The African continent’s generally low insurance penetration of about 3% compared to a global average of 8%, presents one of the market’s largest opportunities. As economies rebound and economic growth improves, insurers have increased their activities in the areas of product offering and distribution. Advancement in technology is also providing new ways of innovating, both in commercial and personal lines insurance and helping to bridge the geographical distances, increase scale and improve efficiency.
There is no doubt that one of the main channels of distribution for insurance, whether life or general, is Bancassurance, and the insurer’s bancassurance channel management if handled proficiently and strategically generates the desired efficiencies and sustainable benefits.
In the same way that traditional distribution channels of Direct Marketing, E-commerce, Brokers, Individual or Tied agents and increasingly Telcos or Mobile Network Operators (MNOs), require a specific approach and strategy to manage and operate, the bancassurance distribution channel has its own execution dynamics and management challenges for the insurer which need to be overcome.
The insurer in a bancassurance relationship must thus be cognizant of the specific execution imperatives to ensure it can derive the desired growth and profitability in the long term.
Bancassurance is described variously as the distribution of insurance products through a bank’s channels or an arrangement in which a bank and an insurance company form a partnership to sell the insurer’s products to the bank’s client base and more so lately, new-to-bank customers. It offers the opportunity to reduce the insurer’s cost of deploying and managing its own sales and direct marketing, while gaining unfettered access to a large customer base who will buy insurance from bank branches, on-line channels and staff generally.
It is key therefore that the bank staff receive the necessary information, training in product knowledge and insurance sales, IT systems, incentives and motivation, and marketing and promotions among others, which will enable them to make the desired changes required to effectively sell insurance products.
The levels of partnership and integration agreed between the bank and the insurer is influenced largely by the model of Bancassurance deployed which in turn is a function of the level of regulation in the country. The extent of limitations imposed by the regulation on types of products, who can sell and where they can sell, among others, influence the Bancassurance operating model and this influence is seen in the widely varied models in operation across Sub-Saharan Africa.
Regardless of model used however, the insurer can drive scale and operational efficiencies, reduce costs and in turn grow their profits. In this first part of the article, I will share the various models and their advantages and disadvantages to inform the strategic choices of the insurer.
- Strategic Alliance:
This is where the insurer has exclusive access to the bank’s customer base without having to make a major investment in capital for distribution, and the banks sells the products of just that one company. The bank gains product development capability without having to invest to develop products in-house. The drawback is that the lack of competitive choice in product and pricing could limit uptake of the policies on offer, leading to sub-optimal sales into the bank’s customer base.
- Joint Venture
The bank and the insurer establish a jointly owned insurance agency or distribution business with either usually balanced shareholdings. The joint venture is a completely distinct and separate legal entity from the insurer and the bank, but distributes insurance and investment products through the channel and distribution network of the banking parent. In some cases, the relationship between the bank and insurer is reinforced by an external strategic shareholding.
- Integrated Bancassurance
Here, the bank owns the insurer or vice versa either directly or through a shareholding company or a group or parent structure. Davis, (2007) indicates that while comparable profit data across a range of bancassurers are fragmentary at best, it appears the integrated model, which is favored in European countries, not only combines both the substantial manufacturing and distribution margins in insurance products but also offers significant operational economies in both the back and front office.
The available data indicates impressive return on equity, and client penetration for the experienced integrated European bancassurers like Fortis in its home markets, and Aviva in markets where it has integrated with a local bank distributor. The market share of bancassurance for distribution of life insurance was in the range of 55% to 85% for European countries by 2017 and is reported to be between the 25% and 54% in the leading economies of Asia, which have more recently begun strongly exploiting the bancassurance distribution channel.
- Distribution Model
It is by far the commonest model operated across Africa and especially in Ghana. This bancassurance model ranges across many operations which include mainly the following:
- A distribution agreement covering a referral model with a limited product range, and inadequate training for bank employees,
- An arrangement with insurance agents and licensed advisors selling high complexity products within the banks,
iii. A full time selling model with trained and supported bank staff selling nearly most products across a range of both simple and complex insurance products
- The classical fully integrated distribution model where all products are sold by the bank, there is the advisory-based product offering, a central bancassurance unit offering support services and it is fully integrated into the wealth management framework of the bank.
In the second part of this article, I will discuss the benefits of Bancassurance to the insurer.
This article is Part 1 of an abridged version of a paper published in the West African Insurance Companies Association (WAICA) Journal of April 2019 and presented at the WAICA 2019 Annual General Meeting and Education Conference held in Banjul, The Gambia
The writer is the Head Bancassurance Stanbic Bank GH Ltd.