Bancassurance poised to unlock the Insurance Market
One of the most significant changes that have been witnessed in the financial services sector over the past few years has been the development of Bancassurance. This is after the realization by banks that bancassurance is able to complement their existing activities while making it a dominant force in key financial services sectors across the globe.
The foray into the insurance market by banks has been occasioned by the changing employment patterns, growing disposable incomes due to a vibrant middles class and longer retirement periods in the emerging markets. The market has also been characterized by an increasingly complex insurance and financial requirements from various industry stakeholders.
Even though the move by banks to venture into the bancassurance market has been hailed by industry stakeholders, this has been seen by many especially those who are already in the insurance industry as an attempt to intrude into their turf. It has to be noted however that banks are better placed to professionalize insurance sales while improving national savings and product development based on established customer needs
Banks acting as Insurance Agents
Bancassurance entails the use of commercial banks by insurance companies to sell and distribute insurance covers. This model which originated from France, is now taking root in most developed countries with banks acting as agents for insurance companies to distribute the covers. The mergers have been justified by the need by the two sectors to reduce operating expenses, encourage customer retentions, meet the changing customer needs and increase their profitability as well as shore up customer numbers.
Bancassurance has been a successful in the European countries contributing 35 per cent of premium income in the European life insurance market. It contributes over 65 per cent of the life insurance premium income in Spain, 60 per cent in France, 50 per cent in Belgium and Italy. This explains the change in regulations among markets like Japan, South Korea and the Philippines where bancassurance was previously prohibited, taking a more accommodating stance towards this channel.
In Kenya, after a long protracted regulatory battle over whether banks should be allowed to sell insurance, banks and insurance companies have finally embraced the model albeit with some resistance from some quarters. Interestingly, players have realized that the biggest untapped bancassurance opportunity is in life insurance which is currently being distributed through expensive agent sales forces and has yet to be purchased by many potential consumers.
The Kenyan banking sector is the most vibrant in the East African Region due to a deeper penetration especially within the rural areas, where the insurance companies do not have branches. With increased integration of financial services and mobile banking platform, banks are keen to expand the range of services offered to clients and bancassurance offers a perfect opportunity for the two sectors to work together as partners.
Huge Potential in Bancassurance
The insurance sector in Kenya is looking at a bright future if it utilizes the existing branch network than sole reliance on insurance agents in terms of expansion of the bancassurance at a minimal cost. For a population of more than 40 million people, a network of 140 insurance brokers is not enough to drive the growth of insurance. Cooperation between bank and insurer must result in attractiveness of products, full scale involvement in selling insurance products, profitable distribution channels and comprehensive operational models.
Bancassurance the potential to greatly benefit both the insurance sector and the financial sector in general. Banks will be able to expand their product and services being offered to their customers, thus improving customer satisfaction which in return results into higher rate of customer retention. The diversified knowledge puts banks in the bancassurance business to have a better competitive edge in their operations.
The insurance sector also stands to benefit as companies will be able to cut down on operating expense since banks already have huge infrastructure to facilitate the services offered. They are also able to reach a wider market through the banks which have many branches established all over the country and also get new customer databases thus making use of personal contact. Bancassurance will also trigger the need for innovative products and services hence increase their profitability.
The Association of Kenya Insurers in its 2013 Industry Insurance Report indicated that the overall insurance penetration increased to 3.44% in 2013 compared to 3.16% in 2012. The above figures highlight the signiﬁcant opportunities that exist in the Kenyan insurance market especially in commercial lines such as oil, real estate and infrastructure. KCB Group, Equity Bank, I&M Bank, National Bank and Family Bank are some of the notable banks conducting bancassurance over the counter.
More room for Growth
The challenges facing insurance companies range from lack of enough knowledge on what insurance is all about and the negative perception among the masses due to misconceptions. On the other hand, industry players need to devise a cost effective distribution channel that will not only minimize their expenses but also allow significant growth in the sector. It has to be noted that in mature insurance markets, a major chunk of life insurance growth is captured by the bank channels.
A recent report by Delloitte predicts a bright future the two industries due to the increased collaboration between the two sectors. What insurers need to do is to carefully evaluate strategic and cultural fits with their banking partners, seek company-wide executive buy-in, operationalize distribution and servicing of the customers from this channel and continuously optimize value-add from the partnership to leverage on efficiencies as a result of the economies of scale.