There appears to be some misunderstanding by a section of the general public as to whether the banks are also licenced 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.
Others also have a feeling of being swindled, when after visiting their banks for transactions, funeral finance plans are recommended for them. A few others can still not fathom how a typical insurance product would be offered in a bank.
Like many others, people do not know that, like the banks, insurance companies, also offer high-yielding investment products, and non-life insurance products albeit with little tweaks and relatively lower premiums.
The developing 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 risk underwriting. 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.
Bancassurance
Bancassurance involves selling insurance through the banks. It is an arrangement between a bank and an insurance company, where insurance products are sold in the banking halls. The bank mainly sells the insurance products to customers who visit the banking halls. Brand credibility is a major prerequisite in bancassurance partnership.
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 and around the world.
It has success stories in Europe contributing about 35 per cent of total premiums in the life insurance market, 60 per cent in France, 50 per cent in Belgium and over 65 per cent in Spain.
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.
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.
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.
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 not the core business of the banks. 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.