1. BANCASSURANCE AND BEYOND – A Banker Perspective
Ajay Vyas
Dy. General Manager
Central Bank Of India

2. Life Insurance Industry – Size & Players
Life Insurance Industry size 2011: `2,87,000 Cr
Expected Industry size* by 2020: 15,00K - `17,00K Cr
Cumulative capital investment: `26 K Cr
Employment (direct + indirect): increased from ~8.3lacs in FY2000 to over 32lacs in FY2009
Life Insurance penetration (total premium as % of GDP as of 2010) in India stands at 4.4% vis-à-vis Industrialized countries ~8.65% depicting a huge growth opportunity
Currently there are 24 LI players (23 Private & 1 PSU) with many more players lined to enter.
Life Insurance Corporation (LIC)
WAVE I - PRIVATE INSURER
HDFC Life
Max New York Life
ICICI Prudential
Kotak Life
Birla Sunlife
TATA AIG Life
SBI Life
ING Vysya Life
Bajaj Allianz Life
Metlife
Reliance Life
Aviva Life
WAVE II - PRIVATE INSURER
Sahara Life
Shriram Life
Bharti AXA Life
Future Generali Life
IDBI Federal
WAVE III - PRIVATE INSURER
Canara HSBC OBC
Aegon Religare Life
DLF Pramerica
Star Union Dai-ichi
India First Life
Edelweiss Tokio Life
* - Source: BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010

3. YoY increase in overall premium collection
Phases in Life Insurance Industry
Growth of the in the Life insurance Industry in India can be split 3 phases :
Sole life insurer phase (Ist phase)
LIC - sole life insurer with primary focus on agency distribution
High growth & investment phase (IInd Phase)
Private life insurance enter the sector - sizeable capital investment in setting up:
Distribution network, Training, Manpower, Facilities, Solvency requirements,
Contact centres, IT & related data centre etc:-
Immediate upswing in overall premium generation due to competition
Profitable growth phase (IIIrd phase)
Improvement in maximizing capital utilization and consolidation of relatively non-productive units
Business conservation focus to increase renewal premium collection.
Surge in long term partnerships with established distribution entities (NBFC/Banks, etc:) to maximize penetration with limited capital investment; Emergence of Bancassurance as a Key Enabler
YoY increase in overall premium collection
Phase I
Phase II
Phase III

4. Over 400 million customers
Banking Industry in India
Total branches across all scheduled commercial banks in India : over 76,000
Increased customer awareness about financial products post globalization.
Banks aspiration to offer all financial products under one roof & position
“Bank as a ONE STOP SHOP”
Opportunity to up-sell & cross-sell para-banking products through the existing banking network.
Para-banking activities lead to improved productivity of bank employees & to earn fee-based income.
Insurance products offer superior long term benefits both to bank & customer over the relationship period.
Emergence of Bancassurance – a Win-Win Proposition for both the Insurer & Bank.
SBI & its Associates
Public Sector Banks
Private Sector Banks
Foreign Banks
Total
Branches
18,772
45,460
11,968
316
76,516
Customer base
Over 400 million customers
Cross sell
Life insurance
Upsell
General Insurance
Wealth Management
Mutual Funds
Asset products
Equity – Demat
Bank network source: RBI profile of banks in India as on 31st Mar 2011; Bancassurance is the sale of Insurance through Bank partner’s distribution network

5. The Bancassurance Opportunity…
Real Potential Still to be Unleashed
Banks are major players in the Indian Financial system:
76,000 branches (32,000 rural and 14,700 semi urban)
Enormous retail account base of 440 mn deposit accounts
Total deposit base of Rs. 1,49,473 billion
Large Structure governed thru’ Regulations
Four Categories of Banks – Foreign Banks, Nationalised Banks, Private Sector Banks and Co-operative Banks catering to distinct customer segments
Over 2500 Banks spread nationally and geographically
Banking Habits of Customers
Propensity to Visit Bank Branches
High Trust in the Banking System
Bank Managers looked upon as “Financial Advisors”

6. Over 65% of Household financial savings are in short term instruments
The Bancassurance Opportunity…
Incremental Financial Household Savings
Over 65% of Household financial savings are in short term instruments

7. Advantages for Bank partner Advantages for Insurance Companies
Bancassurance – a Win-Win Proposition
Advantages for Bank partner
Increased customer loyalty from offering all financial products & services under one roof – One Stop Financial Institution
Improved usage of its distribution network
Improvement in sales skills of employees enabling better sale of other banking products & services;
Increase in employee productivity & profitability
Insurance revenues - fee based income
Additionally upfront revenues can be utilised for fuelling banks growth aspirations & capital requirements
Long term valuation benefit creation through equity JVs by leveraging the bank brand and presence
Advantages for Insurance Companies
Immediate access to established brand and wide distribution network
Additional source of premium generation
Low operating costs leading to higher efficiency
Geographic advantage: Access to banks exclusive customer base
Demographic advantage: Access to all the customer segments
Access to banks captive customer base
Increased brand awareness through mutual association
Profitable growth opportunity

8. Comparative between other income and profit -2010-11(Rs in Crore)
Bancassurance – a Win-Win Proposition
Comparative between other income and profit (Rs in Crore)
BANK
OTHER INCOME
PROFIT
CBI
1265
1252
UNION Bank
2039
2081
Allahabad
1389
1423
BOI
2681
2488
Indian Bank
1182
1714
PNB
3613
4433
Traditional source of income Shrinking Margins Low Interest Income Capital Requirement – Basel II Threat of NPA

9. Partnership Matrix… Bank Insurer Insurance
Customer base and relationships
High footfalls at Bank’s retail outlets
Distribution network
Large sales force.
Brand
Insurer
Sales & marketing expertise for insurance products
Profit maximization selling insurance products
Strong technical expertise & Product know-how
Financial strength
Brand
50%
50%
Insurance
Bancassurance partnership and distribution agreement to clearly address:
Volume targets
Type of products to be sold
Sharing of margins between product and distribution
Sharing of CRM system
Management responsibility of the product factory
Require solid legal contract / servicing agreements

10. Description of the arrangement
Partnership arrangements between Banks & Insurers 10
Arrangements
Description of the arrangement
Examples
Corporate Agency
Bank signs a distribution arrangement with the Insurance Company
Mostly prevalent in the market
LIC –Central Bank Of India
HDFC Life – Indian Bank
Tata AIG – United Bank of India
Cross Shareholdings
Bank and the insurance company agree to have cross shareholdings between them.
A member from each company might join the board of directors of the other company
Mostly prevalent in the Japanese market
Joint venture
(Brownfield)
Bank joins as an equity stake holder in an existing insurance company.
Axis Bank – Max New York Life
PNB – Metlife (IRDA approval awaited)
Acquisition
Bank wholly or partially acquires an insurance company.
Reliance Life
(Reliance Life acquired AMP Sanmar Life)
ICBC - AXA
(ICBC has acquired 60% stake in AXA Minmetals Insurance group)
Manufacturer
(Greenfield)
Bank starts its own Insurance Company
SBI – SBI Life
HSBC, Canara Bank & OBC – HSBC Life
Bank of Baroda , Andhra Bank– India First
IDBI – IDBI Federal

11. AMOUNT OF PREMIUM (IN Cr)
Bancassurance Growth In India
INDIVIDUAL NEW BUSINESS OF LIFE INSURERS - CHANNEL WISE
CHANNEL
AMOUNT OF PREMIUM (IN Cr)
Individual Agents
Corporate Agents-Banks
% OF TOTAL
(13.30)
(10.60)
(9.69)
(7.97)
(5.57)
Corporate Agents- Others*
Brokers
773.62
473.73
331.63
Direct Selling
235.33
TOTAL
Source: IRDA

12. Customer Insurance Need matrix BANK
ATM
CASA
Checking
Phone Banking
Time Deposits
Foreign Currency
Shares
Trading/Financing
Mutual Funds
Transactions
Investment
Credit Card
Overdraft
Business Loans
Mortgage
Personal Loan
Vehicle Loan
Lending
Protection
Education
Assets & Savings
Health / Medical
Life
Travel
Accident Life
Insurance Products complete the financial relationship of the Bank with the customers

13. Revenue maximization through life insurance13
Bank Product
Insurance Attachment possibility
Product
Additional Revenue Benefit for the Bank
CASA
Individual LI & Group LI
Personal Loan (PL)
Group Credit life
Home Loan (HL)
MSME loan
Recurring Deposit (RD)
Group Term Plan
Fixed Deposit (FD) 1 2 3 4 5 6
Typically a banking customer is sold only individual life insurance products generating “x” revenue
But, a bank customer on an average has 2 to 6 banking products
Insurance can be bundled/attached with all of them
Thus, opportunity for the bank to generate 2x to 6x revenue through offering multiple insurance products

14. Channels of Distributions
Distributions servicing in Banking sector to different Customer Segments
Channels of Distributions
In-Branch Sales Team
CCPC
Call Centers
Dedicated Marketing Managers
Relationship Managers
Retail Walk-in customers
Loan Customers
New Customers
High Net worth Customers
SMEs

15. Key Success Factors… Commitment of Partners Motivation Selection of
&
Training of
Bank Staff
Selection of
Customer
Segments
Selection
of Partner
Sales &
Distribution
Model
Product
Offerings

16. The Bancassurance……… Way Forward
Selection of right insurance business model
Segmentation of customers and Customization of Insurance products for each.
Mobilization of resource & right Corporate vision
Training of Bank’s staff
Process to be fine tuned.
(Policy issuance, communication & settlement of claims)
Real time MIS & monitoring of business
Customer grievances & redress mechanism

17. Prevalent Bancassurance Models in India17
Bancassurance Model
Description
Risk Profile
Distribution only
(Corporate Agency)
Bank ties-up as a Corporate Agent with an insurer and sells the insurance companies products to their retail and commercial
banking customers. Bank receives a commission payment on the insurance products sold
Banks take sales regulatory risk, insurers take all manufacturing risks.
Joint Venture
(Equity JV + CA)
Bank buys a equity stake in the insurance company.
Bank sells insurance products of its joint venture insurance company. Typically insurers take responsibility for controlling and managing risk.
Banks are responsible for distribution, and both take their proportionate share of revenue and profit or loss.
The ownership percentage can vary and other more complex structures can be put in place to allow for different service companies, offshore and onshore companies, and captives
Banks take sales regulatory risk and both insurers and banks take
manufacturing risks to the extent they are not reinsured
Manufacturer
Banks sell and underwrites insurance products via a wholly-owned insurance company.
Banks take both sales regulatory risk and manufacturing/ underwriting risk

18. Considerations to be made by Bank
while choosing the Bancassurance Model 18
Capital considerations - Basel and Solvency norms have the potential to cause significant capital pressure for banks that hold a greater than 20% share in any joint venture
Banks have to make their decision on how to make best use of capital - Use it for banking expansion or diversification into insurance.
Capital light Brownfield equity structure is the new trend which could address some capital considerations - however it again depends on bank commitment to deliver mutually agreed insurance targets.
A core choice is whether to take a risk free distribution income or a risk-bearing and capital-intensive manufacturing model OR a combination of both.
Basel III Norms
Existing RBI Norm
Common equity (after deductions)
4.50%
3.6%
Conservation buffer
2.50%
Nil
Countercyclical buffer
0-2.5%
Common equity + Conservation buffer + Countercyclical buffer
7-9.5%
Tier I (including the buffers)
8.5-11% 6%
Total capital (including the buffers) % 9%
Source: Basel committee documents, RBI;

19. * - Source: BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010

20. * - Source: BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010

21. Current Bancassurance market scenario (1/2)21
Increasingly banks are keen on looking to tie up through a Brown Field Equity JVs for a longer term partnership with Insurance companies as it has major advantages:
Increase brand awareness : Prolonged brand association - increased new business at record growth rates
Valuation benefits : Longer term valuation benefits to both Banks & Insurance companies
Capital requirements : Relatively capital light structure to enter into the lucrative life insurance sector
IRDA to decide on allowing banks to partner with multiple partners:
2 Life Insurers & 2 General Insurers
2 Health Insurance & 1 ECGC
Customized wealth creation insurance products as per bank partner requirements
Banks consciously moving towards increasing sales of regular premium products

22. Current Bancassurance market scenario (2/2)22
Models preferred by Banks:
Small & Medium Private Banks – Corporate Agency (CA) model
Large Private Banks – Equity JV / Manufacturer model
PSU Banks:
Medium & Small PSUs -Corporate agency model
Larger PSUs preferring Equity JV / Manufacturer model
As seen above - Banks with sizeable distribution network are now looking at entering into equity model partnerships
Medium & Small sized PSU Banks with differentiated geographic footprints are coming together to partner for mutually beneficial association (eg: IDBI & Federal bank)

23. Recent Joint Ventures & Bancassurance Tie-ups23
Recent examples in the Green Field Equity JV tie ups:
Bank of India, Union Bank of India with Daichi, Japan - Star Union Dai-ichi Life
Canara Bank, Oriental Bank of Commerce with HSBC Life - Canara HSBC OBC Life
IDBI Bank, Federal Bank with Aegis- IDBI Federal Life
Bank of Baroda, Andhra Bank with Legal & General - India First Life
Recent examples in the Brown Field Equity JV tie ups:
Axis Bank tie-up with Max New York Life
(10year partnership agreement; Axis bank offered ~4% stake in MNYL; deal valued at approx. 250cr-350cr)
Punjab National Bank & Metlife India
(Deal yet to be finalized; 10 year partnership agreement; PNB offered ~30% stake (including free & discounted stake) in Metlife India; deal valued at approx. 600Cr)
Syndicate Bank currently in the process of finalizing its JV partner
(Syndicate bank is scouting for an appropriate insurance partner for Brownfield entry into the life insurance industry; Birla Sunlife)
Many other Banks considering entering Life insurance to encash distribution premium and create “Valuation upside”
Note - Deal values as per unverified market intelligence

24. Queries
9/18/2018
European Rail

25. Winning is Everything
Thanks
New Initiative Department

26. Appendix

27. Considerations to be made by Bank
while choosing the Insurance Partner (1/2) 27
Objectives of the venture should be clear and communicated to the Top management
Assessment of the Insurance Partner in terms of :
Levels of expertise (in Indian market + globally), investment and/or assets brought committed for the venture
Alignment of cultures and management styles for effective integration and co-operation
Ability to develop tailored products with differentiated pricing for bank partner
Global ranking & Credibility of the Insurance partner and Bancassurance experience
Assessment of the Bank’s potential with respect to:
Number of Points of Presence (PoP) (Bank Branches, ATMs, RRB branches, etc.)
Challenge in terms of activation of these PoP’s
Operational Sales Model Support
Bank employees responsible for driving insurance sales with Manpower support from the Insurance partner
Relationship Managers assigned to cover specialized segments/channels of the bank, viz. Wealth Management SMEs, Corporates, Asset business, etc.
Consent & support for regulatory (IRDA) certification of the bank employees
Source : TowersWatson -India Bancassurance Benchmarking survey

28. Considerations to be made by Bank
while choosing the Insurance Partner (2/2) 28
Lead generation architecture:
Lead generation & capture process to be designed to capture insurance sale opportunities at all bank PoP’s
Manpower support from Insurer to be knowledgeable about bank branch business & customer profile and be able to engage the bank staff effectively for lead generation
Investment in technology for data base mining, lead management and tracking
Training & development
Adequate and well planned training architecture for Bank from the Insurance Partner
Insurer investment in a Bancassurance training platform to provide necessary training to the branch staff at various levels & across various curriculum’s
Online training/refresher & knowledge repository for the bank branch staff
Performance on Service Delivery parameters with focus on Service & Claims
Customer Management & Support
Performance Management systems viz. Management Information System & Reports
Source : TowersWatson - India Bancassurance Benchmarking survey

29. Constituents for an effective Bancassurance Partnership29
Organization Strategic Management
Proposition Source
Service
Sales
Distribution
Customer
Bancassurance understanding & importance to the bank
Commitment & objectives set from the Top
Strong Visible Leadership
Consistent focus – Not just flavor of the month
Mutually Agreed Target
Dedicated Insurance Vertical at the bank with an Insurance head to manage business sourcing
In-house and third party product provision
Simple Multi – channel products agreed with the bank
Proposition created for mass market
Specific proposition for High Networth Individuals
Effective bundling of products
Shared Services
Integrated low cost service models
Single system
Straight through processing
Active external & Internal lead generation at branches & worksites
Incentive/rewards balanced with the ban
Strong Compliance focus
Guided Execution
Defined targets for the bank branch employee & Financial Advisor
Assess multiple insurance attachment models
Face to Face, Internet, Direct telephone integrated solution
Face to face representatives for business
Focused sales culture
Predict future segment needs
Breakthrough Propositions
Simple triggers
Active high volume & high quality lead generation
Cross sell & up-sell supported by core banking product incentives
The blue boxes highlight the areas where particular differentiation can be achieved
Source: E&Y Report On Bancassurance - A winning Formula, July 2010

30. Industry Snapshot Key Financials:
(In INR Mn)
Insurers
Gross Written Premium
Capital as on
GWP/ Capital Ratio
31st
Mar 10
Bajaj Allianz
114,197
106,245
12,107
9.4
ICICI Prudential
165,319
153,562
47,871
3.5
SBI Life
101,040
72,121
10,000
10.1
Reliance Life
66,049
49,325
29,743
2.2
HDFC Standard
70,051
55,647
19,680
3.6
Birla Sun life
55,057
45,776
24,495
Max New York
48,605
38,573
19,730
2.5
TATA AIG
34,938
27,475
19,205
1.8
AVIVA
23,780
19,929
18,888
1.3
Bharati AXA
6,697
3,604
13,053 .5
Future Generali
5,415
1,526
7,646 .7 30

31. Industry Snapshot - Profit and (Loss) breakup
Private Insurers
Capital Infused
Shareholder Profit & loss (INR Crs)
Accumulated
Profit / (Loss) in Balance Sheet (INR Mn)
YTD Mar
10-11
09-10
Bajaj Allianz Life
1,211
10,570
542.
10,387
(183)
ICICI Prudential
4,781
8,076
258
(27,109)
(35,185)
SBI Life
1,000
3,663
276
6,212
2,549
Reliance Life
2,970
(1,293)
(284)
(28,032)
(26,739)
HDFC Standard Life
2,013
(990)
(275)
(15,655)
(14,665)
Birla Sun Life
2,450
3,050
(435)
(17,225)
(20,275)
Max New York
19,20
1940
(209)
(8290)
(10230)
Tata AIG
18,88
518
(400)
(11580)
(16100) 31

32. List of Life Insurance Companies in India (1/2)32
Sl. No.
Insurers
Bank owned
Indian Partners (shareholding %)
Foreign Partner (shareholding %)
Regn. No.
Date of Registration
Operations commenced in 1.
Life Insurance Corporation of India No
---
512
1-Sep-56 2.
HDFC Life Insurance Co. Ltd.
HDFC Ltd. (72.43%)
Standard Life Assurance, UK (26%)
101
23-Oct-00 3.
Max New York Life Insurance Co. Ltd.
Max India Ltd. (70%) Axis Bank (4%)
New York Life, USA (26%)
104
15-Nov-00 4.
ICICI-Prudential Life Insurance Co. Ltd.
Yes
ICICI Bank Ltd (74%)
Prudential , UK (26%)
105
24-Nov-00 5.
Kotak Life Insurance Co. Ltd.
Kotak Mahindra Bank (74%)
Old Mutual, South Africa (26%)
107
10-Jan-01 6.
Birla Sun Life Insurance Co. Ltd.
Aditya Birla Group (74%)
Sun Life, Canada (26%)
109
31-Jan-01 7.
Tata-AIG Life Insurance Co. Ltd.
Tata Sons (74%)
American International Assurance Co., USA (26%)
110
12-Feb-01 8.
SBI Life Insurance Co. Ltd.
State Bank of India (74%)
BNP Paribas Assurance SA, France (26%)
111
29-Mar-01 9.
ING Vysya Life Insurance Co. Ltd.
Exide Industries (50%) ,Gujarat Cements (15%) & Enam (9%)
ING Insurance International B.V., Netherlands (26%)
114
2-Aug-01
10.
Bajaj Allianz Life Insurance Co. Ltd.
Bajaj Finserv (74%)
Allianz, Germany (26%)
116
3-Aug-01
11.
Metlife India Insurance Co. Ltd.*
J&K Bank (25%), M. Pallonji & Co. (31%) 4 Private investors (18%)
Metlife International Holdings Ltd., USA (26%)
117
6-Aug-01
12.
Reliance Life Insurance Co. Ltd. (Earlier AMP Sanmar Life Insurance Co. from to )
Reliance Capital (Anil Dhirubhai Ambani Company) (74%)
Nippon Life Insurance, Japan (26%)
121
3-Jan-02
* Punjab National Bank has acquired partnership in Metlife. The deal is awaiting IRDA approval post which the shareholding pattern will change

33. List of Life Insurance Companies in India (2/2)33
Sl. No.
Insurers
Bank owned
Indian Partners (shareholding %)
Foreign Partner (shareholding %)
Regn. No.
Date of Registration
Operations commenced in
13.
AVIVA Life Insurance No
Dabur group (74%)
Aviva International Holdings Ltd., UK (26%)
122
14-May-02
14.
Sahara Life Insurance Co. Ltd.
Sahara India Pariwar (100%)
---
127
6-Feb-04
15.
Shriram Life Insurance Co. Ltd.
Shriram Group (74%)
Sanlam, South Africa (26%)
128
17-Nov-05
16.
Bharti AXA Life Insurance Co. Ltd.#
Bharti Enterprises (74%)
AXA Holdings, France (26%)
130
14-Jul-06
17.
Future Generali India Life Insurance Company Ltd.
Pantaloon retail ( 25.5%), Sain Advisory services pvt. Ltd. (49%)
Generali, Italy (25.5%)
133
4-Sep-07
18.
IDBI Fortis Life Insurance Company Ltd.
Yes
IDBI Bank (48%) & Federal Bank (26%)
Fortis, Netherlands (26%)
135
19-Dec-07
19.
Canara HSBC OBC Life Insurance Company Ltd.
Canara Bank (51%), Oriental Bank of Commerce (23%)
HSBC Insurance, (Asia Pacific) holdings (26%)
136
8-May-08
20.
Aegon Religare Life Insurance Company Ltd.
Religare (44%), Bennett, Coleman & Co (30%)
Aegon group, Netherlands (26%)
138
27-Jun-08
21.
DLF Pramerica Life Insurance Co. Ltd.
DLF Limited (74%)
Prudential of America, USA (26%)
140
22.
Star Union Dai-ichi Life Insurance
Bank of India (48%) & Union Bank of India (26%)
Dai-ichi Mutual Life Insurance, Japan (26%)
142
26-Dec-08
23.
IndiaFirst life insurance company
Bank of Baroda (44%) & Andhra Bank (30%)
Legal & General Middle East Limited, UK (26%)
143
5-Nov-09
24.
Edelweiss Tokio Life Insurance
Edelweiss Capital Ltd (74%)
Tokio Marine & Nichido Fire Insurance Co., Japan 26%)
147
10-May-11
# Reliance Industries Limited (RIL) & Reliance Industrial Infrastructure Limited (RIIL) has acquired Bharti’s stake in Bharti AXA Life. The deal is awaiting IRDA approval post which the shareholding pattern will change

34. Regulatory environment in India34
Insurance and Banking are two different sectors and are regulated by different entities
Reserve Bank of India (RBI)
Regulatory Authority for all Indian Banks
RBI norms pertaining to Bancassurance (refer appendix)
Insurance Regulatory Development Authority (IRDA)
Insurance sector follows the guidelines provided by IRDA
IRDA also specifies norms for bancassurance partnerships

35. RBI norms pertaining to bancassurance (1/2)35
Any Scheduled Commercial Bank can become corporate agent to a life insurance company and earn fee based income provided
JV will be allowed for financially strong banks that fulfill the following criterion:
In case of where a foreign partner contributes 26% of the equity with the permission of IRDA and Foreign Investment Promotion Board more than one public sector bank or private sector bank can contribute in the equity of the Joint Venture
As subsidiary of a bank or any other bank will not be allowed to join insurance company on risk participation
Net Worth of the bank > Rs 500cr
Capital Adequacy Ratio (CAR) > 10%
Net profit earned continuously for last 3 years
The track record of the subsidiaries, if any of the concerned bank should be satisfactory
Non Performing Asset should be reasonable
Source : RBI Website

36. RBI norms pertaining to bancassurance (2/2)36
Banks which are not eligible for joint venture participation as mentioned on Slide 4 can do the following
Make investments up to 10% of the Net Worth of the bank or 50cr whichever is lower
The investment done is to provide Infrastructure or services support to the insurance company
Such participation shall be treated as investment and should be without any contingent liability for the bank
Capital Adequacy Ratio (CAR) > 10%
Non Performing Asset should be reasonable
Source : RBI Website

37. Key features of each model37
Capital free commission Income
Utilization of the revenues earned in the bank
Involves investment by Insurance company to help scale up insurance business of the bank & achieve expertise. Risk borne by the insurance company
Distribution (Corporate Agency)
Relatively Capital Intensive (However, lesser than the Manufacturer model)
Access to newer markets and distribution networks as both Banks & Insurance co. are thickly bonded for a relatively longer term.
Sharing of risks and costs with a partner
Access to greater resources, including specialized staff, technology and finance
Joint Venture (Equity JV + CA)
Most Capital Intensive way with highest risks
Potential greater returns offered by certain core insurance products through the long-term underwriting returns by manufacturing
Complexity in manufacturing the product which calls for tie-up with a globally strong insurance partner.
Manufacturer

38. Insurer’s perspective Distribution agreement
Equity partnership vs. Distribution relationship 38
High
Bank’s perspective
Insurer’s perspective
Advantages
Disadvantages
Joint-venture
(Equity partnership)
Increased stability of the venture:
Long-term partnership, joint interest & aligned incentive structures
Ability to participate in product design and Product customization
Dedicated support provided by insurance partner to ensure know-how transfer
Enhanced profitability: Commissions + Manufacturing margins
Less flexibility to opt out
Could be capital intensive
Increased stability of partnership allowing investments with longer gestation periods
Common brand providing easier access to captive customer base
Increased business potential from long-term common interests
Increased bank employee buy-in
Increased penetration across bank branches & associates
Increased profit sharing with bank
Distribution agreement
(Corporate agency)
Marginal costs
Limited sharing of customer information
Capital gain opportunity
Flexibility due to shorter term of partnership
Limited control
No/Limited profit sharing
Direct competition with peer banks for sale of same products (as Life Insurance partner is common)
Simpler deal structure
Lower investment requirements
Reduction in unit costs from increased sales volumes
Shorter tenure of partnership
Decreased bank employee buy-in
Higher drain on resources
Brand & culture diversity
BANK COMMITMENT
Low

39. Deal Structuring Options39
Pure play equity – 10 year deals
Bank provided with free equity / initial equity at discounted rate
Bank partner has skin in the business to deliver commitments
In certain scenarios equity reduction can be proposed if business is not delivered
Primarily PSU banks are entering equity participation route to create valuation
Bank prefers free equity with no or minimal capital investment
Step up equity - 10 year deals
Bank provided with free equity / initial equity at discounted rate / step up at discounted rate
Bank partner has skin in the business to deliver basis minimum business guarantee
Incremental equity on business delivery on a terminal basis
Structuring methodology to engage bank in delivering the business as per agreed potential
Equity + Distribution premium - 10 year deals
Upfront Cash + free equity / initial equity at discounted rate / step up at discounted rate
Structuring methodology for bank partner to have skin in the business basis minimum business guarantee
Claw backs applied on cash by holding commissions or reduction in equity
Distribution premium upfront / premium year on year - 3 – 5 year deals
Usually prevalent in Private or Foreign bank deals
Cash paid upfront or structured basis year on year delivery of agreed business
Structuring methodology for bank partner to have skin in the business basis minimum business guarantee
Claw backs applied on cash by withdrawing commissions until business delivered