One can't have the cake and eat it too, but public sector banks can do it, thanks to their solid brick and mortar business model and decades-long sticky customers who can be a perennial source of revenue for insurers.
Max New York Life, Sumitomo and Birla Sun Life are queuing up at the doors of Bangalore-based Syndicate Bank, offering a stake in their insurance ventures, and also hundreds of crores to own that stake, turning known business principles on their head.
Max New York is offering a 4% stake in the company and Rs 400 crore to Syndicate Bank to become a minority stakeholder that can open the doors for selling life cover to lakhs of the uninsured middle class in more than its 2,500 branches, said two people familiar with the offer. Sumitomo is dangling the carrot of Syndicate Bank not having to invest capital for seven years but keeping its stake stable, while the Japanese company keeps investing funds to grow the business, said people requesting anonymity.
"Whenever there is demand in the system and supply is limited, there is acute competition," said Rajesh Sud MD and CEO, Max New York Life. "The need for low-cost distribution has increased in the new regime."
Budding private insurers, who battle a Goliath called Life Insurance Corporation with an army of 15 lakh agents, are leaving no stone unturned to tap the vast emerging market where incomes are rising.
One popular way to reach out to new customers without investing on overheads is to tie up with banks which have lakhs of customers, who could be lured to buy insurance as well. HDFC Life, ICICI Prudential and SBI Life are among insurers who have effectively used the bank channel to grow.
"The key issue is that insurance companies cannot sustain without banks," said Ravi Trivedy, partner KPMG. "Banks bring with them ready infrastructure and customer base. This is the sweetest deal any bank can think of," he said.
The life insurance industry which was growing at 30-35% on an annual basis is struggling after regulatory changes slowed the sale of the so called Ulips. For private insurers, nearly a third of their new premium income came from the so called bancassurance where banks sell insurance policies to individuals.
If a deal happens between Syndicate Bank and any one of the insurers, it will be the second such instance where banks are paid to take a stake in an insurer, said the sources.
In September 2011, MetLife India, the Indian unit of the US insurance firm, paid around Rs 350 crore to PNB to own a 30% stake in the company, making the state-run lender a JV partner.
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