The Reserve Bank of India, or RBI, has allowed banks to become insurance brokers. Online sales, too, are picking up. In such a scenario, Dipak Mondal asks John Holden, Chief Executive Officer, Canara HSBC OBC Life, a pure bancassurance company, how relevant their business model is in the present context.
Q. How has been your experience so far in India and how India is different from other markets?
A. It's been a roller-coaster ride. But what I enjoy about India is that there's so much to be done. Before coming to India, I was in (South) Korea, where insurance density is very high, and before that I was in Taiwan, which is the most insured country in the world. So, it is fun to come to India, where so much needs to be done.
In any market there are a couple of big players, one dominant player and a bunch of emerging/new entrants. India is no different in this respect from other markets.
In Asia, most insurance markets are dominated by savings-linked products. In Europe, there is a stronger tradition of protection products. In India, there is a misunderstanding that insurance means tax saving, and that is wrong.
Q. Who created this perception? Should insurance companies not take the blame as well?
A. I have not been in India long enough and so I may not know the exact answer. But what I can say is that whether it is protection or saving, there is often a tax incentive to do the right thing. If you don't buy insurance or pension plan, the state will have to ultimately bear the burden. But again the first thing I have learned in financial planning is that you should not do things because they are tax-efficient, you should do things because they are right thing to do.
Q. Insurance, they say, is a push product in India...
A. That is said all over the world. I will give you an example that contradicts this. If insurance is a push product, how come everybody is pulling it through online sales? Everybody is buying online without the agent's involvement.
The problem is that it is always something that can be put off until tomorrow. Insurance is a bit like going to the dentist. I know I should go to a dentist but there's always a reason for not going today.
Q. Since HSBC Canara OBC is a bancassurance company, what is your experience in terms of people's awareness about insurance?
A. There are very few people who wake up in the morning and the first thing they think is buying insurance. Somebody has to bring the conversation to the table. We do that through our bank partners.
One of the strengths of bancassurance is that the bank has a suite of products the customer can choose from. The customer may not need insurance today but the bank will continue to service him. That way the customer may come to the bank when he needs insurance. But an insurance agent will talk about only one product. That's when it becomes a push strategy.
We have a network of over 6,000 bank branches but we do not expect them to sell insurance every day. We sell around 6,000 policies every month, that is, one policy per branch.
Q. At a time when people prefer shopping online, how relevant is the bancassurance model?
A. Bancassurance is not a channel, it's a business model. It is a marriage between distribution capability of a bank and manufacturing capability of an insurance company. It is multi-channel, aales and servicing can happen at the bank, at your home, online or at ATM.
Q. How many of your bank customers have your policies?
A. I don't have the exact data. We have around 1% penetration among our bank customers. The three banks together have around six crore accounts and we have three lakh policies. If we consider that only three crore accounts are active, that means about 1% account holders. So, the tongue-and-cheek answer to your question about how many account holders are our customers is, 'not enough'.
Q. Many studies suggest that maximum mis-selling happens at banks...
A. Let's move from anecdotes to data. Data tells me that bancassurance has fewer complaints and high persistency rate. I am not saying there won't be aberrations, however, such instances would be few. We have an active pre-sales process and controls to validate the sales process. We also have a very strong redressal mechanism to deal such cases with alacrity. At all times, we are guided by the principle of fairness and the need to protect the reputation of the stakeholders.
Q. Since the RBI has allowed banks to be insurance brokers, what will happen to the bancassurance model?
A. If banks want to shift to the broking model, they will have to create a need-assessment platform on which they can filter different products based on people's needs. They will have to train their staff about all products of insurers that they are going to sell.
Imagine that Canara Bank's 4,000 branches sell products of, let's say, five companies, and insurance companies give it commission cheques at the end of every month. How can it know if it has received what's due to it? Imagine the reconciliation job to be done.
Q. But there are arguments in its favour...
A. I am going to debunk the myths associated with this model. The first is that it gives customers more choice. The customers already have many choices--he can go to web aggregators, brokers, and other agencies.
If you add up all bancassurance players, including the likes of HDFC Life and SBI Life, all you get is a market share of 17%. So, there's no monopoly, no bancassurance company holding customers hostage. I would say LIC has 70% market share (in terms of new premium) and 42 banncassurance tie-ups; so, if anybody is holding all the cards, it is LIC, and it gets only 5% of its premium from bancassurance.
Another argument is that the broking model will expand the market. The demand side does not grow just because you have more choice.
The next argument is it will stop mis-selling. If you have the intent to mis-sell, you will do that whether there are one or multiple products.
Myth number four is that new entrants can't get banking partners. Let's see the new entrants in the last five years--Star Union Daiichi, IndiaFirst and IDBI Federal (all have bancassurance partners). PNB Metlife proved that it was possible to shift from traditional agency model to bancassurance model. Aviva had the choice to go with Canara Bank but didn't. Tata AIA had a relationship with HSBC. The latter two had an option to choose a bank partner, but they opted for other banks. Aviva chose IndusInd and Tata AIA picked up Citi Bank. So, insurers do change their bancassurance partners.
Q. What is your experience of broking model in other markets?
A. My experience in (South) Korea, where banks have ten providers, is of a wrong market. The reason is that banks hold all the power there. A bank would typically tell insurers that it has a large customer base and if they want to sell their products through it they would have to give it a hot product, with best prices and high commissions. Insurance companies fall over each other to offer the best deal (to the bank).
Q. How can you check mis-selling by bank staff?
A. We do many things. We call up all investors and tell them that it's an insurance policy and not a deposit scheme. We tell them that insurance policies have a tenure of 10 or more years, these are regular premium products, etc. We take them through all the details and explain all features. If they are not happy, we do not issue the policy. Even if it is issued, they have a further 15-day free look period, where they can cancel a policy.
We do a sample survey every month where we ask (not all) policyholders how their experience was, if they were explained policy details and charges, if they were shown product brochure, etc. We have seen that most policyholders answer these in affirmative. If some of them are not happy, we take their feedback to properly train sales people.
HSBC does a very complex and thorough analysis that takes a couple of hours. HSBC customers are more wealthy and, therefore, the process is complex. The RBI has made it mandatory for banks to do need-based analysis and we are working with other bank partners to incorporate some procedures that HSBC is following.
We also have a 'potentially vulnerable customer' policy. If a customer has low income, hasn't passed 10th grade or has crossed 55 years of age, we do extra due diligence. So, we ask questions like if this person is 55 years of age, why is he buying insurance; this guy is not 10th pass, does he understand Ulips?
Q. What changes has does the insurance ordinance brought to the industry?
A. It gives more power to the regulator, which is good. A lot has been said about the fact that claims cannot be repudiated after three years. Well, that is the law and the onus now is on insurance players to do proper due diligence at the time of selling. Nobody wants to reject claims.