AS various industries are still having sleepless nights on the way forward as regard doing business with very little human contacts, one of the areas that may seem to be affected is the recruitment and retention of direct insurance sales agents, especially as the COVID-19 pandemic keeps changing its deadly colours!
Many years prior to the period the pandemic reared its thorny head, a friend of mine mentioned to me, how he thought he was being swindled, when after visiting his bank for a transaction, his personal banker recommended a funeral finance plan to him. “Is that part of your work?” My friend immediately quizzed, as he could not fathom how an insurance product would be offered in a bank. Like many others, my friend didn’t know that, like the bank, insurance companies, particularly life insurers, also offer interest-yielding investment products, albeit with some tweaks.
The emerging trend
In recent times, we have witnessed some improvements in the provision of financial services by the banks. Many banks now offer one-stop-shop services, especially with the emergence of bancassurance in our part of the world.
Thus, many banks now provide both banking and insurance services, through collaboration with partner insurers; thereby, making the banks a key distribution channel for various insurance companies. While the banks’ branches are the services access points, the insurers provide technical expertise in the risk underwriting.
This, therefore, makes the partnership one of what can be described as a marriage of convenience. Globally, bancassurance is becoming popular, as it provides opportunity for both effective cost minimisation and increased returns.
Bancassurance as a business model
Simply put, bancassurance involves selling and buying of insurance through the banks. It is an arrangement between a bank and an insurance company also known as the Underwriter or risk assessor, where insurance products are sold mainly in the banking halls.
The bank generally sells the insurance products to customers who visit their banking halls. Brand credibility is a major prerequisite in bancassurance partnership and, therefore, many of such banks do not take lightly to its operations and the insurance companies they go into partnership with.
Brief 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 opportunity for additional distribution line, besides brokers, agents and direct businesses.
Bancassurance has proven to be an effective and efficient distribution channel in European, Asian and most Latin American countries. In the past, its success stories in Europe has been significantly contributing to the total premiums.
Bancassurance in Ghana
In Ghana, while some life insurance companies have bancassurance partnerships, only a few non-life insurers have such arrangements. Many life insurers now sell their educational, investment-linked and risk policies through their partner banks, besides the other channels of distribution i.e., brokers and agents.
The increasing focus on bancassurance by life 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. especially in the changing style of working in recent times occasioned by an unprecedented pandemic – COVID-19.
How it works
An insurance company partners a bank for its range of insurance products to be sold across all the bank’s branches or selected branches. These products typically range from life to non-life products. The insurance company is responsible for providing training to the selected staff of the partner bank, making them the interface with the prospective clients. The bank does not only collect the premiums on behalf of the insurer but also earns an agreed commission on all policies received from the bank’s branches. Through the partnership, the insurance company is able to expand its client base, without necessarily increasing its direct sales force or brokers.
In some other arrangements, the insurance companies place their own trained sales agents in the banking halls to transact business with walk-in clients.
Unlike typical banking products, bancassurance products, especially investment-linked products, are mainly medium to long-term investment products. These products, however, 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.
It is important to note that one other advantage of a bancassurance arrangement is the ease with which clients’ demographic information are obtained, using the bank as an established platform. This also helps in future products design and pricing as feedback is given on products’ performance from time to time.
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.
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 not their core business.
Thus, some banks’ staff tend to be more focused on their core business of banking operations, rather than selling more insurance products, even though it’s also a source of revenue for them [the banks]. Moreover, very little or no underwriting, especially medical underwriting, is required for a typical life insurance bancassurance policy; hence, there is very little opportunity for claims repudiation, where necessary.
Some insurance industry practitioners also argued that some banks tend to be overbearing in their partnerships, the fact that 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. There is also the threat of ‘business cannibalism,’ where some prospective clients would rather prefer to do insurance with banks only.
Public awareness must be intensified on bancassurance in order that members of the general public will appreciate the points of divergence as well as convergence between banks and insurance companies. It is imperative for banks 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 bancassurance partnerships.
Moreover, given the unethical challenges associated with some insurance agents, insurers must seize the opportunities that abound in bancassurance partnerships to improve their brand credibility.
The practice where some insurance companies assign their own trained sales agents to the banking halls to transact business with walk-in clients must be encouraged since that would engender more focus and detailed explanation of policy terms and conditions to prospects.
But in all of these, all COVID-19 protocols MUST be observed!