Bancassurance, Not the End of Insurance Agencies
It’s been 10 years since bancassurance made its debut in Kenya with the awarding of the very first insurance agency licence to CBA Bank back in 2004. By definition, bancassurance is simply the offering of insurance products by banks, and as per banking regulations, banks can only act as agents of insurance companies and not underwriters or providers of insurance.
Initially, traditional brokers and agents were not comfortable with the idea of having to share their space with banks. However, brokers seemed to be more for the idea than agents believing that the entry of banks into the insurance sector will increase retail outlets and raise the penetration of insurance products countrywide. The agents on the other hand were not for it, as to them bancassurance represented a loss in placements and commissions.
It does seem these initial fears were justified as current statistics reveal a disruptive shift in the insurance landscape since the entry of bancassurance. According to the Insurance Regulatory Authority, the insurance sector in Kenya has, in the last 5 years, witnessed an increase in dropout of agents and a considerable reduction in new agent registrations. In 2013, there were 593 new registered agents down from 1,085 new agents registered in 2012. Over 1,900 agents dropped out of the industry in 2013 up from 758 agents who dropped out in 2012.
While other factors including financial constraints, pressure to meet targets and low commissions, might have also contributed to the declining numbers, the main threat being alluded to by many agents is bancassurance. Agents also see bancassurance as the main reason why insurers are reviewing commissions and customers are getting a raw deal, with the banks not giving them a choice on which policy to buy and where to do it.
The Insurance Regulatory Authority (IRA) has had to step in following numerous complaints from agents and are coming up with guidelines to help regulate bancassurance business. The draft guidelines, though still in the pipeline, come with stricter rules for the banks with such clauses as: “The bancassurance agent shall not induce or compel a prospect to buy an insurance product of its principal. All prospects shall be allowed to decide out of their own volition, which insurance product they wish to buy and from which insurer.”
But let’s consider the statistics — as per recent estimates, insurance penetration in Kenya stands at 3.4% — the 4th highest in Africa after Mauritius (6%), Namibia (7.2%) and South Africa (14.1%). If one considers this low penetration, then it is prudent to say that there is still a lot of ground to be covered and development of alternative distribution channels such as bancassurance catering to the untapped market segments must be encouraged rather than vilified. Agents, instead of looking at banks as the enemy, should seek ways to work with or alongside them as well as devise ingenious ways to reach the over 96% of the population still untapped. In many countries around the world, India being a great example, the distribution of insurance by banks using their branch network has proven to be a very effective channel of increasing insurance penetration.
Kenya’s insurance market is potentially worth over 2 billion dollars, but only a fraction of this is realized, largely due to lack of awareness as well as other cultural and technological reasons. While bancassurance might initially have been seen to be taking away business from traditional intermediaries, in the long term it has actually expanded the market and created enough business for resilient intermediaries. And even if bancassurance ends up with a commanding market share, the portion for the traditional intermediaries will still be considerably larger compared to the cumulative business they previously managed.
Moreover, traditional intermediaries still have a pivotal role to play especially when it comes to servicing complex insurance products. Banks have limited insurance business experience and are mainly able to handle straightforward products that are simple to explain and service. There is still considerable room in the market for the professional intermediary. Consequently, it makes more sense to put aside the current rivalry and focus on harnessing the collective experience, strategic creativity and innovation of insurers, banks, brokers and agents towards solving our persistent penetration challenge.
