Bancassurance can be defined as selling of the insurance policies through a bank’s established distribution channels or in simple words it s a medium through which insurance company uses the bank sales channel in order to sell insurance products. Bank staff and tellers, became the point of contact for the customer and not the insurance salesperson and hence it is the Bank staff which provides the information regarding insurance product as well as the marketing campaigns is done by them. This unusual spelling of Bancassurance reveals the French origin of the word where it was originated.
With increasing globalization and intense competition in banking industry banks have to try to increase their fee based income because of low spread on their main business which is borrowing and lending of funds and hence they find selling insurance as an ideal option because it can integrate easily with banking due to large distribution reach of the banks. Under Bancassurance both the bank and insurance company share the commission although Insurance policies are processed and administered by the insurance company only.
However in some countries it has to face strict regulatory action because banking regulators fear that banks may mishandle the insurance part and use the customer deposits to pay policyholders. Also insurance companies resist it because of fear of increase in competition.