Bancassurance Conference 2016 - Some expectations

Mawuli Zogbenu Business News Sep - 06 - 2016 , 09:56

“Clinging to the shoulders of one another to reach a common destination is no bad business” —Author

There seems to be some level of discomfort among some members of the banking fraternity in view of the exponential growth in the use of telecommunication companies (telcos) in accessing financial services – mobile money.

Though not necessarily the same, the story appears to be some lack of understanding by a section of the public as to whether the banks are also licensed to compete with insurance companies in the rolling out of insurance products.

Rightly so, this is a genuine concern as some banks make it appear as though they are now adding value to their customers by offering insurance services and products.

A few others can still not fathom out how a typical insurance product would be offered in a banking hall. Like many others, some people do not know that, like the banks, insurance companies, also offer high-yielding investment-linked products, and non-life insurance products albeit with little tweaks and relatively lower premiums.

As the two-day second Bancassurance Conference is set to roll from tomorrow September 7, 2016, my expectations would be on how to clear the ‘confusion’ in the minds of many people.

With the inclusion of top-notch and astute resource persons from the industry, it is my expectation that the matters arising from the role of banks in insurance will be adequately addressed. This will not inure to the benefit of the financial services sector but also the insureds.

The trend

In recent times, we have witnessed remarkable improvements in the provision of financial services by banks where some banks now offer one-stop-shop services, especially with the emergence of bancassurance.

Thus, some banks now provide both banking and insurance services, through collaboration with insurers thereby, making the banks a major distribution channel for various partner insurers.

While the banks’ branches are the services access points, the insurers provide technical expertise in the underwriting of the risks. This, therefore, makes the partnership one of a convenient marriage.

Globally, bancassurance is becoming popular, as it provides opportunity for both effective cost minimisation and increased returns.

History of bancassurance

The concept, which originated from France, has now become a strategic business model for many insurers around Asia, Africa and Latin America, even though it was earlier prohibited in most parts of Asia.

It also provides insurers the opportunity for additional distribution line, besides brokers, agents and direct businesses. Bancassurance has proven to be an effective and efficient distribution channel in and around the world.

The relationship between the bank and insurance companies

An insurance company partners a bank for its range of insurance products to be sold across selected bank branches. These products typically range from life to non-life products especially motor and fire insurance.

The insurance company is responsible for providing training to the selected staff of the bank, making them the interface with the prospective clients. The bank not only collects the premiums on behalf of the insurer, but also earns an agreed commission on all policies received from the bank.

Through the partnership, the insurance company is able to expand its client base, without necessarily increasing its direct sales force or brokers. Unlike the typical banking products, bancassurance products, especially the investment ones, are mainly medium to long-term products.

These products provide both investment and risks components. In the bancassurance arrangements, the design and pricing of the policies are usually affected by the nature of the target market.

An important aspect of bancassurance is the opportunity for collating clients’ demographic information, using the bank as a conduit. This also helps in future designing and pricing of products as brand credibility becomes a major prerequisite in the partnership.

Benefits

The bancassurance concept provides significant benefits to the players. For instance, while the banks earn revenue from transaction charges and commissions, the insurers have the opportunity to increase both their revenue and market reach, since the banks serve as service points, providing speed and cost effective mode of reaching clients.

Besides, claims arising thereon are processed and paid in real time, through the banks. The client feels more at ease in having a one stop shop for financial services provision.

Bancassurance in Ghana

In Ghana, while many of the life insurers have bancassurance partnerships, only a few non-life insurers have such arrangements. Particularly, many life insurers now sell their educational, investment-linked and funeral policies through their partner banks, besides the other traditional channels.

The increasing focus on bancassurance by insurers is in part, a result of the ever increasing cost of recruiting and maintaining direct agents and brokers which typically includes training/retraining, welfare, medicals, etc.

Similarly, the general public tends to have a stronger confidence in doing business with the banks compared with the insurance companies, a development that is fueled by the general negative perception about insurance.

Challenges

Some have described bancassurance as a rather lethargic way of promoting insurance products. The use of bank staff has not proven to be the best, especially in our part of the world, since it is often not the core focus of the banks’ staff. Thus, some banks staff tend to be more focused on their core businesses, rather than selling more insurance products, even though it’s also a source of revenue for them.

Moreover, very little or no underwriting, especially medical underwriting, is required here, hence there is very little opportunity for claims repudiation, even when necessary. Some business experts also argued that some banks tend to be overbearing in their partnerships, as they appear to have dominant control of the financial services sector.

The growth of bancassurance is also thought to be a disincentive for recruiting career insurance sales agents as I opine that the latter still remains the strongest distribution channel.

There is also the threat of ‘business cannibalism,’ where prospective clients may rather prefer to do insurance with banks only thus ignoring direct services provided by insurance companies.

The other challenge is the changing of accounts by bank customers. This often happens when a customer is not satisfied with a particular bank or perhaps for some other reasons switch from one bank to the other.

The Way Forward

Public awareness must be intensified on bancassurance in order that people will appreciate the points of divergence as well as convergence between banks and insurance companies.

Apart from that, customers should be enlightened on the implications of switching from one bank to the other if they already have especially a life insurance policy with the bank as the premium collector.

Moreover, it is imperative for players to appreciate that bancassurance is an opportunity for mutual benefit and not an avenue for unhealthy competition. Insurers should also consider some limited medical underwriting for bancassurance businesses, so as to avoid paying undeserving claims.

In view of the possibility for banks to sell for more than one insurer, there is also the need for a strong regulatory regime in these partnerships. Given the unethical challenges associated with the use of some direct agents, insurers must seize the opportunities that abound in bancassurance partnerships, as a back-up to improve their brand credibility.

I am of a firm conviction that the second bancassurance conference would largely address some of the above concerns. — GB

Until next week, “This is insurance from the eyes of my mind”