Bancassurance symbolises the convergence of banking and insurance. The term has its origins in France and involves distribution of insurance products through a bank's branch network. While bancassurance has developed into a tremendous success story in Europe, it is a relatively new concept in Australia and Asia.
Bancassurance refers to the arrangement under which a bank sells an insurance company’s products. Insurance companies, particularly new players and those not promoted by banks, typically pay a certain amount as commission to banks for using their infrastructure.According to the bancassurance draft guidelines, upfront commissions or discounted sale of equity by the insurers should be amortised within three years.
The Insurance Act allows only those companies registered under the Companies Act to become corporate agents. This gives the new generation and old private sector banks a head start over Public sector banks , which are technically not eligible to sell risk products. Most new insurers have entered into memoranda of understanding with banks to use their branches as outlets for marketing standard products.
IRDA, IBA & RBI are in discussions to iron out the various issues in the distribution of products.