Bancassurance
The arrangement under which a bank acts as a corporate agent of an insurance company, selling its policies to the bank's own customers — capped at three insurers in each of life, general and health.
In plain language
Banks meet almost every household. Insurers want to reach households. Bancassurance is the arrangement that connects the two: a bank sells insurance policies as a corporate agent of an insurance company.
The workbook's definition is short: when a bank becomes the corporate agent of an insurance company, that tie-up is called a bancassurance arrangement, or partnership. The bank earns commission on the policies it sells; the insurer gets a distribution network it did not have to build.
How it works
A corporate agent is a company that represents an insurer and sells its policies, usually to its own existing customers — a bank selling insurance, or a vehicle dealer selling motor cover, are the workbook's examples of the same idea.
A corporate agent (composite) — one licensed to sell life, general and health policies together — can tie up with a maximum of three life insurers, three general insurance companies and three health insurance companies at the same time. A bank running a bancassurance business is bound by this cap: it cannot represent an unlimited number of insurers.
Because a bank is a corporate agent, it earns commission from the insurer, not a fee from the client, which is the same commercial structure as an ordinary insurance agent.
A worked example
Illustrative figures.
Sarita Bank sets up bancassurance tie-ups to sell insurance across its branch network. It signs up with two life insurers, one general insurer and three health insurers. All of these are within the cap of three each, so the arrangement is valid.
A relationship manager at a branch sells a Rs 25,00,000 term policy from one of the two life insurers to a bank customer, and earns commission from that insurer — the customer pays nothing extra to the bank for the introduction. If Sarita Bank later tried to add a fourth life insurer to its panel, it would breach the composite corporate agent limit of three life insurers.
Why NISM asks about it
Chapter 1 (Basics of Insurance), section 1.8.3 — Regulatory Aspects for Insurance Intermediaries — defines bancassurance as a category of corporate agency and sets the three-insurer cap for a composite corporate agent. Expect a recall question on the maximum number of insurers a corporate agent (composite) can tie up with in each line of business.
Common exam traps
- Bancassurance is a form of corporate agency, not a separate licence category — a bank is simply a corporate agent that happens to be a bank.
- The cap is three insurers in each of life, general and health for a composite corporate agent, not three insurers in total.
- A corporate agent earns commission from the insurer, unlike a direct broker, who can charge the client a fee as well as earn commission.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Cashless claim paymentAn arrangement where the insurer pays the hospital or garage directly once a claim is approved, so the insured does not have to pay first and claim reimbursement later.
- Composite brokerAn IRDAI-registered insurance broker licensed to act as both a direct broker, placing business for clients with insurers, and a reinsurance broker, placing risk with reinsurers.
- Composite insurance agentAn individual appointed as an agent by two or more insurers, but capped at one life insurer, one general insurer, one health insurer, and one of each mono-line insurer.
- Corporate agentA corporate entity, often already in a related business like travel or car sales, that sells an insurer's policies to its own customers; a composite corporate agent can work with up to three insurers per line.
- Insurance agentAn individual appointed by an insurer to solicit or procure insurance business, including the continuance, renewal or revival of policies — and who represents the insurer, not the client.
- Insurance web aggregatorAn insurance intermediary that maintains a website providing online price comparison and information on the products of different insurers, and other related matters.
- Suitability analysis in insuranceThe IRDAI requirement that an agent establish and justify a policy fits the client before it is sold - no investment cum insurance policy may be issued until the analysis is done.