Banking on banks

Like in other markets, the insurance company will use the banking channel almost exclusively to sell life insurance products.

Three's not a crowd. That's what HSBC Insurance Asia, a wholly "�owned subsidiary of HSBC, believes. To roll out insurance schemes in the country, it's roped in the Bangalore-headquartered Canara Bank and the Delhi-based Oriental Bank of Commerce (OBC), both state-owned banks with relatively large branch networks.

And unlike other insurance players who use hordes of agents to peddle their products in the remotest of towns, HSBC Insurance, intends to sell life insurance schemes only through banks.

A joint venture is to be formed soon in which HSBC Insurance will hold 26 per cent. Canara Bank will hold the majority stake of 51 per cent and OBC the remaining 23 per cent.

Says Harpal Karlcut, CEO of the soon to be formed company, "The idea is to house product creation in the new venture, which in turn will have distributor agreements with three banks, HSBC, Canara and OBC. That way, products can be sold through the combined network of around 3,600 branches and a total customer base of over 40 million."

The bancassurance model is what has worked for HSBC worldwide and it believes that it would work in India too. That's why it doesn't plan to have an agent network. "We will see whether we need agents," says Karlcut. Also, while HSBC

Insurance does hawk products of other insurance companies in some countries, in India it plans to sell only its own products.

While the existing customer base and branch network are no doubt an advantage, industry watchers believe that cross-selling products is not easy.

Also, as Seshadri Sen, who tracks the financial sector at Macquarie Securities, points out "More than the product itself, it's the distribution that's important in India today." With an ATM at every street corner, not everyone's really visiting branches if they can help it, so it's not easy to reach out to customers.

That's precisely why players like ICICI Bank and Bajaj Allianz are taking pains to have agents in every corner of the country to do personalised selling. Says a senior executive with a private sector insurance firm, "Banking is no doubt a good channel and one can build a fairly sizeable business but it cannot be very big."

However, Ashwin Parekh at Ernst& Young feels that the increasing convergence of financial products means that banks will have a larger role to play. Says he, "Of the new premium collections, more than 80 per cent goes into savings rather than protection products. So banks can be used to drive such savings schemes."

Like many other markets in Asia, the Indian market too is skewed towards savings products rather than protection products with the former accounting for 80 per cent of the market. Karlcut believes his model will work because the distributors in this case, are not merely sellers; they have a stake in the product venture too.

Sen is concerned that the public sector banks might not be in a position to give employees special incentives, to sell insurance schemes.

However, Canara Bank Chairman, M.B.N.Rao says the bank will work around this by appointing a special cadre of executives to sell insurance products. Karlcut, admits that there could be constraints but feels that there could be other ways of giving incentives.

Macquarie's Sen believes that it might nonetheless not be that easy to gain too much market share because of the presence of numerous players"�at the last count there were 16 in the private sector and the state-owned Life Insurance Corporation to boot, some of them fairly well-entrenched."

It will take time to establish a presence and build brand equity," he says. Karlcut believes HSBC is not late at all. "The market is in a nascent stage and the penetration is still low, so there's a huge opportunity," he says.

Adds Rao, "Of the Rs 100 saved by an individual today, only Rs 13 goes towards insurance. Moreover, less than 10 per cent of the working population has pension schemes." True enough. The remaining 90 per cent should be hunting ground enough.

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RUSH HOUR BEGINS

Already 16 players in the private life insurance space

More foreign players are rushing in: nearly a dozen multinationals have signed on Indian partners

Public sector banks like PNB, Canara Bank, OBC, Allahabad Bank,IOB and Bank of India have entered the fray

Foreign players keen to be here even though direct foreign investment limit yet to be hiked to 49 per cent

Growth too strong to be ignored: the life insurance industry has grown at 100 per cent in 2006-07