Insurance has become the proverbial goose laying golden eggs for public sector banks, which are foraying into the sector in a big way.

This year, at least eight public sector banks are set to scrap their existing bancassurance tie-ups with insurers. They are: Bank of India [Get Quote], Union Bank, Karnataka Bank [Get Quote], Allahabad Bank [Get Quote], Indian Overseas Bank [Get Quote], Bank of Maharashtra [Get Quote] and Federal Bank [Get Quote].

Other banks, which are planning to start their own insurance companies, are Punjab National Bank [Get Quote], Dena Bank [Get Quote] and Bank of Baroda [Get Quote], according to industry sources.

The banks are all set to explore the insurance sector after collecting new business premia of about Rs 75,000 crore (both in life and non-life segments) in the last nine months of the current financial year.

The Associated Chambers of Commerce and Industry of India has projected the insurance business to be worth around $60 billion by 2010. This will be driven by exponential growth in the rural and semi-urban insurance segments.

Indian Overseas Bank Chairman and Managing Director S A Bhat cited three reasons on why banks want to foray into insurance on their own -- diversion of proceeds from traditional banking activity, involvement and commitment of employees, and the need to get better dividends instead of working on commission basis.

The foray of banks into insurance seems to have affected insurance companies who are already facing a shortage of banks to partner for distribution of their products, according to insurance industry sources.

Bancassurance accounted for about 20-30 per cent of premium income of private insurers last year, sources said. Private insurers collected new business premium income of around Rs 18,980 crore (Rs 189.8 billion), according to statistics from the Insurance Regulatory and Development Authority.