
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.
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.
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:-
An institution acting as a distribution channel for the provision of regulated financial services and products either through cross-selling or marketing shall NOT;
Several local bank’s have already taken up Bancassurance with most operating a fully-fledged insurance agency.
|
Product |
Opportunity |
1
|
Life Products
|
|
3 |
Motor Vehicle Insurance |
Insurance for both commercial and private motor vehicles. Insurance premium financing for asset finance customers. |
4 |
General insurance |
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 |
|