asset management products to integrated IFS solutions. Ex: ING's Employee Benefit Programs.

To cater to the needs of customer, an insurance product is one of the important tools of risk management and a part of personal financial planning. Hence insurance is a natural extension of banks' other services and as such they will be successful in selling insurance services also. And there are expectations that bancassurance will grow to register a sizeable share in the widening insurance market during this decade. In the next 3-4 years this channel would contribute as much business for private companies as their agency channel. Right now, this channel is contributing more than 25% of their new business.

Reasons that lead to bancassurance

l Squeeze on Bank's profit margins l A steady decline in the interest spread (the difference between interest income and interest expense). l Greater disintermediation in the traditional product lines l Product diversification - to reduce the risk. l Globalisation of the economy l Stringent capital adequacy norms for Banks l Dismantling of regulatory barriers. · Move towards convergence in the financial sector l To harness synergies and to save costs. l Existence of impressive banking structure (branch network). l Increasing competition in the personal financial services. l Offsetting the sluggish growth in other income (Bancassurance offers fee based non-interest income to the banks). l Sluggish asset growth (bancassurance business has a positive impact on the balance sheets of the banks by improving return on assets and return on equity due to increase in non-interest income). l Banks can get corporate agency commissions for insuring their own property against fire, theft etc. l Banks can also route all loan-linked insurance policies through their bancassurance channel to get good amount of commission. l Excess workforce due to massive computerisation can be redeployed for bancassurance business l To retain customers.

International perspective

l It is predominant in France, Portugal, and Spain. In France 75% of total insurance contracts sold through bank Branches followed by 45% in Belgium and 30% in Ireland. l US and UK - Historically dominated by securities market. Importance of banks significantly diminished since the 1970's just because of the ban on affiliations between insurance companies and banks. To alleviate this situation there was an elimination of ban on affiliations between insurance companies and banks.

l Europe - All European countries permit affiliations of banks, insurance companies and securities firms. l Canada - Affiliation powers only from 1992. l Germany and Japan using banks branch network as a tied agent.

Distribution models of bancassurance business

Different Bancassurance business models as given below are prevalent in different countries.

Distribution alliance: In this alliance banks sell the products of one insurer exclusively, either in stand-alone basis or bundled with bank products. In this alliance there may be referral arrangements, deposit linked insurance and corporate agency relationships. In the referral arrangements, the insurance company assigns career agents to sit in the premises of specific bank branches, and for every lead passed on; the bank gets a referral fee commission. In the deposit linked insurance schemes customers having deposit under such schemes are covered by group insurance. In the agency relationship the merit of grooming the bank staff to sell insurance products after receiving proper training in accordance with the syllabus prescribed for the purpose. Here banks become corporate agents. Ex: LIC entered into agreement with 32 Banks to distribute its products.

Strategic alliance: This is a higher degree of intervention in product development, service provision and channel management by way of investing without any contingent liability. Ex: LIC took equity in Corporation Bank, J & K Bank took equity in Met Life Insurance Company. ING Vysya Financial Services has entered into a deal - making with Royal Sundaram Alliance Insurance, its non-life insurance partner, for the distribution of insurance to customers of ING Vysya Bank.

Joint venture: Here a large bank with a well developed customer database partners with a large insurer with strong product and channel experience, to develop a powerful new distribution model. Alternatively, a bank and insurance company may agree to have cross holdings between them to share the profits. Ex: Joint Venture between SBI & Cardif SA, a leading Insurance Company in France.

Mergers and acquisitions: It is a consolidation or unification or amalgamation Ex: Reliance is entering into life insurance by taking over AMP Sanmar Life Insurance Company.

Financial service group: Under further integration between a bank and insurer, an insurance company may build\buy a bank or a bank may build\buy an insurance company. Ex: ICICI Bank started ICICI Prudential Life Insurance Company.