Background of Bancassurance

Bancassurance broadly refers to the collaboration between banks and insurers to distribute insurance products to the same clientele or same client base. The insurance company uses Bank’s branch network to sell their products with a commission sharing for all policies sold through the bank network. The processing and administration of policies and claims is done by the insurance company.
Growth of bancassurance has been driven by the need to reduce the ever increasing operational costs, increase efficiencies and conform to changing customer needs as well as develop synergies in the banking and insurance industries. A series of mergers, takeovers and joint ventures between banks and insurance companies have contributed to the growth of bancassurance over time.

 

Why Bancassurance?

Income and competition

Commission and fees from selling of insurance products will supplement banks earnings. Intense market competition between banks has led to a substantial decrease in the interest margins of the traditional banking products.

Operating expenses

With high operating expenses for bank branches, bancassurance will utilise any idle capacity and boost income for branches.

Evolving customer needs and cross- selling opportunities

Customers want to do all their financial dealings under one roof for convenience and safety. Customer investment preferences is also changing  with respect to medium-term and long-term investments, there is a trend away from traditional deposits towards insurance products ( e.g. unit linked products) and mutual funds where the return is usually higher than the return on traditional deposit accounts.
There is a good opportunity to promote Insurance Premium Financing through bancassurance and also as a rider to asset financing.  

Customer retention

With many customers being multi-banked, bancassurance will help increase customer loyalty and satisfaction by having deeper relationships tying the customer between the bank and insurer, which offers one-stop-shopping approach.

 

Regulatory framework for Bancassurance

The bank will require 2 external approvals before commencing bancassurance i.e. Insurance Regulatory Authority (IRA) approval and CBK approval. IRA approval comes first as it will be required when we are submitting application to CBK for approval.

Insurance Regulatory Authority (IRA) approval

The Insurance Regulatory Authority (IRA) released bancassurance guidelines in November 2010.  The issued guidelines require that a bank entering into bancassurance practice establishes an Insurance Agency which should be a subsidiary of the Bank.

CBK approval

CBK guidelines on incidental business activities CBK/PG/23  outlines to what extent licensed financial institutions can go in distribution of other financial products.  Part III , section 3.1.1 of  CBK/PG/23 states;

Institutions providing a distribution channel for regulated financial services will be permitted to engage in the following activities:-

• Form partnerships with regulated financial service providers for purposes of cross-selling authorized and regulated financial services and products through their branch network
• Enter into partnerships with financial service providers for purposes of marketing authorized and regulated financial services and products.

 

An institution acting as a distribution channel for the provision of regulated financial services and products either through cross-selling or marketing shall NOT;

• Undertake or engage in the actual business of insurance, underwriting, securities and investments services or any other financial business which it is not authorized to undertake by the Central Bank. The involvement of institutions will be limited to acting as a distribution channel in the provision of these financial services.
• Give the impression to its customers or imply in any way as to being the actual service providers of these financial services other than selling or marketing on behalf or in partnership with other regulated financial service provider.

Several local bank’s have already taken up Bancassurance with most operating a fully-fledged insurance agency.

 

Bancassurance Products

	Product	Opportunity
1	Life Products	Group Credit Life for Bank’s Group Pension Plans for  SME’s Group Provident Plans for SME’s Group Life Assurance with critical illness, disability and funeral expense covers for SME’s Group Credit Life Assurance for Micro-Finance Institutions Personal Pension Plans for individuals Personal Provident Plans for individuals
3	Motor Vehicle Insurance	Insurance for both commercial and private motor vehicles. Insurance premium financing for asset finance customers.
4	General insurance ( Non-Motor Vehicle)	This covers houses, factories, machines, construction works, sports equipment, business stock etc.
5	Health & Medical	Medical schemes, travel insurance, personal accident
6	Agriculture & Livestock	This covers crops and livestock.
7	Other Insurance	Professional indemnity Political, violence and terrorism risks Goods & cash in transit