Fire, Marine insurance and Bancassurance
Marine Insurance:
Fire, Marine Insurance, and Bancassurance: Marine insurance is the oldest form of insurance. Under the Bottom bond, the system of credit and the law of interest were well-developed and were based on a clear appreciation of the hazard involved and the means of safeguarding against it.
If the ship was lost, the loan and interest were forfeited. The contract of insurance was made a part of the contract of carriage, and Manu shows that Indians had even anticipated the doctrine of average and contribution.
Freight was fixed according to season and was expected to be reasonable in the case of marine transport which was then very much at the mercy of winds and elements. Travelers by sea and land were very much exposed to the risk of losing their vessels and merchandise because piracy on the open seas and highway robbery of caravans were very common.
Besides there were several risks, Many times, it might have been captured by the king’s enemies or robbed by pirates or got sunk in the deep waters.
The risk to owners of such ships was enormous and, therefore, to safeguard them the marine traders devised a method of spreading over them the financial loss which could not be conveniently borne by the unfortunate individual victims.
The co-operative device was quite voluntary in the beginning, but now in modern, it has been converted into a modified shape of premium.
The marine policies of the present forms were sold in the beginning of the fourteenth century by the Brogans. On the demand of the inhabitants of Burges, the Court of Flanders permitted in the year 1310, the establishment in this Town of a charter of Assurance, by means of which the merchants could insure their goods, exposed to the risks of the sea.
The insurance development was not confined to the Lombards and to the Hansa merchants; it spread throughout Spain, Portugal, France, Holland, and England. The marine form land lending prominence of Lombard’s merchants got a prominent section of the London City.
They built homes there and took the name of Lombard Street. Later on, this street became famous in insurance history. The Lloyd’s coffee-house gave an impetus to develop marine insurance.
Fire, Marine insurance and Bancassurance
Fire Insurance:
After marine insurance, fire insurance developed in its present form. It had been observed in Anglo-Section Guild form for the first time where the victims of fire hazards were given personal assistance by providing necessities of life.
It had been originated in Germany in the beginning of the sixteenth century. Fire insurance got momentum in England after the great fire in 1666 when the fire losses were tremendous.
About 85 per cent of the houses were burnt to ashes and property worth of sterling ten crores were completely burnt off. Fire Insurance Office was established in 1681 in England. With the colonial development of England, fire insurance spread all over the world in the present form ‘Sun Fire Office was a successful fire insurance institution.
In India, the general insurer started working since 1850 with the establishment of Triton Insurance, Calcutta. Again in 1861, the North British and Mercantile catered the requirements of the insurance business.
General insurance in India could not progress much. The slow growth of joint-stock enterprise and mechanized production was another reason for the low level of the general insurance business.
Difference between fire and Marine Insurance
Fire and marine insurance contracts are similar in most of cases because both these contracts are indemnity contracts. But, the following differences are observed in both contracts.
(i) Moral Hazard:
In marine insurance, the chances of moral hazard do not exist so much as are in fire insurance.
(ii) Insurable Interest:
The insurable interest must exist both the time, at the inception and at the completion of the contract. This is the reason fire insurance policies cannot be freely assignable. The insurable interest in marine insurance must exist at the time of loss. So, the marine policies are freely assignable.
(iii) Profit:
Marine policies generally allow certain margin of profit to be charged at the time of indemnification of loss, but the fire policies do not allow it ordinarily.
(iv) Valued Policies:
Marine insurance policies are generally valued policies and the market fluctuation is avoided; but the fire polices strictly adhere to the doctrine of indemnity and only the market value of the property at the time of loss (valuable amount) is compensated.
Bancassurance
Bancassurance is a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank’s customers. In this partnership, bank staff and tellers become the point of sale and point of contact for the customer. Bank staff are advised and supported by the insurance company through wholesale product information, marketing campaigns and sales training. The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company.
This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers. Bancassurance has proved to be an effective distribution channel in a number of countries in Europe, Latin America, Asia, and Australia.
Business Models
‘Integrated models‘ is insurance activity deeply integrated with bank’s processes. Premium is usually collected by the bank, usually direct debit from the customer’s account held in that bank. New business data entry is done in the bank branches and workflows between the bank and the insurance companies are automated. In most cases, asset management is done by the bank’s asset management subsidiary.
Insurance products are distributed by branch staff, which is sometimes supported by specialised insurance advisers for more sophisticated products or for certain types of clients. Life insurance products are fully integrated in the bank’s range of savings and investment products and the trend is for branch staff to sell a growing number of insurance products that are becoming farther removed from its core business, e.g., protection, health, or non-life products.
Products are mainly medium- and long-term tax-advantaged investment products. They are designed specifically for bancassurance channels to meet the needs of branch advisers in terms of simplicity and similarity with banking products. In particular, these products often have a low-risk insurance component.
Bank branches receive commissions for the sale of life insurance products. Part of the commissions can be paid to branch staff as commissions or bonuses based on the achievement of sales targets.
‘Non-integrated Models‘: The sale of life insurance products by branch staff has been limited by regulatory constraints since most investment-based products can only be sold by authorized financial advisers who have obtained a minimum qualification.
Banks have therefore set up networks of financial advisers authorised to sell regulated insurance products. They usually operate as tied agents and sell exclusively the products manufactured by the bank’s in-house insurance company or its third-party provider(s).
A proactive approach is used to generate leads for the financial advisers from the customer base, including through mailings and telesales. There is an increasing focus on developing relationships with a large number of customers who rarely or never visit a bank branch.
Financial planners are typically employed by the bank or building society rather than the life company and usually receive a basic salary plus a bonus element based on a combination of factors including sales volumes, persistency, and product mix.
Following the reform of the polarisation regime, banks will have the possibility to become multi-tied distributors offering a range of products from different providers. This has the potential to strengthen the position of bancassurers by allowing them to meet their customers’ needs.