Bancassurance Principles and Practice · 1A1 Role of the Financial Services Sector Facilitate payment systems including cheques, credit cards, online payments, mobile payments. Economic

THE INSURANCE INSTITUTE OF UGANDA

TRAINING DEPARTMENT

Bancassurance Principles and Practice


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Copyright Page

Contributors:

JONAN KISAKYE – DIP.CII, AWB, MBA, BA (SS)

BASHABE SIMON – DIP.CII, AWB, MSC. MGT, PGD (MM), BCOM

AMBROSE KIBUUKA – ACII, BSC. STAT


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BANCASSURANCE PRINCIPLES AND PRACTICE CIU 207

Course Description

This course is aimed at introducing Bancassurance to the

learners. Bancassurance is the selling of insurance and banking products

through the same channel, most commonly through bank branches. This

course introduces Bancassurance to the learner and covers the major aspects

of the process of bancassurance.

Course Objectives

i) Understand the distribution channels and operations of the one-stop

customer service centre.

ii) Understand complete financial planning services to its customers under one

roof and the competitive edge.

iii) Understand the opportunities for sophisticated bancassurance product

offerings.

iv) Understand the benefits of greater customer lifecycle management of

insurance and bank institutions.

Learning outcomes

i) Have knowledge about the distribution channels and operations of the

one-stop customer service centre.

ii) Appreciate the financial planning services to its customers under one roof

and the competitive edge.

iii) Provide the bancassurance product

iv) Appreciate the benefits of greater customer lifecycle management of

insurance and bank institutions.


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Course Content

Topic Description Lesson details

1. The Financial Services Sector

Meaning of the financial services sector Role of the sector Banking and its regulation

Bank products Distribution channels in banking

Insurance and its regulation Pensions and its regulation

2. Introduction to Insurance

What is insurance The principles of insurance The insurance process

Sharing of risks Main insurance products Distribution channels in insurance

3. Introduction to Bancassurance

Meaning of Bancassurance Evolution of bancassurance

Case examples Benefits of bancassurance

Challenges of bancassurance Critical Success Factors for

Bancassurance

4. Bancassurance in Uganda and its

Regulatory Framework

Bancassurance in Uganda Legislation Governing Bancassurance

in Uganda Emerging Trends in Bancassurance

5. Bancassurance Models and Strategies

Bancassurance Models Bancassurance Strategies

Bancassurance Process and Documentation

6. Non-Life Bancassurance Products

Introduction – General Product Features

Accident and sickness

medical insurance

Travel Insurance

Home insurance for buildings and contents

Motor insurance

Business All Risks Policy

Takaful

7. Life Bancassurance Products

Introduction – Life Product Features

Life Product Categories

Other Products

Riders

8. Saving, Investments and

retirement planning. Saving s and investment needs

The need for savings and investment

advice


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Personal factors affecting choice of

savings and investments products

Main types of savings and investment

products.

Retirement planning needs

Personal factors affecting retirement.

Retirement planning products

9. Fact-Finding in Bancassurance

Definition

Objectives of fact-finding

Fact-finding methods

After the fact-finding

10. Good and ethical client service

Professionalism and ethics in the sales process

Presenting Recommendations

Acceptance and rejection of

recommendations

Product Switching

Customer complaints and claims

handling


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Table of Contents

GENERAL INTRODUCTION ............................... Error! Bookmark not defined.

COURSE CONTENT ........................................ Error! Bookmark not defined.v

CHAPTER 1: THE FINANCIAL SERVICES SECTOR .......... Error! Bookmark not

defined.

Introduction ................................................................................................. 1

Learning Outcomes ...................................................................................... 1

1A Financial services Sector ..................................................................... 2

1B Banking .............................................................................................. 2

1C Banking Regulation in Uganda ............................................................ 3

1D Main Banking Products ....................................................................... 4

1E Distribution Channels in Banking ....................................................... 6

1F Insurance ............................................................................................ 7

1G Insurance Regulation in Uganda .......................................................... 7

1H Pensions ............................................................................................. 8

1I Pensions Regulation in Uganda ........................................................... 8

Chapter Summary ..................................................................................... 10

Test Your Understanding ........................................................................... 11

CHAPTER 2: INTRODUCTION TO INSURANCE .............................................. 12

Introduction ............................................................................................... 12

Learning Outcomes .................................................................................... 12

2A What is Insurance ............................................................................. 13

2B The Insurance Process ....................................................................... 17

2C Risk Sharing in Insurance ................................................................. 19

2D Main Insurance Products ................................................................... 21

2E Distribution Channels in Insurance ................................................... 22

Chapter Summary ..................................................................................... 24


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CHAPTER 3: INTRODUCTION TO BANCASSURANCE .................................... 25

Introduction ............................................................................................... 25

Learning Outcomes ...................................... Error! Bookmark not defined.5

3A Definition of Bancassurance .............................................................. 26

3B Evolution of Bancassurance .............................................................. 27

3C Benefits and Disadvantages of Bancassurance ................................... 28

3D Benefits and Challenges of Bancassurance ........................................ 30

3E Critical Success Factors for Bancassurance ....................................... 32

Chapter Summary ..................................................................................... 33


CHAPTER 4: BANCASSURANCE IN UGANDA AND ITS REGULATORY

FRAMEWORK ............................................................................................... 34

Introduction ............................................................................................... 34


4A Bancassurance in Uganda ................................................................. 35

4B Legislation Governing Bancassurance in Uganda ............................... 37

4C Emerging Trends in Bancassurance in Uganda .................................. 38

Chapter Summary ..................................................................................... 41


CHAPTER 5: BANCASSURANCE MODELS AND STRATEGIES ........................ 42

Introduction ............................................... Error! Bookmark not defined.42

Learning Outcomes ...................................... 4Error! Bookmark not defined.

5A Models of Bancassurance .................................................................. 43

5B Bancassurance Strategy .................................................................... 46


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5C Involvement of Insurers and Banks at Different Stages of

Bancassurance .......................................................................................... 48

Chapter Summary ..................................................................................... 50


CHAPTER 6: NON-LIFE BANCASSURANCE PRODUCTS ................................ 52

Introduction ............................................................................................... 52


6A General Features of the Product ........................................................ 53

6B Accident and Sickness Insurance ...................................................... 53

6C Travel Insurance Policies ................................................................... 55

6D Home Insurance for Buildings and Contents ...................................... 55

6E Motor Insurance Policies .................................................................... 55

6F Business All-Risks Policies ................................................................ 56

6G Takaful .............................................................................................. 56

Chapter Summary ..................................................................................... 58


CHAPTER 7: LIFE BANCASSURANCE PRODUCTS ........................................ 59

Introduction ............................................................................................... 59


7A Introduction ..................................................................................... 60

7B Life Product categories ....................................................................... 61

Chapter Summary ..................................................................................... 68


CHAPTER 8: SAVINGS, INVESTMENT AND RETIREMENT PLANNING .......... 69

Introduction ............................................................................................... 69


8A Savings and Investment Needs ........................................................... 70


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8B Need for Savings and Investment Advice ............................................ 71

8C Personal Factors Affecting Choice of Savings and Investment Products

…………………………………………………………………………………………71

8D Main Types of Savings and Investment Products ................................ 73

8E Retirement Planning Needs ................................................................ 75

8F Personal Factors Affecting Retirement Planning Needs ....................... 75

8G Retirement Planning Products and Their Uses ................................... 77

Chapter Summary ..................................................................................... 80


CHAPTER 9: FACT-FINDING IN BANCASURANCE ......................................... 82

Introduction ............................................................................................... 82


9A What is Fact-finding? ........................................................................ 83

9B Objectives of Fact-finding .................................................................. 83

9C Methods of Fact-finding ........................ Error! Bookmark not defined.

9D After Fact-finding .............................................................................. 91

Chapter Summary ..................................................................................... 93


CHAPTER 10: GOOD AND ETHICAL CLIENT SERVICE IN BANCASSURANCE 94

Introduction ............................................................................................... 94


10A Professionalism and Ethics in the Sales Process ................................ 95

10B Impact of Ethics on Business ............................................................. 98

10C Presenting Recommendations to Clients ............................................ 99

10D Acceptance and Rejection of Recommendations ............................... 100

10E Product Switching ........................................................................... 102

10F Customer Complaints ...................................................................... 103


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Chapter Summary ................................................................................... 105

Test Your Understanding ......................................................................... 105

FURTHER READING ................................................................................... 106

CHAPTER ONE

THE FINANCIAL SERVICES SECTOR IN UGANDA

Introduction

This chapter aims at introducing the student to the financial services sector in

Uganda, its role and the main players relevant to Bancassurance.

The student is guided to appreciate the various players in the sector including

banks, insurance and pensions. The importance and regulation of these key

institutions is highlighted and the roles of the different regulators.

Unit Structure

The Financial services sector

The role of the Financial services sector

The main players in the Financial services sector in Uganda:

- Banks and banking regulation

- Insurance and insurance regulation

- Pensions and pension regulation

Learning outcomes

After completing this chapter you should be able to:

Have a fair understanding of the Financial Services Sector.

Explain the role of the Financial services sector

Understand banks and banking regulation in Uganda.

Understand the main bank products and distribution channels.

Understand Insurance and insurance regulation in Uganda

Understand pensions and pensions regulation in Uganda

Study guide

In this chapter the student is introduced to the Financial Services sector as a

foundation to understanding the interaction between banks and insurance

companies. The banking, insurance and pensions products and regulations

form a basis and foundation for the subsequent chapters and discussions.


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THE FINANCIAL SERVICES SECTOR IN UGANDA

1A The Financial Services Sector

The financial sector is the set of institutions, instruments, and the regulatory

framework that permit transactions to be made by incurring and settling debts. The key players in the financial sector are banks and insurance companies

with the main focus of the industry being financial management which includes investment, lending of money, insurance and pensions.

The financial services sector or industry comprises firms that offer financial services to commercial and retail customers, these include banks, insurance

companies, capital markets, investment companies and pensions providers among others.

1A1 Role of the Financial Services Sector

Facilitate payment systems including cheques, credit cards, online payments, mobile payments.

Economic growth through availability of capital for investment.

Job creation through direct and indirect employment.

Insurance and risk management which enables and stimulates investment.

Long term investment through shares and bonds through capital markets

Offers investment opportunities through foreign investment.

Pensions, retirement planning and management.

For the purposes of this course, we shall limit our scope to the two main

institutions that are relevant and applicable to bancassurance that is Banks

and Insurance companies and by extension the pensions sector:

1B BANKING:

A bank is a financial institution that accepts deposits from the public and

creates credit.

According to the business dictionary, a bank is an establishment authorized by

a government to accept deposits, pay interest, clear cheques, make loans, act as an intermediary in financial transactions and provide other financial

services to its customers. The core activity of banks is to act as an intermediary between those with

financial means at their disposal (depositors / people who lend money to banks at an interest) and those who are in need of funds (borrowers / people who

borrow money from banks and pay interest)


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1B1 The Uganda Banking Sector: There over 25 commercial banks in Uganda today and over 10 MDIs, the main

commercial banks are under the Uganda Bankers Association (UBA) an

umbrella organization for commercial banks licensed and supervised by Bank

of Uganda.

UBA lobbies government and other stakeholders and represents Ugandan

banks on the local and international scene. It also enables stakeholders like

government, consumers and others to get feedback from the banking sector.

The training arm of the banking industry in Uganda is the Uganda Institute of

Banking and Financial Services (UIBFS). It provides training and consultancy

services for Uganda’s financial sector.

1C Banking Regulation in Uganda

Bank of Uganda supervises and regulates all Banks and other financial

institutions in Uganda under the Financial Institutions Act 2004, this Act has

now been amended to the FIA (amendment) 2016, regulated institutions by

BoU include:

Commercial Banks

Credit Institutions

Microfinance Deposit Taking Institutions (MDIs)

Forex Bureaux

Money Remitters

1C1 Role of Bank of Uganda (BOU)

The Bank of Uganda’s core activities include:

Issuance of Uganda's national currency/legal tender, the Uganda Shilling (UGX)

Regulation of money supply through Monetary Policy Banker to the Government of Uganda

Banker to Commercial Banks Supervision and regulation of Financial Institutions Management of the country's external/foreign reserves

Management of Uganda's external debt


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Adviser of Government on financial and economic issues

1D The Main Banking Products

The main type of product offered by banks is deposit accounts, these are

mainly categorized into two, that is current accounts, and savings account.

1D1 Current accounts

They are also referred to as transaction accounts, checking accounts, or

demand deposit accounts.

A current account is a deposit account or "on demand" account and is available

for frequent and immediate access by the account owner or to others as the

account owner may direct. This type of account provides security for the

account holder, easy access to their finances and supports frequent money

transactions whenever needed. Access to funds is usually through the use of

cheques and electronic transfers.

1D2 Savings accounts

A savings account is one of the simplest types of bank deposit accounts

available, letting the customer store their money securely while earning

interest. The rate of interest is dependant on the type of bank, amount of

money deposited, prevailing interest rates in the market and the period the

bank holds customers deposits. Access to funds from a savings account

through withdrawals is limited and may be subject to notice.

1D3 Loans and Mortgages

The other major product offered by banks is loans and other lines of credit and

mortgages.

A bank loan is an agreement between the borrower and the bank that the loan

will be paid back in a specific amount of time at a specific interest rate. The

borrower asks the bank to loan the money they need to buy a certain item or

undertake a specified venture / business.

The bank normally looks at the applicants’ financial situation to determine

whether they will extend the credit facility or not and at what interest rate. The

loan can be secured with an asset or can be an unsecured loan.


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Interest from loans form one of the major sources of revenue for banks and

loans are essentially one of the core services offered by banks.

A mortgage on the other hand is a loan that a bank gives its customer to help

finance the purchase of a house. The house purchased then acts as collateral

in exchange for the money borrowed. A mortgage repayment is normally on a

monthly basis and comprises of: the principal, interest, taxes and insurance.

1D4 Other Services / Products offered by Banks:

Safe keeping

Safekeeping is the storage of assets or other items of value in a protected area

such as a bank which is then legally liable and responsible for the stored items. Banks offer safe custody services at a fee storing such items of value like

tittles, jewelry and other valuables.

Portfolio management

Banks are able to offer portfolio management services to those with no time,

little or no knowledge and expertise in investments but have substantial

amounts of money to invest in stock markets at a fee.

Collective investments

Banks also offer pooled investments or mutual funds mainly through unit trust

subsidiaries. Collective investments enable those seeking wide spread

investments without having the burden of day today decisions and those with

lower levels of capital to participate in capital markets.

Pensions

Some banks set up divisions or subsidiary companies that offer pension

business to their clients to help meet their needs for retirement planning.

Insurance

The core of this course is the convergence of Insurance and banking services.

Banks as part of their range of products offer life and non-life insurance

products to their clients, these are either with risk participation through

setting up insurance subsidiaries or without risk participation through

distribution of insurance products on behalf of insurance companies.


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1E Distribution Channels in Banking

Banks interact and service their customers in a number of ways or distribution

channels and these include but are not limited to the following:

Branches: Banks open branches in several areas within regions where

they operate in addition to their head offices to bring services closer to

customers.

Internal sales teams: These are normally salaried employees of banks

that help distribute bank products to corporate and retail customers.

Agency banking: By licensing agents to offer services to customers on

behalf of banks.

Internet banking: Through the use of banks’ websites and internet

services to offer customers banking experiences.

Mobile banking: By empowering customers to transact with banks and

transfer money and make payments using mobile devices like smart

phones.

Automated teller machines (ATMs) and points of sale (POS) machines

that enable customers to withdrawal and make payments for different

services and products.

1F INSURANCE

The details of insurance and principles that govern insurance are the basis of

chapter two of this book. Here we shall only look at the insurance sector as a

whole and how it is regulated.

1F1 The Uganda Insurance Sector

The insurance industry in Uganda today comprises of 21 Non-Life Insurance

Companies, 8 Life Insurance Companies and one Reinsurance Company

(Uganda Re).

Uganda Insurers Association (UIA) is the umbrella body that brings together all

insurers and reinsurers in Uganda by adopting a common strategy and

promoting close industry cooperation. UIA also influences enactment of

favorable legislation and represents the views of its members locally and

internationally.

The Insurance Institute of Uganda (IIU) is the training body of the Insurance

Industry in Uganda.


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IIU develops and conducts training activities for its members and is also the

representative insurance professional body under the Law.

1G Insurance Regulation in Uganda

The Insurance Regulatory Authority of Uganda is a government body mandated

under the Insurance Act (amended) 2011, to regulate, monitor and license all

players in the Uganda Insurance industry.

In 2013, IRA directed every insurer in Uganda to form separate companies

dealing in life business and general business / non-life business. The objective

was to prevent a downturn in one type of business from spreading risk across

the two businesses and the entire industry.

IRA regulates and licenses a number of insurance industry players including

the following:

Insurance Companies (Insurers)

Loss Assessors

Loss adjusters

Insurance surveyors

Investigators

Insurance Brokers

Insurance Agents

Among others

1G1 Role of Insurance Regulatory Authority of Uganda (IRA)

Establish standards for the conduct of insurance and reinsurance

business;

License all persons involved in or connected with insurance business, including insurance and reinsurance companies, insurance and reinsurance intermediaries, loss adjusters and assessors, risk inspectors

and valuers; Approve texts of policies proposal forms; Approve minimum rates of insurance premiums and maximum

commissions in respect of all classes of insurance;

Safeguard the rights of insurance policyholders and insurance beneficiaries to any insurance contract;

Provide a bureau to which complaints may be submitted by members of

the public; Advise the Government on adequate insurance protection and security

for national assets and national properties;

Promote a sound and efficient insurance market in the country;

Supervise and control transactions between insurers and re-insurers;


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Ensure strict compliance with this Act and regulations made under it and any other law relating to insurance; and

Undertake other functions as the Minister may designate.

1H PENSIONS

Pension schemes are savings and investment plans tied to the provision of

pension benefits for the individual and their dependants, contributions paid

into a retirement pension scheme can not be accessed or withdrawn until

retirement or earlier death

1H1 Uganda Pensions Sector

The pensions sector is one of the key non-banking financial sectors that is a source for long term finance for investment. It is a long term savings vehicle

that permits the population to provide for old age retirement among others and a safety net in general against a variety of unforeseen future consumption requirements.

Currently, the pension sector in Uganda is composed of; the Public Service Pension Scheme, which is a Government scheme catering for the pensions of civil servants; the National Social Security Funds, which receives mandatory

pension contributions from all private sector employers with five or more staff, and their employees; and a number of occupational pension schemes to which various large employers and their employees make additional contributions,

over and above the NSSF mandatory contribution.

1I Regulation of the Uganda Pensions sector

The Uganda Retirement Benefits Regulatory Authority (URBRA) is a government owned semi-autonomous agency, established by the Uganda

Retirement Benefits Regulatory Authority Act 2011. It is responsible for regulating establishment, management and operation of retirement benefits schemes in Uganda in both private and public sectors and supervising

institutions which provide retirement benefit products and services.

1I1 Role of Uganda Retirement Benefits Regulatory Authority (URBRA)

Regulate and supervise the establishment, management and operation of

retirement benefits schemes in Uganda, in both the public and private sectors.

License retirement benefits schemes in Uganda.

License custodians, trustees, administrators and fund managers of

retirement benefits schemes;

Approve an actuary or auditor of any retirement benefit scheme.


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Protect the interests of members and beneficiaries of retirement benefits schemes including the promotion of transparency and accountability.

Improve understanding and promote the development of the retirement benefits sector.

Promote the stability and integrity of the financial sector through ensuring stability and security of retirement benefits schemes.

Ensure sustainability of the retirement benefits sector with a view to promoting long term capital development.

Advise the Minister on all matters relating to the development and operation of the retirement benefits sector.

Implement Government policy relating to retirement benefits schemes.

Promote public awareness of the retirement benefits sector.

Any other function conferred upon it under the URBRA Act 2011.


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Chapter Summary:

The financial services sector comprises of banks, insurance companies,

capital markets, investment companies and pensions providers among others.

The roles of the financial services sector include:

Facilitating payments

Job creation

Insurance and risk management

Long term investments

Pensions and retirement planning

A bank is a financial institution that accepts deposits from the public

and creates credit.

Banks in Uganda are regulated by BOU under FIA 2004 (Now amended

2015).

Banks offer a range of products to customers and these include

Deposit accounts

Loans and mortgages

Banks distribute their products through a number of channels which

include:

Branches

Internet

ATMs

Agents

Insurance companies are regulated by IRA under the Insurance Act

(amended) 2011.

Pensions are long term savings vehicle that permits the population to

provide for old age and retirement.

The pensions sector is regulated by URBRA under the URBRA Act 2011.

Sample Questions

1. What is the Financial Services Sector?

2. List the roles of the financial services sector to the economy.


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3. Explain the two main deposit bank products?

4. Identify two other bank products besides deposit products.

5. Describe the different distribution channels used in Banking.

6. What is the role of any of the following regulatory bodies?

- Bank of Uganda.

- Insurance Regulatory Authority of Uganda

- The Uganda Retirements Benefits Regulatory Authority.


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CHAPTER TWO

INTRODUCTION TO INSURANCE

Introduction

This chapter aims at introducing the student to insurance, principles that

govern insurance contracts, the products and distribution channels in

insurance. It aims at ensuring appreciation from the student exposed to

insurance for the first time.

Unit Structure

What is insurance

The principles of insurance

The insurance process

Sharing of risks

Main insurance products

Distribution channels in insurance

Learning outcomes


Define insurance

Explain the principles of insurance

Explain underwriting and claims processes.

Describe sharing of risks in insurance

Highlight the main insurance products

Identify the main distribution channels in insurance

Study guide


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In this chapter the student is exposed to the guiding principles of insurance

and the insurance processes which will form the foundation for the rest of

chapters and the course unit.

INTRODUCTION TO INSURANCE:

2A what is Insurance:

Insurance can be defined as the process of passing on or transferring the risk

of loss from one party the insured to another the insurer at a fee called

premium.

Insurance is a contract between two parties that is the proposer and insurer at

a fee.

Insurance can further be categorized into two:

General/Non-Life insurance characterized by and includes all businesses and

classes arranged on an annual basis, renewable on expiry and premiums are

paid at inception or at renewal.

Life insurance characterized by long term business that is usually longer than

one year, with a defined insurance benefit at inception and based on the life

assureds life.

2A1 Principles of insurance

Any contract must fulfill and satisfy certain requirements including offer,

acceptance, consideration, capacity to contract and form.

In addition to the above requirements, for an insurance contract to be valid

there must be six essential principles commonly known as principles of

insurance:

- Insurable interest

- Utmost good faith

- Indemnity

- Contribution

- Subrogation

- Proximate cause.

Each of these is discussed briefly below:


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1. Insurable Interest

Insurable interest is the basis or core of insurance and can be defined as the

legal right to insure arising out of a financial relationship between the insured

and the subject matter of insurance recognized at law.

For an insurance contract to be valid, the proposer must have insurable

interest in the subject matter of insurance whether a property in non-life

insurance or a life to be assured under life insurance.

Application of insurable interest:

Property insurance:

Ownership

Agent acting for a principle

Custodian of property – Bailee

Joint owners

Life Insurance

Unlimited insurable interest in own life and life of a spouse.

Creditor / Debtor relationship to the amount of the loan.

Employee / Employer (Key-man insurance) to extent of the value of

services rendered.

Partnerships to the limit of their financial obligations to each other.

Assignments of life policies which transfers one’s interest in the policy to

another.

Essentials of Insurable Interest:

- Property / right to insure – subject matter of insurance.

- Legal interest / relationship between the insured and subject matter of

insurance.

- Interest must be valued financially or would lead to financial loss to the

insured.

- Interest must be current not future hope of acquiring interest.

When does insurable interest exist?

- Marine insurance: insurable interest only arises at the time of loss.

- Life Insurance: Insurable interest only arises at inception.

- Property or general insurance: Insurable interest exists at inception,

during the policy and at loss. If the property is sold, insurable interest

seizes.

2. Utmost good faith


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Insurance contracts are contracts of utmost good faith as the insured knows all

about the risk unlike the insurer. This duty however is mutual and requires

the insurer and insured to deal openly and honestly with each other and reveal

all material facts during the process leading to formation and duration of the

contract.

There is therefore a contractual duty between the insurer and insured in the

following ways:

- To tell the truth and not misrepresent any matter relating to the

insurance contract.

- To disclose all relevant information and not conceal or hide material

facts.

3. Indemnity

All insurance contracts are contracts of indemnity, the only exception is in life

and accident insurance which are benefit policies where an agreed figure or

sum is set at inception of the policy.

Indemnity is the process of putting the insured back to the same position they

enjoyed just before the loss, there should not be a benefit or profit made by

insured.

Determining indemnity:

- Property / General insurance: based on the value of the property at the

time and place of loss.

- Life and accident policies: agreed benefit at inception or the sum assured

/ insured

- Liability insurance: based on court settlements or awards.

Methods of indemnity / compensation:

- Cash payments.

- Repair e.g. in motor

- Replacement e.g. glass insurance

- Reinstatement or settling loss on the basis of new for old e.g. rebuilding a

lost property.

4. Contribution

Contribution arises where there is more than one insurance policy covering the

same loss or double insurance. It’s the right of one party to call upon another

to contribute to a loss / claim, either equally or to a ratable proportion.

Contribution only arises in the following circumstances:


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- There two policies of indemnity and therefore excludes life assurance and

other non indemnity policies.

- Covering the same subject matter

- A common peril covered by the two policies e.g. fire.

5. Subrogation

Subrogation supports the principle of indemnity. It ensures that the claimant

is not paid twice or more than indemnified. This arises in situations where the

insured can claim under the insurance policy and on another person who

caused the loss.

The insured would ideally choose either to claim on the policy and is

compensated and as such the legal right or claim against another person who

caused the loss passes to the insurer, or pursue the claim with the third party

and not claim against the insurance contract.

Contribution and subrogation are commonly known as corollaries of the

principle of indemnity and only apply to contracts of indemnity. In life

assurance policies, the person is free to buy as many life policies as they can

afford and each would ideally pay to the full benefit stated in the policy.

6. Proximate cause

The risk insured against must be the cause of the loss, if it is excluded the

claim is not payable.

The proximate cause is the active, dominant, efficient cause that sets in motion

a chain of events which brings about a loss. This dominant / most direct cause

must be an insured peril e.g. fire and there is no liability if it is an excluded

peril e.g. dangerous sports and pursuits.

Life offices are usually keen on the cause of death mentioned on the death

certificate to ensure that no claim arising out of an excluded peril like suicide

is paid.

Claim payments / classes of risks:

- An insured peril – claim is payable and is mentioned as insured in the

policy.

- An exclude peril – claim is not payable and is stated as excluded in the

policy.


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- An uninsured peril – claim is not payable, though insurable these are not

mentioned in the policy.

Indemnity, subrogation and contribution do not apply to life insurance as no

amount of money or value can be attached to life. Life policies are benefit

policies and on death the agreed sum assured at inception is payable even if it

makes the life assured or dependants better off financially.

There however protection products like Income Protection Insurance and

Critical Illness Insurance whose aim is to provide an income to cope with the

associated lengthy periods of illness.

2B The insurance process:

Insurance is a unique product whose quality can only be determined at

underwriting and when a loss occurs. This is because at underwriting the

quality of risks brought into the common pool will determine profitability and

at the time of loss the way the claim is handled will have important marketing

repercussions for the insurer.

2B1 Underwriting:

This is the processing of assessing the risk presented for insurance and

deciding whether cover is to be granted or not. If accepted or granted at what

terms, conditions, exclusions and cost / premium.

Underwriting involves measuring risk exposure and determining the premium

that needs to be charged to insure that risk.

The person who accepts or declines the risk is called an underwriter

2B1AFunctions of an underwriter:

1. To identify and calculate the risk of loss from the policyholders, the

underwriter decides whether or not to accept a particular risk after

securing factual information from / about the applicant, evaluating the

information and deciding on acceptance / declinature.

2. To determine the appropriate price / premium, terms, conditions and

exceptions while recording the appropriate classification and rating

information.

3. To estimate the potential exposure, check retention and arrange

reinsurance where required.


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4. To confirm terms, draft the policies to cover the risk and issue the policy

/ document.

5. Obtain quality new business meant to enhance profitability of the

insurance company.

6. Develop new products and enhance existing ones to ensure

strengthening of customer relationships and achieve maximum premium

growth.

7. Obtain feedback from the market to ensure that products, terms and

premium are maintained at competitive levels.

8. Maintain robust risk inspection and survey programs to ensure that

policy terms are related to quality of risk and provide risk improvement

advice to customers.

2B1B Examples of Underwriting Considerations / Factors:

Life Insurance

Underwriter may consider the following aspects before accepting or declining

the risk:

- Age

- Occupation

- Current health status

- Gender

- Medical history

- Leisure activities

- Family medical history

- Etc.

Property Insurance (Building)

The underwriter may consider the following factors before accepting or

declining the risk:

- Occupation / use

- Construction material

- Safeguards like installation of fire extinguishers

- Etc.

2B2 Claims processing:

A distinction should be made between a loss and a claim


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A loss is the occurrence of an insured event which gives rise to financial

disadvantage on the part of the insured e.g. fire or accident.

A claim on the other hand is a request by the insured to the insurer to be

compensated under an insurance policy following a loss.

It should be noted that not all losses result into a claim due to exclusions and

conditions in the insurance policy.

A poor claims performance / service can impact the relationship between the

insurers and their clients in the following ways:

1. Claims handled unfairly and / or slowly can give bad word of mouth,

publicity or even unwelcome press and media attention.

2. Claims overpaid will impact on profitability.

3. Omissions to chase recoveries by way of contribution, subrogation,

salvage and reinsurance will also affect profitability.

4. Claims handled fairly and efficiently will eventually give a company a

solid and dependable reputation.

2B3 The claims process / stages:

- Notification / contacting the insurer: reporting the loss to the insurer by

phone, fax, email or letter.

- Completion of a claim form and attaching necessary documentation like

police reports, death certificates as required.

- Claim processing: if the claim is not payable the insured is immediately

informed, if payable a file is opened capturing the details of the claim.

- Adjusting the claim to quantify the extent of loss.

- If any fraud is suspected investigations are carried out especially in life

to understand the circumstances surrounding the death or accident.

- If no further details are required by the insurer the claim is usually

settled.

2C Sharing Risks - Insurance, Co-insurance and Reinsurance

- Client / insured – Direct insurer - Reinsurer - Retrocessionaire

Co-insurance

2C1 The Insured:

This is the individual, merchant or company in need of insurance.

There three broad categories of Insureds:

a) Retail / Individual:


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Individuals in their personal capacity in need of products like life assurance,

Personal accident, motor, buildings and contents insurance etc.

b) Small and medium Enterprises:

This is where risks are grouped into relatively simple underwriting sectors such

as small shops, offices, restaurants, cottage industries, etc.

In Uganda companies are now venturing into micro insurance which targets

small businesses but excluding obvious heavy risks, underwriting is simplified

with common terms and conditions.

c) Corporate:

These are large buyers of insurance and include large organizations in telecom,

banking, energy, mining, hospitality etc.

Here the classes are big enough to require and warrant individual underwriting

and pricing.

2C2 Co-insurance:

If one insurer does not have enough capacity to underwrite or take on all the

risk from the insured or client, the insured may have to co-insure with more

than one insurance company. Each of the participating insurers would have a

separate contractual relationship with the insured and would pay a claim by

way of a fixed percentage share up to the risk assumed.

For example a factory valued at Ushs.50 Million co-insured between different

insurers (X, Y and Z) with a total loss would be shared as below:

Value: Ushs. 50 Million

Loss: Ushs 50 Million

INSURERS RISK

ASSUMED Ushs

CLAIM

PAYABLE Ushs.

X 10,000,000 10,000,000

Y 20,000,000 20,000,000

Z 20,000,000 20,000,000

TOTAL 50,000,000 50,000,000

Co-insurance is therefore the sharing of risks amongst many insurers.

Whilst all insurers have a legal contract directly with the insured, it is possible

for a lead insurer (who introduces or offers the risk to fellow insurers) to issue


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and service the policy 100% amount and note the co-insurers’ shares by

endorsement.

2C3 Reinsurance

This is the method where by an insurer (ceding company / reinsured) passes

on some or all of the risk to a reinsurer or another insurance company to avoid

financial consequences from the risks it has assumed or accepted.

Reinsurance can either be on a case by case or a one off that is facultative

reinsurance or treaty reinsurance where an agreement for automatic

acceptance of risks within the agreement exists between the insurer and

reinsurer.

Reinsurance is therefore the passing on of all or some of the liability assumed

by an insurer to a reinsurer. In simple terms it is the insurance of insurers.

Reinsurance arises where the insurer does not have capacity to take on all the

risk, instead of declining the business, the insurer will accept it in full and

then pass on a portion to reinsurers either by way of a percentage or an

amount above its retention.

The reinsurance contract is between the insurer and the reinsured and should

the reinsurer for any reason fail to pay the claim, the insurer is still liable to

the insured for the full amount.

In Uganda the main reinsurance company is Uganda Reinsurance Company

commonly known as Uganda Re.

2C4 Retrocession:

Retrocession is the reinsuring of reinsurers. It is the process of ceding or

passing on to another reinsurer all or part of the reinsurance it has assumed.

The retrocessionaire is the reinsurer of the reinsurance company and the

ceding reinsurer is known as a retrocedant. The retrocession agreement has no

relationship with the insurer in any way.

2D Main insurance products


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2D1 General insurance products

- Fire and related perils

- Domestic package insurance

Buildings, contents, all risks, workmen’s compensation, owners and

occupiers liability.

- Accident insurance

All risks, goods in transit, burglary, glass and fidelity guarantee and

bonds.

- Liability insurance

Public and product liability, professional indemnity, workmen’s

compensation, employers’ liability, directors’ and officers’ liability.

- Transport / Motor insurance

Third party, Comprehensive.

- Marine and Aviation

- Engineering and construction insurance

Boiler explosion, contractors all risks, electronic equipment, machinery

breakdown.

- Medical / health insurance.

2D2 Life insurance products

- Individual products:

Term assurance, whole life, life of another, joint life, critical illness,

income protection, endowments, funeral covers, personal retirement

plans, unit trusts, annuities etc.

- Group / corporate products:

Group life assurance, Group credit life assurance, Group last expense,

Group critical illness, Group income protection, Pension administration

etc.

2E Distribution channels in insurance / intermediaries


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The Ugandan insurance market is characterized by a number of intermediaries

who sell insurance on behalf of insurers both life and non-life and these

include:

1. Insurance Agents: in Uganda agents are licensed by IRA and are tied to

one insurer transacting either life or non-life insurance. They are paid by

commission depending on standards rates issued by the regulator, to

date there over 1000 agents in Uganda.

2. Insurance Brokers: these are licensed by IRA and are free to transact

with any insurer for purposes of insurance business. They are employed

by the insured although paid by insurers on a commission basis on

business forwarded on rates determined by IRA. In Uganda today there

over 20 insurance brokers.

3. Banks: although yet to take off, this is a relatively new channel in

Uganda. The Financial institutions act 2004 has been amended to cater

for bancassurance and only await guidelines for banks to embark on

bancassurance.

4. Internal sales force: insurers hire marketers and sales forces that are

paid a salary to look for business. These are permanent employees of the

insurance companies and as such do not earn commission off sales

closed or business brought to the books of the insurer.

5. Branches: Insurance companies open up branch offices in various parts

of the country / districts in bid to bring services closer to the customers.

Many insurers today operate branches in most of the major towns in

Uganda.

6. Internet: the emergence and development of the telecommunications

sector has meant that the internet is more available and cheaper than

before. Most insurers have websites where company information is

available in addition to products, reporting claims, getting quotations

and other services. The advent of smart phones has also led to the

development of insurance applications geared towards bringing services

closer to the customer and ensuring that more people are reached by

insurers in a bid to increase and grow premiums.


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Chapter Summary:

Insurance is a contract between two parties that is the proposer and

insurer at a fee called premium.

Principles of insurance include:

Insurable interest

Utmost good faith

Indemnity

Contribution

Subrogation

Proximate cause.

The insurance process includes although not limited to underwriting and

claims processes.

Risk sharing in insurance takes the form of co-insurance and

reinsurance.

Insurance products can be divided under two broad categories that is

Non-Life insurance products and Life insurance products.

Distribution channels in insurance include:

Agents

Brokers

Banks

Internal sales force

Branches

Internet

Sample Questions

7. Define insurance.

8. Briefly explain the principles of insurance.

9. What is underwriting and how important is underwriting in insurance?

10. Differentiate between a loss and a claim.


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11. Explain insurance, co-insurance, reinsurance and retrocession.

12. Identify the main channels of distribution in insurance.

CHAPTER THREE

INTRODUCTION TO BANCASSURANCE

Introduction

Bancassurance is a new concept in insurance distribution. In this chapter we

shall define the term bancassurance, examine the origins and evolution of

bancassurance and discuss the benefits and disadvantages of bancassurance.

Unit Structure

Definition of bancassurance

Evolution of bancassurance

Case examples

Benefits and challenges of bancassurance

Critical Success factors for bancassurance

Learning outcomes


Define bancassurance

Explain the origin and the evolution of bancassurance

Explain the benefits and challenges of bancassurance

Describe the factors determining success of a bancassurance

arrangement

Study guide


26

In this chapter and the rest of this unit, the student should already be familiar

with the meaning of insurance and the principles governing it. Here we build

on that knowledge to introduce a specialist area of insurance – bancassurance.

3A The Meaning of Bancassurance

3A1 Definitions

Bancassurance is the selling of insurance products through banks.

It can also be defined as an arrangement between a bank and an insurance

company where insurance products are sold to the bank’s customers generally

through its branches.

Bancassurance is the process of using a bank’s branches, sales networks and

customer relationships to develop sales of insurance products.

Banks and insurance companies enter into a partnership where the bank sells

the tied insurance company’s products to its clients.

Insurance companies are looking at growth in premiums and bancassurance

provides that opportunity in terms of banks selling insurance products to

existing customers who are already using banks for financial services.

Banks are also looking for additional revenue streams and value addition to

current customer relationships amidst competition, bancassurance satisfies

both objectives.

The bank acts as an intermediary, helping the insurance firm reach its target

customer in order to increase its market share and premium turnover. The


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customer sees bancassurance as a bonanza in terms of reduced price, high

quality products and having a one-stop shop for financial products and as

such everybody is a winner under the bancassurance model of insurance

distribution.

Therefore, the insurer achieves distribution of its insurance products through a

banks distribution channel (branches and salespeople). Through the

established banking networks, the bank is able to easily sell insurance

products that do not require technical underwriting.

The bank has to design a system of reaching its customers through the bank’s

personnel and sales representatives. The idea is for the bank personnel and

sales representatives to identify customers with insurance needs, recommend

products to satisfy the needs, close the sale or refer to bancassurance

personnel for guidance.

Research: Functions and roles of insurance companies and banks and

what you would find as similarities between these two sectors.

3B The Origin and Evolution of Bancassurance

Bancassurance emerged in the 20th Century and it is now a standard practice

in most developed countries. The first countries to venture into the field were

Spain and France.

Bancassurance is a French term and its universal use shows that the model is

more developed in France. It started in the 1960s but only came into full effect

in 1980s when the law was changed to allow banks to sell insurance products.

It started with Life especially short and mid term products associated with

lending and with growth in the market expanded to motor, health and later

investments.


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The Spanish began their adventure in the 1980s and the main drive was for

banks to bypass middlemen for loan protection and insure their own banking

clients themselves. This was done through banks setting up subsidiary

insurance companies or acquiring a stake in existing companies with the most

famous being BANCO DEBILBAO (BBVA) Group acquiring a majority stake in

EUROSEGUROS SA. However their control was initially only financial since

Spanish law prohibited banks from selling life insurance. This legal barrier was

removed in 1991 and as a result today the top five Spanish bancassurance

companies control one third of the market.

From a purely historical point of view, the real pioneers of bancassurance were

the British with the creation of Barclays Life in September 1965. This

subsidiary was not a great success in the UK, and nor, for that matter, was the

concept of bancassurance.

Success in France and Spain was followed by implementation of

bancassurance in other European countries.

In India a number of insurers have already tied up with banks to offer

bancassurance through select products and this includes other Asian

countries like Malaysia, Singapore and South American countries like Brazil.

In some countries, bancassurance is still largely prohibited (Uganda inclusive

as of May 2015), but it was recently legalized in countries like USA when the

Glass-Steagall Act 1993 was repealed after the passage of the Gramm-Leach-

Bliley Act 1999.

Banks are now a major distribution channel for insurers, and insurance sales

are a significant source of profits for banks. The latter partly being because

banks can often sell insurance at better prices (i.e. higher premiums) than

many other channels, and they have low costs as they use the infrastructure

(branches and systems) that they use for banking.


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3C Case Examples

3C1 Success Stories:

Bancassurance has been successful in the following countries; Brazil, France,

Italy Portugal, Spain, Malaysia. Market share of insurance placed through

Bancassurance has shown important growth and exceeds 40% of Life business

and 10% for non-Life business in each of the markets.

3C2 Where Bancassurance has shown limited growth:

Canada, USA, UK, China, Germany, Japan, Korea etc have shown growth that

is below 40% in Life products and 10% in Non- Life Business

3C3 Reasons for limited growth:

USA: Regulatory issue; only in 1999 did the Gramm-Leach-Bliley Act (Named

after its promoters Sen. Phil Gramm, Rep. Jim Leach, Rep. Thomas Bliley)

remove obstacles to banks selling insurance which were in place since the

1933 Glass-Steagall Act.(Named after its sponsors: Sen. Carter Glass and Rep.

Henry Steagall.

The USA life market was already mature with Life insurance sold mainly

through Agents which made it difficult for a new distribution channel to be

successful.

Germany: Agents in villages handle life business for families from generation to

generation as a culture and as such there has been little inroads for any other

distribution channel including bancassurance.

UK: Customers normally buy insurance online and on telephone, this seems to

be more convenient and cheaper than bancassurance especially for non-life

business. On the side of life there is group life insurance cover provided by


30

employers and many employees have life cover through their contracts of

employment.

3C4 The African Experience:

South Africa is the most sophisticated and mature market in Africa, others

include Ivory Coast and Mozambique.

Insurance products are sold mainly as part of bank products through credit life

insurance bundled with mortgages and personal loans, motor insurance with

car loans in addition to stand alone products like funeral expenses insurance

cover.

In Kenya a number of banks have partnered with insurance companies

through subsidiaries that act as agents of insurers, offer a range of both life

and non life products with flexible payments through mobile money, direct

debit and even IPF (insurance premium financing).

3D BENEFITS AND CHALLENGES OF BANCASSURANCE

3D1 BENEFITS

For Banks For Insurers For Customers

Diversified new

revenue stream

Expand customer

base/Increase in market penetration

Convenience/One stop Shop

/Access to a wide range of financial services

Expand product offerings

Improve sales effectiveness & after sales service

Competitively priced insurance products as Insurers pass on cost savings arising from lower

distribution costs

More productive use of customer database and

branch network

Enhance ability to segment markets to support more effective

product design and marketing efforts

Effective use of technology & higher investments in human resource development leading to

improved customer service


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Reduces credit risk Cost savings & Increased profitability

Buying of insurance from trustworthy source

Builds customer loyalty

Lower distribution costs

Reduced risk to family/business

Builds brand value

Immediate access to

new markets

Better match between customer

needs and solutions provided

Minimal capital required to set up

Develop new financial products more efficiently

Increased sensitization through marketing

Enhances product value

Increased Brand value and Trust.

Attractive pricing due to lower costs.

Increased deposits Joint Product development

3D2 Challenges

The table below shows the major challenges associated with bancassurance.

Target Market: Formal Sector is target market for most insurers

Retention: Low renewal retention due to clients’ perception that insurance is pegged

on credit (i.e. loan condition)

Claims: Poor level claims service affecting the bank’s ability to deliver satisfactory

service. This negatively impacts the bank’s brand negatively.

Intermediary perception as a threat: Many brokers and agents are resisting the

advance of bancassurance because they fear loss of business to banks

Banks become too powerful: Bancassurance gives banks complete control of the

financial services sector thus making them too big to fail. They would require

government bail outs in the event of financial stress.


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Others include:

Privacy and data protection since insurance and banks share customer

information.

Unethical practices by bancassurance advisers.

Mismatch of needs due to insufficient fact finding process.

Cannibalism by the insurance company where they tend to want to sell

more to bank customers.

When volumes are high the bank can choose to set up its own insurance

company or use it as a bargaining power to float its business to others

for a higher pay.

3E Critical Success Factors for Bancassurance

Product and process simplicity requiring minimum technical

underwriting and be easy to understand.

Affordability – the product should be attractively priced.

Executive commitment – management of both the bank and the insurer

should be committed to the arrangement

Automation and integration – The processes should be as automated as

possible and the insurer and bank’s systems should be well integrated.

Knowledge – proper training of bank staff handling bancassurance

business.

Existence of proper regulatory framework for both Banks and Insurers in

terms of guiding laws and regulations.

Spotting, training and retaining high quality employees

Must Generate growth and customer loyalty – the arrangement should

make economic sense for both companies.

Choose your bancassurance model carefully to maximize your assets.

Product design responsive to customer needs.

Incentives to key personnel involved in bancassurance selling.

Any arrangement should protect both parties over a long term.


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Chapter Summary:

Bancassurance is selling of insurance products through banks

Bancassurance originated from France and Spain and other European

countries followed thereafter

Bancassurance benefits the bank, insurance company and customer in

the following ways:

o Bank – generating more income on top of interest income

o Insurance company –increase of market share and premium

turnover

o Customer – One-stop access to both banking and insurance

services

The major challenge of bancassurance is low retention levels of

customers who stop insurance once they have cleared their loans with

the bank

Critical success factors for bancassurance are:

o Affordability

o Ease of product understanding

o Executive commitment by both companies

Sample Questions

1. Define bancassurance and briefly explain how it operates

2. What are the benefits of bancassurance to:


34

a. The bank?

b. The insurance company?

c. The Customer?

3. What are the disadvantages of bancassurance?

4. Explain four critical success factors of bancassurance?

CHAPTER FOUR

BANCASSURANCE IN UGANDA AND ITS REGULATORY FRAMEWORK

Introduction

In Uganda, bancassurance is fast-becoming a new avenue of distribution for

insurers and an additional source of income for banks in addition to their

interest income. In this chapter, we review the progress of the Ugandan

insurance and banking sectors in embracing bancassurance. We shall also

review the relevant legislation governing bancassurance in Uganda.

Unit Structure

Bancassurance in Uganda

Legislation Governing Bancassurance in Uganda

Emerging Trends in Bancassurance

Learning outcomes


Describe how bancassurance is being carried out in Uganda

Explain the regulations governing bancassurance

Describe the trends emerging in bancassurance in Uganda

Study guide


35

In this chapter the learner is expected to progress from the introductory

elements of bancassurance and dig deeper into the regulatory environment and

current status of bancassurance in Uganda.

4A Bancassurance in Uganda

Bancassurance as defined earlier is being carried out in Uganda with

Insurance companies entering partnerships with banks for their mutual

benefit.

Banks act as intermediaries and place business with their partner insurance

companies. This is intended to protect the banks from losses in the event that

a borrower dies before completing repayment of a loan or the asset bought on

mortgage is destroyed by an insured peril.

The above arrangement due to lack of an existing legal framework is still at an

informal stage and takes any of the following methods:

Referrals: Loans officers in disbursing loans are supposed to ensure that

the bank’s interests are catered for incase of any eventuality and this is

risk management. The officers refer bank clients to insurance companies

and agents of their choice who then issue a policy with a lien clause

making the bank a party to the insurance contract.

Banks have also shortlisted or prequalified insurance companies that

their customers can deal with based on requirements that the bank feels

are able to cater for the interests of the institution and their clients.


36

Customers are then free to deal with any of the pre-qualified insurers for

purposes of providing insurance policies.

Certain Banks also have interests in certain insurance companies either

as sister companies, subsidiaries or by virtual of having the same

shareholders. These therefore take up a vast majority of the bank’s

insurance business e.g. Crane Bank and Goldstar Insurance, Stanbic

Bank and Liberty Life etc.

Banks have also partnered with insurance companies and repackaged

their product features to include free insurance cover for example

Barclays Bank Personal Loan comes with free life insurance, Finance

Trust Bank has a loan product that comes with free medical cover.

The bank would pay the partner insurer premium which is embedded in

the product cost but in such a way that the client would not be able to

feel it.

Banks have also formed subsidiary companies that are run by a

principal officer who is a licensed Agent of a preferred insurer. Any need

for insurance within the bank is then channeled through the subsidiary

that in turn places it with the insurance company and commission is

paid to the bank through the licensed agent, examples include DTB and

DFCU Bank.

Research: In what other forms is bancassurance carried out in Uganda

currently bearing in mind that there is no enabling law at the moment.

Macro-economic growth and the development of banking and insurance sectors

across much of sub-Saharan Africa has been very impressive in recent years

with the number of bank account holders rising exponentially. Moreover,

regulatory authorities in the region have begun to acknowledge the potential

value of bancassurance for the further development and diversification of the

financial services industry. As a result, banks are already a growing

distribution channel for selling insurance and are set to become even more

prominent in future.


37

A key factor driving the development of bancassurance in Uganda is the

presence of international and regional banking and insurance groups (often

originating from South Africa) that have begun to leverage their experience in

this field in sub-Saharan Africa. Although not an exhaustive list, these include

groups such as Standard Bank Group, Bank of Africa Group, Barclays,

Ecobank, Standard Chartered and AIG, Jubilee Insurance, Old Mutual,

Prudential and Sanlam, among insurers.

Given that bancassurance is successful in a number of countries around the

world including South Africa it is not surprising that many banks in sub-

Saharan Africa are seeking to grow the revenues that they generate from

insurance.

It is therefore crucial in Uganda’s case that the intended Law is passed as soon

as possible for interested banks and insurers to fully take advantage of

bancassurance and the potential benefits that come along.

4B Legislation Governing Bancassurance in Uganda

The banking sector is regulated by the Bank of Uganda under the Financial

Institutions Act (FIA) 2004. The relevant section of this piece of legislation to

the subject of bancassurance is section 37 worded as below:

37. A financial institution shall not engage directly or indirectly for its own

account, alone or with others in trade, commerce, industry, insurance or

agriculture, except in the course of the satisfaction of debts due to it in which

case all such activities and interests shall be disposed of at the earliest

reasonable opportunity

The Bank of Uganda, in a bid to join the regional trend of liberalizing the

financial services sector to allow banks to transact insurance business, had

proposed amendments to the FIA 2004 with proposals, inter alia, to repeal the

above provision and allow banks to transact insurance business.


38

As of May 2015, the proposed bill had received cabinet approval and was set

for parliamentary debate and approval by end of the same year.

Parliament eventually passed the amendments and the president assented to

the bill on 19th January 2016, as such the FIA 2004 had been amended to FIA

(amendment) Act 2016 as follows:

115D. Banks engaging in bancassurance business:

1. A financial institution shall not engage in bancassurance

in Uganda as a principal or agent without prior

authorization of the Central Bank.

2. A financial institution wishing to engage in the business

of bancassurance shall do so in a format and manner

prescribed by the Insurance Regulatory Authority of

Uganda after consultation with the Central bank.

3. The bancassurance business activities of any financial

institution shall comply with the Insurance act.

On the Other hand, the Insurance Industry is regulated and supervised by the

Insurance Regulatory Authority of Uganda (IRA) set up under the Insurance

Act (as amended) 2011, this legislation replaced 1996 statute which didn’t

allow bancassurance hence the current informal dealings between insurers and

bankers which bear all the hallmarks of bancassurance.

With the amemdment of the Financial Institutions Act, IRA is currently waiting

for Bank of Uganda to issue guidelines such that banks can formally be

licensed as Agents of Insurance Companies.

Other relevant legal developments involve the proposed liberalization of the

pension sector which will break the monopoly of National Social Security Fund

(NSSF) and open the sector up for other providers.


39

Life Assurance companies dealing in pensions will therefore be in position to

deal with banks under bancassurance; the Relevant Legislation in this case is

the URBRA Act. 2011.

4C Emerging trends in bancassurance in Uganda

4C1 Proposals put forward by the IRA regarding bancassurance

The following proposals have been put forward by the Insurance Regulatory

Authority (IRA) regarding bancassurance:

Any commercial bank will be allowed to undertake insurance business as

the agent of licensed insurance companies and this will be on a

commission basis with no risk participation.

Banks will not be allowed to operate as brokers.

Each Bank that wishes to sell insurance shall have its head office and

branches licensed.

Each bank or branch office that wishes to sell insurance shall have a

designated Officer to handle all insurance matters and activities. The

Officer shall have at least a Certificate of Proficiency in Insurance (COP)

or any other approved qualifications.

The head office or branches shall have a designated place within the

bank premises (Insurance desk) for insurance services.

Banks (head office and branches) may become agents for up to four

insurance companies, in line with the consumer protection guidelines of

Bank of Uganda.

The Agents shall be required to provide evidence of membership to the

Insurance Institute of Uganda.

Fee Payable - a fee payable to the Authority for issue or renewal of

license to act as a bancassurance Agent shall be recommended by the

Authority

Commission payments – a Bancassurance Agent shall be paid or

contracted to be paid by way of commission amount not exceeding the

commission percentages as approved by the authority.


40

Every Bancassurance Agent (head/branch) shall maintain a register

which shall contain the insured name, address, premium, and the rate,

telephone no, policy no., date of commencement of the policy and any

other details which will always be updated and reviewed by the authority,

an appropriate claims register will also be maintained.

Authority’s right to inspect bancassurance agents -The Authority will

assign officers to undertake inspections of premises of the

Bancassurance Agent to ascertain and see whether the business is

carried on as per the Act and Regulations and also to inspect the books

of accounts, records and documents of the bancassurance Agent.

There are strong grounds for being optimistic that the industry will undergo a

profound transformation in the coming decade. This transformation will be

driven by legislation that is before Parliament to amend the Financial

Institutions Act (FIA) 2004. The legislation will enable commercial banks to

undertake bancassurance, as in the case of many African countries, such as

Ghana and South Africa.

You are encouraged to keep abreast with all developments in the regulatory

framework surrounding bancassurance.

4C2 Expected impact of bancassurance in Uganda

Qualified personnel: increased training and capacity building of staff.

Product design: Bancassurance business will need to design the right products

that integrate well with the bank's current and emerging products.

Customer confidence: The impact of global financial crisis has negatively

affected many customer‘s confidence in the financial service profession.

Bancassurers need to act carefully to win back trust and loyalty


41

Optimizing the bancassurance relations: The goals, objectives need to be

aligned properly

Competition: competition will lead to shading off some companies out of the

game.

Increased use of Insurance Premium Financing (IPF)

Chapter Summary:

Bancassurance is carried out to a small extent in Uganda due to lack of

proper regulatory framework.

Banks are regulated by Bank of Uganda under the Financial Institutions

Act 2004 which is yet to be amended to accommodate bancassurance.

Insurance companies are regulated by the Insurance Regulatory

Authority under the Insurance Act 2011 which allows banks to be

licensed as Agents of Insurance Companies.

IRA has put in place proposals to be followed when the FIA Act 2004 is

eventually amended to allow bancassurance as expected.

The eventual implementation of bancassurance in Uganda is expected to

have an impact on the financial industry in terms of qualifications and

training, increased competition, wider product range and many others.

Sample Questions

1. How is bancassurance carried out in Uganda?

2. What proposals have been put forward by the IRA regarding

bancassurance in Uganda.

3. What is the expected impact of bancassurance on the financial

Industry as a whole?


42

CHAPTER FIVE

BANCASSURANCE MODELS AND STRATEGIES

Introduction

This chapter will look at the different arrangements used by the banks and

insurance companies, the strategy for success of bancassurance, how both

parties participate in the different arrangements chosen, process and

documentation.

Unit Structure

Various models of bancassurance

Involvement of each party in bancassurance

Bancassurance strategy

Bancassurance process and documentation

Learning outcomes


Explain the different arrangements/models under bancassurance

Show how different parties get involved in the various models.

Strategy for bancassurance

Describe the bancassurance process and documentation.

Study guide


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In this chapter the student should be having a clear understanding of the

meaning of bancassurance and the critical factors required for the success of

bancassurance

5A Bancassurance Models

Bancassurance started in form of mutual distribution agreements between

banks and insurance companies. However, these have evolved into five typical

arrangements/models:

5A1 Pure Distributor (referral)

Under this arrangement, bank staff refer sales opportunities or leads for the

sale of insurance products to the insurer with whom they have an

arrangement, the bank staff receive initial queries for insurance and these are

passed on to the insurance company for follow up .

The bank can also give the insurer access to bank customers whom they can

contact for insurance sales opportunities e.g. by being given space within bank

branches, this is the simplest model to implement with low level of involvement

by the bank and requires minimal investment by both parties.

The major challenge with this model/arrangement is providing least customer

experience which is less than satisfactory given that the sales process is

lengthened by the need for a separate referral.

It’s also the least integrated arrangement in terms of the bank and insurance

provider working together hence low levels of commission paid and all costs if

any are met by the insurance company.

5A2 Pure distributor (corporate agency)


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Under this model, the bank is the corporate agency playing an active role in

selling insurance company’s products at a commission.

It is slightly more challenging for the bank to implement than the pure

distributor (referral) arrangement as it requires bank staff to have more

knowledge of insurance and a direct relationship with the customer in the sales

process.

There is more interaction between the bank staff and the prospective

customers as they sell financial products together with simple insurance

products. Investment requirements for the bank are relatively low and the

opportunity for profits slightly higher than in the referral arrangement.

More complex insurance products are sold by dedicated insurance sales

personnel hired by the bank.

5A3 Strategic Alliance Model

Under this Model, there is a tie-up between a bank and an insurance company.

The bank only markets the products of the insurance company. Except for

marketing the products, no other insurance functions are carried out by the

bank.

Under this arrangement, the bank and insurance company, develop an even

more joined up approach to the distribution of insurance products. The

relationship is designed to enable the two parties to pursue a set of agreed

goals while remaining independent organizations.

The bank and the insurance company undertake product designing and

development together with bank products having insurance features.

The bank undertakes marketing of insurance products and the investment

required from the bank is greater.

There is an increased level of expertise from the bank as it undertakes some

level of underwriting especially with integrated systems for simple insurance

products underwriting and claims processing.

5A4 Joint Venture

Under this model, the bank and the insurance company have a business

agreement in which they agree to develop, for a set period of time a new

bancassurance business.


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They both invest in the business and own it jointly. Both the bank and the

insurance company have joint control and consequently sharing its income

costs and assets. The arrangement demonstrates strong commitment by both

parties for the success of the venture.

Some of the features under this model would include joint product

development, sales and marketing with the bank handling customer service

and the insurer handling claims processing and customer retention.

5A5 Full Integration Model:

This model entails a full integration of banking and insurance services. The

bank sells insurance products under its brand acting as a provider of financial

solutions matching customer needs.

The Bank controls sales and insurer service levels including approach to

claims. Under such an arrangement the Bank has an additional core activity

almost similar to that of an insurance company.

The most common method of operation under this model is where a bank sets

up its own insurance business within its corporation and undertakes all the

insurance transactions including product development, risk management,

profits, training, claims, etc, e.g. HSBC Bank in Asia set up HSBC Life

Insurance Company.

Research: Disadvantages and advantages of each of the above models.

5A6 Involvement of insurers and Banks at different stages of

bancassurance

The diagram below shows how the key business processes in insurance are

shared between the bank and the insurance company under the different

bancassurance models.

Pure

distributor

model-

referral

Product

development

Sales and

marketin

g

Customer

experience

Claims

processing

Retention


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5B Bancassurance Strategies.

Customer satisfaction is the basic rule in bancassurance. Bancassurance

operators have put the customer at the very heart of their thinking and

development strategies.

This means;

Providing full range of financial products (insurance and banking)

through a single sales network.

Providing good claims management as good as the best traditional

insurance providers.

At the Insurance level the strategy should aim to achieve the following:

Increase in market share / market penetration.

Increase in gross written premium.

Development of new distribution channels

5B1 Product and Process Simplicity

Corporate

Agency

Strategic

alliance

Joint venture

Insurer

Insurer/

Partially

bank

Insurer

Insurer

Insurer

Insurer

Bank

Insurer

Insurer

Insurer

Insurer

with

inputs

from

banks

Bank and

insurer

Bank and

insurer

Insurer

(some

help from

bank)

Insurer

(some

help from

bank)

Bank and

insurer

Bank and

insurer

Bank

Insurer

Insurer


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• In collaboration with insurance companies design simple, attractively priced

products easily understood by bank employees.

• The insurance products should where possible be integrated in the banking

products so as to ease selling.

• Disclosure of any fees borne by the client and which insurance company is

providing cover for which risk.

5B2 Training staff.

• Focus training on personnel who are at the customer touch points.

• A massive training program to be done in the distribution network to create

awareness and interest in insurance.

• This will build up expertise and there by reinforce the trust that customers

feel for their bankers in their additional insurance role.

• Training is an essential element in motivating a sales network whose

background is banking

5B3 Customer Profiling / Target Marketing:

• Bank ICT division to undertake customer profiling of Bank customers and

segregate them in Market segments. Bases for segmentation can be by net

worth, profession or age.

• Look at current and potential customers of the bank across all lines

• This should be followed by customer risk investment profile analysis/fact

finding to match the available products to the needs of the customers while

taking account of their investment risk profile.

• Identify opportunities available in the bank customer base and offer right

financial planning product or solution.

• use the lifecycle stages (from childhood to retirement) as at each stage there

separate needs.

• use the event trigger approach where by emphasis is on the events that take

place in the customers’ life e.g. birth of a child, purchase of an asset like a

house or car, retirement, business set up etc.

5B4 Embedding insurance products on the existing bank products.

• The products offered by the bank to be analyzed and suitable insurance

products identified as riders.


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• Because of volumes expected, the products cost (premium) will be relatively

cheap.

• Examples of products in this category include personal accident, salary

protection, purchaser’s protection plan cover, credit life cover, child

education policy.

5B5 Promote the use of Insurance premium financing

• This will be an important selling tool as customers who are unable to pay

the full premium at one go, are paid for and the amount recovered in

installments hence affordable.

• The interest rate charged by the bank on the IPF should be competitive as in

most cases the client already has another facility with the bank

5B6 Incentives (Critical to motivate bank staff)

• In collaboration with insurance underwriters suitable incentive programs

to be put in place to reward:

The lead generators

The sales person closing the sales and have achieved or surpassed their

targets.

• Create competition amongst the bank branches

• Promotional campaigns to bank customers

5B7 Profit sharing agreements

• Profit sharing agreements/structures for suitable insurance products to be

put in place.

• Appropriate cash back agreement to be put in place in products where

applicable.

5B8 Promotional Materials


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• Promotional materials i.e. brochures, fliers developed jointly with marketing

division should be printed and released to all bank branches, bank’s point

of sales and reception areas.

• Brochures for individual products should also be developed.

5C Bancassurance process and documentation

Bancassurance process and documentation starts with identification of risk at

the customer touch point, followed by completion of the proposal form which is

forwarded to the insurer for issuance of cover.

The process is illustrated by the diagram below:

Risk identification at the

customer touch point.

Proposal form is forwarded to

the insurer for cover by the

agency.

Completion of the insurance

proposal form by the customer

and forwarded to the Bank

assurance personnel

Insurer issues cover and a debit

note.

Agency debits the branch

account and credits the insurer’s

account net of commission.


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Chapter Summary

The bancassurance arrangement follows five models:

Pure distributor - Referral

Pure distributor – Corporate agency

Strategic alliance

Fully integrated model

Joint venture

Strategy for bancassurance includes:

Product and process simplicity

Training staff

Customer profiling

Incentives

Profit sharing agreements

Promotional materials.


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The bancassurance process and documentation involves:

Risk identification

Completion of proposal form

Forwarding of proposal form to insurer

Issuance of cover

Agency debiting the branch account

Sample questions

1. Describe the different models used in bancassurance

2. Explain four strategies of bancassurance

3. State how both the bank and insurer gets involved in the different

models of bank assurance

4. Illustrate the bancassurance process and documentation


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CHAPTER SIX

NON-LIFE BANCASSURANCE PRODUCTS Introduction

This chapter discusses the various products/policies under the non-life

category that are most frequently distributed through the bancassurance

channel.

Unit Structure

Introduction – General Product Features

Health Insurance

- Personal Accident

- Critical Illness

- Medical Insurance

Travel Insurance policies

Home Insurance for buildings and contents

Motor Insurance policies

Business All Risks Policies

Takaful

Learning outcomes


Identify the various non-life insurance products offered under


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bancassurance

Explain the features of non-life insurance policies sold through

bancassurance

Study guide

Having understood the operation of bancassurance, in this chapter the learner

will build on this knowledge and get to know more of the non-life products that

can be sold through bancassurance.

6A Introduction – General Product Features

The key distinction between life and non-life insurance products is the

duration of cover and the subject matter of insurance. Life insurance products

are usually arranged for a duration ranging from three years to the life

assured’s whole life. On the other hand, non-life products are short term with

most being renewable annually.

Construction or engineering covers can have a longer period of insurance to

match the duration of construction and commissioning.

Life cover is intended to cushion the beneficiaries from the financial impact of

the death of the life assured while non-life cover is usually used to insure

property and the insured’s legal and professional liability.

In the sphere of bancassurance, most products offered under the non-life

category protect the insured against loss arising from damage to their property.

This property ranges from houses and their contents to business, motor

vehicles and other assets.

The types of insurance policies offered and the motivations for selling them are

the subject of this chapter.

5B Medical Insurance

6B1 Accident Insurance


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Accident insurance covers the insured against the financial impact of

accidental death or injury. The cover is usually arranged as a Personal Accident

policy and spells out various monetary benefits which are payable in the event

of an accident. Among the benefits provided under the policy are the following:

Death benefit – usually a multiple of the insured’s monthly salary or an agreed

amount.

Temporary Total Disability (TTD) benefit – here the amount payable in the

event of temporary total disability is defined. It is usually based on a formula or

an agreed amount payable per day for the duration of disability up to a

maximum amount.

Temporary Partial Disability (TPD) benefit – here the amount payable in the

event of temporary partial disability is defined. In this context, partial disability

occurs where the injured person is not able to carryout all the work he/she

would otherwise have done had the accident not happened. He may for

example be advised to work fewer days in a week or shorter hours per day.

Permanent Partial Disability (PPD) benefit – here a benefit is paid based on

the continental scale of benefits for permanent partial injuries such as

accidental loss of a limb or an eye. The compensation is determined as a

percentage of the death benefit using percentages in the continental scale.

The cover can be extended to cover medical expenses, the cost of artificial

appliances, transport and incidental costs, funeral expenses and other benefits

up to pre-agreed monetary limits.

6B2 Critical Illness Insurance

Critical Illness insurance is also popular in the bancassurance model. This

insurance provides compensation in the event of the insured falling critically ill

and unable to attend to his normal work routine. It also has a component for

providing medical treatment under such circumstances.

Under critical Illness cover, a lumpsum payment is made to the insured upon

the diagnosis of any of the specified or listed diseases in the policy e.g. stroke,

heart attack, cancer and kidney failure, the purpose of the benefit would

usually be meeting the high costs associated with treatment of any of the listed

diseases.

Critical illness can be provided as a stand alone or part of an endowment,

whole life or term assurance policies.

6B3 Medical Insurance


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The purpose of medical insurance is not to provide a cash benefit to the

insured but to pay for medical treatment of the insured or any other person

covered by the policy.

Medical policies are usually available in three different forms:

Comprehensive Policies cover a wide range of medical costs in the hospital of

the insured’s choice, use of private rooms, ambulance costs, home nursing and

sometimes travel insurance.

Standard policies normally offer the same hospital choice as comprehensive

policies but may exclude extras such as travel insurance and offer less

generous terms for outpatient treatment.

Budget policies provide basic medical care with the insured having no choice

as to which hospital they may use. Other features like ambulance costs,

outpatient treatment and amount the policy will pay in claims in any one year

are limited.

The range of medical policies varies with premium rates, policy selected, the

number of people covered and their ages.

6C Travel Insurance policies

Travel insurance products are usually highly standardized and simple to

understand. These two characteristics make travel insurance an ideal

insurance product for distribution under bancassurance.

Travel insurance is a packaged policy covering various risks of travelers. Inter

alia, it covers medical expenses incurred while travelling, costs of travel

cancellation or delay, costs of replacing lost luggage, death benefits and many

other extensions.

The product can be sold to both frequent and infrequent travelers ranging from

three months to annual policies through bancassurance.

6D Home insurance for buildings and contents

Home insurance is another insurance policy that should ideally be sold to the

masses. All home owners and tenants run risks of fire, burglary, flooding, theft,

power surge, etc. If such risks materialize, the home owner stands the risk of

losing their assets and having to start from scratch in reconstructing and

reequipping the home. Such risks can be transferred through an appropriate

home insurance policy.


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It should be noted that the building insurance covers the main structure and

all fixtures and fittings within and around the structure.

The contents insurance on the other hand covers household goods and

personal effects belonging to the insured or any member of the insured’s

household.

Insurers often offer the building and contents policy as one or under a

comprehensive cover but there also situations where each is offered separately

for example in a case of a tenant and landlord taking a contents and buildings

insurance respectively.

6E Motor insurance policies

This is one of the most popular forms of insurance in the world. More and more

people own cars and on a daily basis, run risks associated with being on the

road.

The appropriate cover recommended for all vehicle owners is comprehensive

motor insurance. This covers the vehicle owner against various risks such as

theft of the vehicle, accidental damage to the vehicle, liability to third parties

for bodily injury and or property damage, etc.

While motor insurance can be sold to all bank clients who own vehicles, banks

are keen on recommending it to clients to whom they have advanced car loans.

It is in the interests of the bank for the car to be insured with the bank being

named as the first loss payee through the incorporation of a lien clause in the

policy. In the event of theft or total loss of the vehicle, the proceeds of

insurance are first used to clear the borrower’s outstanding loan with the bank.

The borrower receives any amounts in excess of the outstanding loan amount

including interest.

With product innovation and development there is a wide range of policies

under motor insurance beyond the usual motor private, motor commercial and

motor cycle insurance.

Given the dangers associated with driving on Ugandan roads which are narrow

and congested, all vehicle owners are encouraged to take up motor insurance.

6F Business All Risks Policies

Business all risks policies are specifically tailored to meet the needs of small

and medium sized enterprises (SME) - as defined. The policies are packaged to


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cover all insurable risks to which the business is exposed. They typically cover

the businesses’ physical assets, people and liability to third parties.

These policies are recommended by banks to all their customers who occupy

the SME space. Some banks require clients seeking loans to set up or expand

such businesses to take up insurance.

The SME sector is fast growing in Uganda and products of this nature will

continue to be needed to meet the insurance needs of the many firms in this

market segment.

6G Takaful

Islamic banks have to sell insurance products that comply with the tenets of

sharia law. This need gave rise to a whole new area of finance called Takaful

(Islamic finance).

Banks and insurance companies which have Muslim clients have developed

products which appeal to Muslims and comply with their religious convictions.

A full consideration of the features of such products is beyond the scope of this

text.

It is worth noting that many banks as seen in earlier chapters tend to sell these

products as part of or enhanced features of current or new bank products.

Insurance is therefore embedded onto current bank products for example

personal accident and medical insurance with personal or group loans, motor

comprehensive with car loans and home insurance with home loans.

Research: what are some of the other non-life insurance products that you

would recommend to be sold under bancassurance?


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Chapter Summary

Non-Life or General insurance products are short term and renewable on

an annual basis.

Some of the products sold under bancassurance in the Non- Life category

include but not limited to the following:

- Health Insurance

- Travel Insurance

- Home Insurance

- Motor Insurance

- Business all risks Insurance

Takaful Insurance is largely provided alongside Islamic banking that is

Banca-Takaful.

Sample questions

1. What are the benefits under a Personal Accident policy?

2. Distinguish between Critical Illness Insurance and Medical Insurance.


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3. What is the difference between buildings insurance and contents insurance

under the Home insurance policy?

CHAPTER SEVEN

LIFE BANCASSURANCE PRODUCTS Introduction

This chapter discusses the various products/policies under the life category

that are most frequently distributed through the bancassurance model.

Unit Structure

Introduction – Life Insurance Product Features

Main product categories:

- Finance and repayment products

- Depositors’ products

- Simple standardized package products

Other products:

- Whole life products

- Endowments

- Term assurance products

Additional benefits offered as riders

Learning outcomes



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Explain the main key features of life insurance policies sold through

bancassurance

Explain each life insurance product type offered under bancassurance

Recommend appropriate Life Insurance Products for various

categories/segments of customers

Study guide

This chapter introduces you to the life assurance products sold under

bancassurance. The range of products discussed is not exhaustive as various

products are continuously innovated and launched to match dynamic

customer needs. The reader is encouraged to pick an interest in the products

offered through various bancassurance partnerships in Uganda.

7A Introduction – Life Insurance Product Features

This section analyses the guiding principles for the development of

bancassurance products and describes how these products are structured. All

life insurance products are by nature products which belong to the wider

financial services sector. For a bancassurance operation in particular, however,

the decision on the types of insurance products which it wants to sell is very

closely related to the methods of distribution which it plans to use. This is

because the effort and expertise needed to sell a given product must be

appropriate to the skills and cost base of the chosen distribution method. A

product which is very hard for the available distribution channels to sell is not

going to be successful for the operation, whether in terms of sales volumes or

of profits. Figure 5 below shows the relationship between product complexity

and required sales effort and expertise.


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7A1 Relationship between Product Complexity and Required Sales Effort

Distribution

Active

Passive

Product

Simple Complex

From the figure above, it is clear that simple products which are straight

forward do not require a lot of sales effort unlike complex products that involve

a lot of skill, technical knowledge and time to sell.

7B Life Product Categories

Apart from the traditional insurance products, bancassurers have developed

special products in order to fulfill certain needs which emanate from banking

transactions, or to improve certain products in order to make them more

attractive and useful to the customer. These products can be broken down into

three categories:

i. Finance and repayment products

ii. Depositors’ products

iii. Simple standardized package products

Let us look at these categories in detail.


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7B1 Finance and Repayment Products

The concept of this group of products is fairly simple. A financial institution

which grants loans or credit to individuals is concerned that, in the case of

early death or permanent disability of the borrower, the outstanding loan or

credit amount may not be recoverable. This will happen where

the financial standing of the surviving family means that outstanding

amounts may not be easily recoverable, or

when the repossession of the item purchased by the loan amount might

not be saleable, or

when any resale amount is not sufficient for the repayment of the loan.

Along with the financial loss, the lender also runs the risk of damaging its

reputation among customers, since it will acquire the reputation of

repossessing items on the unfortunate death of its clients and the harassment

of the unfortunate spouse and family. The borrower on the other hand has

similar concerns. He does not wish to leave an outstanding loan to be repaid by

his family after his death. He is also concerned about his possible inability to

repay the loan or credit amount if he becomes permanently disabled. A

category of products that can satisfy both parties is the finance and repayment

product. Some of the best known products in this category are:

a) Credit insurance

Credit insurance can be offered in cases where a loan is granted to the

customer and serves as additional security for the bank and financial

protection to the customer’s property in the case of his death prior to the

repayment of the loan. This normally involves a decreasing term life cover with

an initial sum insured equal to the amount of the loan. For example, if the

amount of loan taken is UGX 10,000,000, then the policy will have an initial

sum assured of UGX 10,000,000. The sum insured would decrease in line with

the repayment of the loan amount. Upon the death of the insured person the

amount payable would be equal to the outstanding loan amount, with or

without the accrued interest at that time. If the outstanding loan amount

decreases on a predetermined basis, then it is possible to calculate the


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appropriate premium at the date on which the loan was granted. In cases

where the loan amount fluctuates according to the needs of the borrower or

due to fluctuations in interest rates, a monthly premium based on the

outstanding loan amount is a more equitable solution, provided that the

outstanding amount is available for calculating the premium. Annual premium

or single premium contracts can be offered in cases where the loan amount at

all periods can be predetermined. Where the loan amount can fluctuate, single

premiums are not permitted. In the case where a single premium is charged

the premium amount is frequently added to the loan amount. Almost all loans

covered under credit insurance schemes are of short repayment duration, i.e.

up to 5 years. In cases where this scheme is a compulsory part of a loan the

premiums charged can reflect the fact that there is no selection against the

insurer on medical grounds (anti selection). In such cases the company can

limit itself to simplified underwriting. The reduced processing costs can be

passed on in the form of lower premiums. In cases where this scheme is not

compulsory, however, further medical or occupational questions are asked for

Underwriting purposes. The extra work involved may force premiums to be

increased.

Permanent total disability benefit may be offered together with the decreasing

term insurance since the ability of the borrower to repay the loan may depend

on the borrower maintaining his income. In some cases temporary total

disability benefit covering the installments payable is also offered.

It is also possible for a bank to pay the premiums, which are very low, and use

this as a marketing tool in order to attract new customers and sell its products

more easily. The marketing tool is to offer “free” protection in the case of death

or permanent total disability. The bank will include the cost of protection in the

interest rate charged to borrowers. Credit insurance is suitable for

arrangements such as:

mortgage loans,

business loans,

personal loans,

hire purchase arrangements.


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This cover can also be issued as a group policy covering all customers. The

master policy remains with the bank and a certificate of insurance is given to

each customer.

ii) Overdraft insurance

Usually banks offer overdraft facilities to their customers. This is automatic

credit up to a pre-agreed amount. For salaried customers this amount is

usually two or three times their monthly salary. This facility has no repayment

term provided the salary is deposited in the bank and the credit always stays

within the pre-agreed amount. In the case where the customer who was using

the credit facility dies, this amount has to be repaid by the heirs of the

deceased. This practice usually creates problems for both the heirs and the

bank. Overdraft insurance can help. Overdraft insurance can be offered in two

different ways:

The cover is equal to the credit facility used and a monthly premium is

paid according to this amount. In the case where the customer dies and

this credit facility has been used, the outstanding amount due will be

repaid to the bank by the insurance company. In deciding whether to

offer this option, the insurer must consider the risk that people who

know their health is very poor can sharply increase the amount of credit

taken shortly before their death.

The cover equals the maximum pre-agreed credit facility. In case of death

the outstanding amount due will be repaid by the insurance company. If

there is an excess between cover and the outstanding amount due this

amount will be paid to the heirs of the customer. Premiums in this case

can be paid on a monthly or annual basis. In overdraft insurance the

premium is usually adjusted every year according to the age of the

customer. A maximum age for this benefit usually exists. The premium

can be paid by the customer or by the bank as an offer to its customers.

This type of product is suitable for arrangements such as

overdraft facilities,


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credit cards,

Unstructured debts.

iii) Capital repayment

For loans offered for mortgage, educational, personal or business reasons a

repayment scheme through an insurance policy is possible. The customer is

granted the loan and he pays to the bank only the loan interest. He also takes

out an endowment that has a cover equal to the loan amount and with a

duration equal to the repayment period of the loan. The premium is selected so

that the maturity payout is very likely to be able to cover the full loan amount.

The policy is always assigned to the bank and serves as a repayment tool

whether the customer survives or not. These products have proved particularly

attractive to customers in countries where life insurance products enjoy

favourable tax treatment, or where interest rates charged by lenders on loans

repaid by insurance policy proceeds are lower than for capital repayment loans.

Due to the high investment element of these products, the premiums for such

products are much higher than those of the credit and overdraft insurance that

we have mentioned above, although the total cost of the loan to the borrower

may not be very different.

7B2 Depositors’ Products

The second category of these special products consists of the so-called

depositors’ products. The main types of depositors’ products are:

a) Depositors’ insurance

This benefit is designed to attract the public to deposit money with a particular

bank. It can be offered in all deposit accounts but usually a minimum deposit

amount is required. The level of cover is usually determined by factors such as

price and underwriting. A possible product is level term insurance with the

premium rate changing every year. Another possibility is to offer accidental

death cover. Reasonable limits must be set regarding maximum age and

maximum amounts. The premium in this case is usually paid by the bank but

it can also be paid by the depositor with a proper marketing approach. The

amount of cover is usually a multiple of the cash balance in the deposit


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account. In the case of death of the depositor, this cash balance is increased

accordingly.

b) Objective achievement insurance (bank savings plans)

This policy can be offered in special deposit accounts where systematic

deposits are required to reach a predetermined objective amount at maturity.

However, if the depositor dies or suffers total permanent disability, the

difference between his objective amount and the cash balance of the account is

paid to the depositor or the depositor’s estate in addition to the cash balance.

This can be offered by a decreasing term insurance only or in combination with

permanent total disability benefit. In cases where the deposit amounts are not

predetermined it is advisable to offer coverage that is a multiple of the average

cash balance amount during the preceding 6 or 12 months, so that problems of

antiselection can be reduced. However, it would still be possible for a customer

to increase the account balance rapidly and gain significant life cover without

underwriting. As with depositors’ insurance, accidental death cover is another

option. Where reasonable limits are set regarding maximum age and maximum

amounts of coverage, this product can offer attractive profit margins.

c) Pure investment products

These products have no “insurance” elements, i.e. no risk. They have

traditionally been the domain of banks, but in some countries they enjoy

favorable tax treatment if they are offered by an insurance company. A detailed

discussion of investment products can be found in chapter 7 of this Study

Text.

7B3 Simple standardized package products

These products are usually group policies which combine covers and which

cost the customer less than if they are bought individually. These products are

usually sold over the counter by bank employees, so they need to be

uncomplicated. An example would be household insurance together with

waiver of premium on death cover.


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7B4 Other Products

The objective of product development in most cases is to offer the widest

possible range of products so as to enable sales people to select the most

suitable plan for each customer’s specific needs. A further range of products

and riders which the bancassurer wants to offer to clients could include:

a) Whole life products

These provide permanent protection and pay a sum of money upon death of the

life assured.

This can be non-profit whole life policy where a fixed amount of money is paid

on the death of the life assured.

With profit whole life policy that pays a guaranteed sum plus bonuses upon the

death of the life assured.

Unit linked policies which are flexible and allow the policy holder to choose the

level of cover between the minimum and maximum depending on their level of

contribution and the policyholder can change the amount of cover within these

set limits anytime.

b) Endowment products

These are similar to whole life products except that endowment policies have a

fixed term chosen at inception and pay out upon maturity whether the client

lives to see their fulfillment or not.

c) Term assurance products

These are policies that remain in place for a fixed period of time chosen at the

inception of the policy, it can range from a few weeks to a number of years.

d) Pension products (discussed further in chapter 7 of this Study Text)

7B5 Riders (additional benefits attached to the main basic policy) such as:

Family income benefit


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Waiver-of-premium benefit

Permanent total disability benefit

Income replacement benefit

In deciding whether to offer these further products the bancassurer would need

to consider whether these can be effectively sold by the employees and agents

involved in the bancassurer’s sales operation.

Research: what are some of the other life insurance products that you

would recommend to be sold under bancassurance?

Chapter summary

The effort and expertise needed to sell a given product must be

appropriate to the skills, the more complex the product the more

skills and time needed.

Life bancassurance products can be broken down into three main

categories:

- Finance and repayment products

- Depositors’ products.

- Simple standardized package products

Other products include:

- Whole life Products

- Endowment Products

- Term assurance Products

Additional benefits can also be offered as riders and these include:


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- Family income benefit

- Waiver-of-premium benefit

- Permanent total disability benefit

- Income replacement benefit

Sample questions

1. Discuss the three main categories of life bancassurance products.

2. Differentiate between whole life policies, endowment policies and term

assurance policies.

3. List three benefits that can be offered as riders under bancassurance.

CHAPTER EIGHT

SAVINGS, INVESTMENT AND RETIREMENT PLANNING

Introduction

This chapter will look at the different savings and investment needs, the need

for savings and investment products, personal factors affecting choice of

savings and investment products, saving and investment products, retirement

planning s needs and products.

Unit Structure

Savings and investment needs.

Need for savings and investment advice.

Personal factors affecting choice of savings and investment products.

Main types of savings and investment products.

Retirement planning needs.

Personal factors affecting retirement planning needs.


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Retirement planning products.

Learning outcomes


Explain in details the savings and investment needs.

Describe the need for savings and investment advice.

Discuss the factors affecting choice of savings and investment products.

Explain the main types of savings and investment products.

Explain the personal factors affecting retirement planning needs.

List the various retirement planning products.

Study guide

In this chapter the student should be knowledgeable about the bancassurance

strategy, success factors for bancassurance and bancassurance life products.

8A Savings and investment needs

Most people need the help of a savings or investment program to achieve their

financial objectives in life. People who have no existing capital will need to

accumulate it by saving from income. People who already own capital will need

to invest it wisely to preserve and increase its value.

People without capital will need to save it from income in order to accumulate

enough money to provide themselves, and their families with some expensive

essentials of life and most of its luxuries. The precise reasons for saving money

are unique to each individual but the most common reasons are to create

enough capital to:

Build an emergency fund to help the families survive the unexpected

financial difficulties;

Produce the purchase price of a substantial item such as a car, a yacht

or a dream holiday;

Put down a substantial deposit on the purchase of a house

Provide education for children;


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Pay for children’s weddings and wedding expenses or help children set

up their own homes;

Set up in business or re-equip an existing one;

Supply a good retirement income for life.

Some of these reasons for saving apply to everybody at some time or other. For

example, the existence of an emergency fund may mean being able to feed

one’s family and avoid losing one’s home during a period of unemployment.

Failure to save for pension purposes will usually lead to extreme poverty in old

age. All people must be shown how important it is to make provision for such

essential needs.

A distinction must also be made between long term and short term saving.

Short term usually refers to saving period of five years or less. Short term

saving, therefore, includes a few months’ savings to buy a present or to pay for

next year’s holiday. It also includes saving for a few years to build an

emergency fund, put down a deposit on a house or buy sufficient furniture to

set up home.

Long term saving is reserved for savings period of 10 to 15 years or more.

Such savings may be undertaken to achieve a specific purpose such as to

repay a house purchase loan in 25 or 30 year’s time, to build an adequate

retirement fund over, say, 30 or 40 years to pay for a world tour at retirement.

Equally, saving needs have no further specific aim than to build up capital to

use in the future.

8B The need for saving and investment advice

One of the major reasons why professional advice on savings and investment is

needed is that people do not know how to identify their own savings and

investment needs. This is partly that they do not know the financial analysis

planning process; partly because they are guided more by wishes (or perceived

needs) than by the actual needs.

A further reason for professional advice lies in the fact that most people are

unaware of the full range of financial products available to them. They are

therefore not in a position to match their needs to the most suitable form of

investment. Even people who have amassed fortunes from their own

businesses are often not knowledgeable about the opportunities available to

using financial planning products and techniques.

Even investors who are aware of the main forms of investment open to them

find there is a bewildering choice of each kind of product. Very few people have


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the ability to compare products in order to identify which is most suitable for

their needs and which is likely to be the best value for their money. Equally,

few people are able to evaluate providers and their ability to produce good

investment performance in the future.

Most savings and investment products are quite complex and need a skilled

adviser to explain them. The distinction between guaranteed and unguaranteed

returns needs to be fully understood, as does the negative effect of any risks

attaching to unguaranteed benefits.

For all these reasons, people need expert advice from advisers. Without help,

far too many people will make inappropriate investments. Worse still, many

more will do nothing. They will never accumulate the capital they need or they

will continue to hold in appropriate investments.

8C Personal factors affecting choice of savings and investment

products

The key suitability criterion for recommending any savings or investment

product is that it must match the client’s investment objectives. However, there

are a number of constraints on what can be achieved for the client. Amongst

these are the client’s personal and financial details.

The main personal and financial details on which a client’s savings and

investment requirements depend are:

The time available to achieve the financial objective ;

The amount of disposable income and / or capital available ;

Existing assets and liabilities including realistic expectation of

inheritance ; and

The client’s attitude to risk (or ‘risk profile’)

The adviser needs to be well briefed on the details that reveal the position in

each of these areas.

Time

Time is important in several different ways. In the first place, the length of time

that the savings or investment product will remain in force determines what

can be achieved. For example, any sum of money invested at a given rate of

return will grow to twice as much in 20 years as it will in 10.

Amount of disposable income or capital


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The amount of a client’s disposable income or capital is a critical factor in

determining the advice that should be given to a client. Nobody should be

encouraged to commit more to saving and investment than they can genuinely

afford.

Existing assets and liabilities

Advisers must also consider the client’s current or existing assets and liabilities

as these affect both the size of the client’s need and the ability to finance it. For

example, people with little disposable income may well have surplus liquid

capital which can be used to support a series of regular contributions over a

period of time.

Tangible (fixed) assets

Tangible assets such as the client’s home or assets used in a business are

rarely available for conversion into other forms of investment. If they are sold,

they have to be replaced.

Tangible assets are more important in protection planning than investment

planning. Often, tangible assets have been bought with borrowed money and

life assurance is necessary to repay such debts and preserve the assets for the

client’s estate in the event of death.

Tangible assets can, however, provide security for borrowings to meet other

financial needs.

Invested assets

Invested assets represent money invested in deposit accounts, investment

property and stock market securities. Such assets can be realized and

reinvested if this is in the client’s interest. Details of invested assets should be

studied carefully to ensure that the client’s investment meet their investment

objectives, and are diversified and appropriate to their risk profile.

Liabilities

Finally, advisers must take account of the client’s liabilities (debts). In any

winding up of the client’s affairs, debts have to be paid out of value of their

assets. Thus, the client only effectively owns net assets, i.e. total assets minus

total liabilities. It is important to see that appropriate measures are put in

place to repay debts and free up the clients assets for personal use.


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8D Main types of savings and investment products

The precise savings and investment products available to any adviser depend

on the country in which the adviser works. This section sets out in a generic

sense the main types of products available across the world. These are;

Cash deposit accounts;

Government securities;

The share capital of companies;

Endowment policies;

Annuities;

Packaged (or pooled) investment.

For each, we shall give a brief outline the way the product works and its uses

for investors.

Cash deposit accounts

Cash deposit accounts are run by banks and other authorized deposit takers.

Deposit accounts can operate on a regular savings basis or a vehicle for the

investment of lump sums. In essence, the investor lends money to the bank or

other provider in return for interest of other periodic payments.

Banks, and other lending institutions, offer a number of different products.

Typically, they will offer:

Instant access accounts from which money can be withdrawn at any

time;

Notice accounts which require a period of notice such as 30 days or 90

days before a withdrawal can be made;

Fixed rate bonds for periods of one, two or five years during which no

withdrawals may be made.

The longer the notice required for withdrawal, or the term of the bond, the

higher the interest rate provided. Each type of account is usually tiered so

that larger deposits receive higher rates of return than smaller investments.

Typically, an account will offer five or six different levels of interest rate each

one associated with a defined size of deposit.

Fixed interest securities and government securities

Fixed interest securities or bonds are issued by governments, companies and

other official bodies as a method of raising money to finance their long-term

borrowing requirements. In return for lending money to these institutions, the


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owner of a bond is entitled to receive regular interest payments and usually a

repayment of their capital at the end of a pre-determined period.

They cannot be called in before their official maturity date. However, investors

can sell them on the stock market at any time without needing to refer to the

original borrower.

Fixed interest securities have certain common characteristics. They generally:

Carry a fixed rate of interest, known as the coupon;

Have a fixed redemption value; and

Are repaid after a fixed period, at the redemption date.

Company shares

Companies raise money to build and expand their businesses in two main

ways. One method is by raising corporate loans by methods very similar to

those used by governments. Companies issue corporate bonds, loan stocks or

debentures with fixed or variable rates of interest redeemable on fixed date in

the future. Normally, corporate loan stocks will provide higher rates of interest

than the government stocks because companies are regarded as less secure

borrowers than governments. The weaker a company’s finances, the higher the

interest rate it must offer to borrow money. However, some successful

multinational companies may well be safer borrowers than some governments

and this will be reflected in the interest rates both have to pay.

Research: what are endowment policies, annuities and pooled

investments?

8E Retirement planning needs

It is difficult to identify and quantify an individual’s precise retirement planning

or pension needs. As we shall see the individual’s need for retirement income

will vary with the age at which retirement takes place, the extent to which

other people will be dependent on the pensioner and the lifestyle the pensioner

wishes to follow in retirement.

The basic assumption is that most people need to retain at least the same

standard of living in retirement as they enjoyed while working. Some people

may want higher spending levels in retirement enabling them to undertake

activities they have had inadequate in the past. A broad consensus of opinion

has emerged over the years (encouraged by pension providers) that people

should aim for a retirement income of two thirds of their final annual salary

from work. It is also thought that people who retire in good health should

choose pension that increases in value to protect them against the effects of

inflation.


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However the two thirds figure is only a guide. We need to make a realistic

estimate of the income each pensioner will actually need. If we start with the

client’s present income, we can possibly reduce this to allow for several

changes that may take place in the client’s situation before or at retirement.

These include:

The end of the cost maintaining and educating children;

The end of loan repayments on the family home;

The cession of high work related expenditure (including business

clothing and travel to the place of work).

8F Personal factors affecting retirement planning needs

The main personal factors that on an individual’s retirement planning needs

are:

Age;

Dependants;

Income;

Other assets and liabilities;

State pension provision( where applicable)

Each of these is significant when undertaking financial planning and during

retirement itself. Let us now take a short look at each as they might affect your

clients.

Age

The age at which an individual’s future retirement needs are reviewed is

important. In the first place, present age determines the time to retirement and

the period remaining in which to provide an adequate pension fund. It,

therefore, affects the level of contribution needed to produce the pension the

client needs.

Income

A client‘s earned income is a key determinant of the level of pension required at

retirement. Unless the pension bears a reasonable relationship to earnings

while working, the pensioner’s standard of living will fail. Income also

determines money available for contributions. The greater the surplus of

disposable income after normal expenditure, the larger the contribution that

can be easily afforded.

Dependants. The number of dependants a client has at the financial planning

stage, their ages, will have a large influence on the client’s financial planning


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priorities. The number of dependents will also materially affect the amount of

money available for pension contributions.

Other assets and liabilities

The client’s existing assets (for example: savings and investment as well as

tangible assets including property) can have important impact by reducing the

amount of retirement income that has to be generated from specialist pension

products. The value of a client’s assets at retirement is reduced by any large

liabilities which have to be offset against them.

State/ national pension provision (where applicable)

Not every country will have a state pension scheme that covers all its citizens.

In countries with state pension schemes, two important considerations arise.

The first consideration is whether or not the individual is entitled to the full

state pension.

State pension schemes may lay down minimum conditions that must be

satisfied before anyone can qualify for a full state pension.

8G Retirement planning products and their uses

Pension’s schemes are either funded or unfunded. Let’s start by considering

what this means.

8G1 Funded pension scheme

Contributions into a funded pension scheme are used to build up a fund of

investments to provide pension benefits at retirement.

Theoretically, a pension fund can invest in any assets that can hold or increase

their value. Funds can invest in cash, equities, property, fixed interest stocks,

loans to companies, works of art, state enterprises or even in the business of

the company providing pensions for its employees. In practice, the state

usually defines acceptable and unacceptable investments for pension

arrangements in its own country. In particular, there may be tight restrictions

on the extent to which a pension provider can invest in its own business or

business premises.


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All occupational and private pension schemes are funded schemes. Some

schemes promise guaranteed pension benefits at retirement; others provide the

best pension benefits that can be bought with the fund which has accumulated

for a retiring member.

8G2 Unfunded pension schemes

Unfunded pension schemes make no investment to provide future pension

payments. When the pension for a member is due, the pension will merely be

paid from the normal income of the provider. For this reason most unfunded

schemes are state schemes that provide pensions for the citizen when they

reach state retirement age. State schemes for employees of central and local

government may also be unfunded schemes.

Most countries operate a three pillar pension system. The ‘pillar’ can be broadly

described as follows;

Pillar 1 A state –run pension system, offering very basic benefits

to people in retirement (may be means – tested)

Pillar 2 A funded system where contributions are made by employers

and often employees.

Pillar 3 Voluntary private funded retirement savings schemes.

8G3 State pensions

State(or national) pensions are usually paid out of a country’s general taxation

receipts, levied to provide a range of different welfare benefits which the state

pension may be only one . State pensions are often paid at the subsistence

level. They represent a higher proportion of the pre- retirement income of the

lower paid than of the well paid. State pensions may provide a basic old age

pension only or may supplement the basic pension with an additional scheme

for higher paid employees.

State pensions are rarely adequate for anyone except low earners. However, if

available, a state pension is, at least, a partial provision of an individual’s total

pension need and must be taken into account in the shortfall calculation.

Where a state scheme has two parts, a compulsory part and an optional part,

people should be advised to take up the optional part unless it can be clearly

and honestly demonstrated that an alternative product produces better value

for money. The decision will often depend on the client’s age and earnings at

the time.


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8G4 Occupational pension schemes

Occupational pension schemes are set up by employers to provide pensions for

their employees or certain categories of them. Originally, occupational pension

schemes are marketed as a way to attract, retain and motivate a good worker

force. These considerations still influence a large number of employers.

However, where they are used, there is now a general feeling that a pension

scheme is a normal part of remuneration and should be provided by most of

employers for all employees, including part time employees. Thus, it is not

uncommon for an employee to move from one employer to another, both of

which have occupational pension schemes.

Occupational pension schemes can be either self-administered or run by

pension consultants using the products of pension providers such as life

assurance companies. Often a scheme will be a hybrid, i.e. part of the scheme

is internally run and the rest is run by an insurance company or other

financial institution.

8G5 Personal pensions

Voluntary saving via personal pension s may be less of a priority owing to the

dominance of mandatory pension schemes in this region. The exception here

would be wealthier clients where affordability is less of a barrier to saving.

Personal pensions are products that provide pension benefits for one person

(the member) only. They originated to provide people who were unable to join

occupational pension schemes with similar benefits and tax concessions as

those that scheme members enjoyed. Eligibility for personal pensions was,

therefore, granted to self- employed, any employees who were ineligible for

membership of their employer’s scheme and employees working for employers

who did not provide a pension scheme. Eligibility has also been extended to

employees who decline to join their employer’s scheme or, subsequently, opt

out of membership. In some cases even the unemployed may be eligible


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Chapter summary

Most people need the help of a savings or investment program to achieve

their financial objectives in life.

Major reasons for the need for savings and investment advice are:

People don’t know how to identify their investment needs

Most people are unaware of the full range of financial products available

to them.

Lack of ability to compare products in order to which is most suitable for

their needs and which is likely to be best value for their money.

Most savings and investment products are quite complex and need a

skilled advisor to explain them.

Personal factors affecting choice of savings and investment products are :

Time

Amount of disposable income


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Existing assets and liabilities

Main types of savings and investment products are :

Cash deposit accounts

Government securities

Share capital of companies

Personal factors affecting retirement planning needs are:

Age

Dependants

Income

Other assets and liabilities state pension provision

Retirement planning products are :

State pensions

Occupational pension schemes

Personal pensions.

Sample questions

1. Explain in details what savings and investment needs are.

2. Describe the need for savings and investment advice.

3. Discuss the factors affecting choice of savings and investment products.

4. Explain the main types of savings and investment products.

5. Explain the personal factors affecting retirement planning needs.

6. List the various retirement planning products.


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CHAPTER NINE

FACT-FINDING IN BANCASURANCE

Introduction

This chapter will look at the different objectives of carrying out fact-finding, the

fact finding methods and the after fact finding process in bancassurance.

Unit Structure

Definition

Objectives of fact finding.

Methods of fact finding.

After fact finding.

Learning outcomes



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Explain the objectives of carrying out fact finding in bancassurance.

Explain the various methods of fact finding.

Describe the after fact finding process.

Study guide

In this chapter the student should be very conversant with, the sales process,

the different arrangements under bancassurance, process and documentation

and the different strategies for success of bancassurance.

9A Definition of Fact –finding

Fact finding is the process of collecting data and information based on

techniques which contain sampling of existing documents, research,

observation, questionnaires and interviews among others.

Fact –finding is the process of obtaining answers to a long series of questions

about the client’s personal circumstances, finances and ambitions for the

future and advising on the best suitable product.

Many questions require detailed factual answers; others seek statements of

principle such as the client’s personal attitudes, feelings and concerns.

Advisers are trained to help clients discover and understand financial goals

and insurance needs and recommend suitable solutions.


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9B The objectives of fact- finding.

The primary objective of fact-finding is for the adviser to identify what needs

the client has in each of the four financial planning areas namely:

Life and health protection

Savings and investment planning

Pension planning

Personal and commercial insurance lines planning

Good fact-finding must assemble the information to enable the adviser to

quantify the total amount of each need, the provision that already exists to

meet the need, hence the shortfall amount which still has to be provided.

Such a precise identification of needs requires knowledge of the personal

details of each client, their dependants, finances and employment status. This

process requires details of existing insurance covers. It also requires an

understanding of the client’s personal aims, desires and objectives of the

future. Good fact-finding will reveal, not only those needs dictated by reason,

but also those caused by emotional considerations.

The other objective of Fact-finding is to help identify the client’s available

contribution to invest in financial planning products. This information is

derived from a detailed analysis of a client’s income from all sources and of the

out-goings on which it is spent. It also requires a detailed review of the client’s

existing capital resources and the liabilities that must be offset against them.

Thirdly, fact finding also seeks to uncover any anticipated changes to the

client’s circumstances which will affect their current financial position. For

example is a client expecting a pay rise or an inheritance in the near future; or

are they expecting to start a family, to buy a bigger house or to become

unemployed? Each expected change in financial circumstances will have an


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effect on the contribution a client can continue paying in the future. This helps

to define the amount to which clients can afford to commit themselves now.

Fact-finding also seeks to build up a personal profile of each client:

What do clients want to achieve for themselves and for their families in

the future?

To what extent are parents prepared to make financial sacrifices for their

children?

Why are the client’s thoughts and plans the way they are?

What are their attitudes to different forms of insurance, investment and

what level of risk does their psychological profile allow them to take?

Such information complements other facts in determining the client’s needs

and helping the adviser to prepare recommendations in line with the client’s

beliefs and values.

Fact-finding helps the adviser and the client identify those needs that must

temporarily be deferred. Most clients particularly young people with

children, often have financial planning needs they cannot currently afford to

finance in full. Fact-finding has to establish those needs that concern

clients most and establish with the clients their priorities for allocating

funds to different financial planning products.

When all this information has been assembled, discussed and analyzed, the

adviser can fulfill the ultimate objective of fact-finding: to recommend the

products or portfolio of products that best meets the client’s needs for the

contribution they can afford to pay now and sustain in the future.

Fact-finding’s additional objective is to identify products the client will need

in the future and plan review dates to see when these can be funded.

Without a full fact-find there is no way of knowing precisely what any

individual‘s needs are. Even an individual who approaches an adviser to


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buy a specific product should be offered a full fact –find to see if it is the

type of product most suited to that individual’s needs.

Good fact-finding is the key to good financial planning. It identifies a client’s

financial planning needs and points towards those that are top priority for

the client. Without good fact-finding, advisers have no means of knowing

whether or not the products they recommend are suitable for client’s needs.

9C Fact –finding methods

Before purchasing a policy, the financial adviser will go through the fact-

finding process with the client so that they understand what decisions are

involved, the options available and their rights as consumers.

A fact-finding process involves progressive stages and methods during which a

financial adviser gathers pertinent information, identifies and analyses client’s

financial needs.

9C1. Fact –finding interviews

Some product sales people carry out short fact-finds lasting only a few

minutes. The sole purpose of these fact-finds is to justify the sale of the

product the sales person is trying to sell. The product might well have shown

no relationship to the client’s main needs but it will earn him a good

commission. This approach to fact finding is no longer acceptable and should

not be used.

Interviews are the most commonly used technique in collecting information, the

purpose being to find, verify, clarify facts, identify requirements and gather

ideas and opinions. It’s between an interviewer (adviser) and the interviewee

(client) and requires good communication skills for the interaction to be useful.


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Interviews dedicated to fact-finding may take up to an hour to complete. They

require that the adviser should have no pre-conceived ideas of what a client

may need. Advisers must also not decide in advance the product they hope to

sale. The client’s financial planning needs must be determined solely by the

information collected from the client.

The normal fact-finding interview follows a prepared structure. Typically the

interview structure moves through the following stages.

Making the client feel comfortable and relaxed

A discussion of priorities and the client’s

personal concerns

Explanation of the fact-finding process and its

purpose

The information gathering session


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The adviser may be required to prepare recommendations with in a budget

fixed by a client or alternatively, there may be no cost constraints on

recommendations. The interview may take place at the adviser’s office, on the

client’s premises or in the client’s home.

After the fact-finding interview, the adviser goes away to carry out a more

comprehensive analysis of the information and, if necessary seeks any special

guidance required.

Advantages:

Interviews provide a full analysis of client’s financial planning needs and

funds available to meet them.

Interviews also provide the benefit of non-verbal clues to the adviser

which may reveal other needs that are hidden or unsatisfied.

It ensures that the adviser remembers to collect all information

necessary since the interview is structured.

It prepares the client for the fact-finding process and also to place the

costs in context of the client’s planning needs and other expenditure.

Disadvantages:

Interviews can be time consuming for both adviser and client.

Success of the interview is dependant on good communication skills of

the adviser to keep the client’s interest and attention focused on their

needs.

There is a tendency of the adviser taking a leading role in the interview

and exerting undue pressure biasing the client on what products are

suitable.

9C2. Fact-find questionnaires

There are two main types of fact-finding questionnaire;

Fact-finding forms

An agreement in principle, of the main problems

to be addressed by the advisors report


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Computer fact-finding programs

1. Fact-finding forms

Fact-finding forms are used by many firms and their advisers, either as their

primary tool or as a back-up system in the event of computer failure. The forms

are several pages long and are normally completed during an interview between

the advisor and the client. On completion of the fact-finding form the adviser

takes it away to prepare recommendations and calculates cost of the client

2. Computer fact-finding programs

Computerized fact-finding programs can be used in one of two ways. In some

cases, the adviser records information manually during the interview and

subsequently inputs the data into a computer. Alternatively, the adviser may

use a computer during the interview and type the client’s answers straight into

the computer. At the end of the meeting, the adviser prints out the completed

fact-find questionnaire, including such information as the client’s priorities,

risk profile and personal concerns. Often computers are programmed to

quantify each need, select suitable products and show cost benefit analyses to

clients on the screen.

Advantages:

It’s a faster method of collecting information as at the end of the

interview the adviser simply prints out the completed questionnaire.

Disadvantages:

The process of filling in a form or entering information into a computer

can be obstructive and can slow down the adviser’s response to client’s

reactions.

This method at times often appears to the client as an uncaring or

unnecessary interrogation.

9C3. Fact-finding without client interviews

The direct marketing of financial products has introduced the regular use of

methods of fact-finding that do not involve face to face interviews. The two

methods used are;

Fact-finding by telephone

Fact-finding by post


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(ii) Fact-finding by telephone

This is most appropriate where a potential purchaser wishes to investigate

whether or not they want to buy a specific product or service.

Using advertising and marketing literature a financial firm invites clients to call

in for advice on its products and services. When potential clients ring, a

telephone interviewer asks a standard series of questions about their needs,

the product features they require and any existing arrangements they have

with other providers.

The interviewer will also have a chance to outline key features of the product

the client is interested in highlighting any benefits and exclusions that apply.

Responses during the telephone interview are recorded on the computer and

form the basis of the contract if the client eventually accepts to make a

purchase or a detailed quotation can be sent for the caller to accept, reject or

renegotiate.

(iii)Fact-finding by post.

Fact-finding by post is also normally initiated by a provider inviting existing

and potential clients to send in their details. The client’s needs, interests and

personal data can be sent in by letter. Fact-finding by post enables potential

clients to complete a fact-finding instrument in their own time and at their own

convenience. If they need to check or undertake research to provide the

answers to some questions, they can do so before returning the form. There is

no chance that an unethical advisor can influence their answers.

Advantages:

Fact- finding by telephone saves time as the interview is short and

straight to the point.

It also provides two way communication between adviser and client as

each can seek for clarification and more information.

The call is initiated by the client and as such the adviser is dealing

with an interested client from the onset and a sale can easily be

concluded on phone.

Fact-finding by post eliminates any bias or influence caused by the

presence of an unethical adviser.

Allows the client to fill the form at their own time and pace and also to

undertake research to provide more accurate answers.


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Disadvantages:

Potential clients who call must know or have an idea of what they

want / need before contacting the service provider.

The absence of an advisor in fact-finding by post means there is no

expert to help the client interpret questions accurately.

The adviser also misses on non-verbal clues available in face to face

interviews.

Fact-finding by post is irrelevant for complex products and only

appropriate where the client understands the processes and knows

what is required.

Repeated contacts by writing only often weaken the personal

relationship between the client and adviser.

9C4 Content of fact finding questionnaires / where information would

be collected:

A fact finding questionnaire will contain a number of sections providing

relevant details about the client sub divided into the following:

- Personal details of the client including birth, health, names etc.

- Family details like children and dependants.

- Employment details especially with regards ton occupation, employer

and other sources of income.

- Financial details regarding assets and liabilities and their current values.

- Existing protection and savings plans, insurance policies, current

endowment policies, surrender values, maturity dates etc.

- Pension arrangements, name of the scheme, type of scheme, dates

joined, retirement age etc.

- Monthly income and expenditure analysis to see funds available for

contribution and where a reduction can be made. Information here

includes accommodation, feeding, utilities etc.

- Financial planning objectives and considerations where the client’s

ambitions and objectives are highlighted for the family, children and

generally for the future.

- Other professional advisers including lawyers, bankers, accountants,

insurance brokers etc that client consults regularly.

- Future changes like inheritance, birth of a child, change of career,

completion of professional qualification.

- Housing situation in terms of current mortgages, rent, move to a bigger

or smaller house, etc.

9D After the fact find


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The process of analyzing information and drafting recommendations to the

client that takes place after the fact find should be methodical and include a

series of checks. Therefore after reviewing the client’s fact finding

questionnaire, a number of stages are necessary that fall into a broad

category of evaluation and making recommendations.

Evaluation

Making

recommendations

9D1 Evaluating fact-finding information

Financial advisers will analyze all information gathered and evaluate the

client’s financial situation in relation to their objectives.

Evaluation further assists the adviser to know whether the client has made

adequate financial provision to meet predictable and unpredictable needs.

9D2 Making recommendations

The analysis and evaluation of the information provided form the basis for

recommendations made.

The adviser will customize solutions and provide options that can

reasonably meet the client’s objectives. The basis of recommendations will

Set out each identified need in priority order

Research information necessary to prepare a unified

financial recommendation

Carry out shortfall calculations

Identify suitable products

Prepare quotation and cost benefit analysis

Draft a report and presentation


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also be explained as well as costs and charges involved and the features of

the recommended products.

The needs of the client are listed against the products, and for each need

the adviser identifies and records appropriate products, compares the costs,

benefits, period, risk coverage, considering all these factors the adviser is

able to come up with a suitable product for each need.

The adviser is required to present to the client the recommendations in

writing, a copy of the fact-find form and a needs analysis.

Research: what would constraint peoples’ abilities to implement desired

financial plans or what circumstances would affect financial advice.

Chapter Summary

The major objective of fact finding between the advisor and the client is

to identify what needs the client has.

Without a full fact-find there is no way of knowing precisely what any

individual’s needs are.

Fact-finding method include:

Fact-finding interviews

Fact-finding questionnaire

Fact-finding without clients interviews

After the fact-find involves evaluation and making recommendations after

reviewing the fact-finding questionnaire and interviews.

Sample questions

1. Explain what is meant by fact-finding?

2. Give four major objectives of fact-finding.

3. Describe the different methods of fact-finding giving the main advantages

and disadvantages of each.

4. What are the two types of fact-finding method without interviews?

5. Explain what is involved in the after the fact-find.


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CHAPTER TEN GOOD AND ETHICAL CLIENT SERVICE IN BANCASSURANCE

Introduction

This chapter will look at professionalism and ethics in sales process, impact of

ethics on business, presenting recommendations, acceptance and rejection of

recommendations, product switching, and handling customer complaints.

Unit Structure

Professionalism and ethics in the sales process.

Impact of ethics on business.

Presenting recommendations.

Acceptance and rejection of recommendations.

Product switching.

Customer complaints handling.

Learning outcomes

After completing this chapter the student should be able to:

Discuss what level of professionalism and ethics is required in the sales

process.

Discuss the impact of ethics on business.

Explain what is involved in presenting recommendations.


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How to deal with acceptance and rejection of recommendations.

Explain what is involved in product switching.

Discuss the ways of handling customer complaints.

Study guide

In this chapter the student should be knowledgeable about the fact-finding

process, bancassurance strategy and suitability factors for the choice of

different bancassurance products.

10A Professionalism and ethics in the sales process

In running the affairs and functions of any business group, there is need for a

set of moral principles and standards commonly known as business ethics.

There is an increasing awareness throughout the world that bancassurance

advisors must behave in a professional way towards their clients at all times.

Exhibiting high standards of professional conduct and ethics is in the best

interest of the following parties:

- The advisors as it builds reputation and recommendation.

- The employer as it helps build trust with customers.

- The financial services industry as it helps build professionalism.

All members to professional bodies must adhere to a set of voluntary standards

or codes which include but are not limited to the following:

A commitment to behave ethically towards clients / ethical conduct

A code of professional conduct / ethical code.

A minimum standard of professional competence.


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A commitment to continuing professional development.

10A1 Ethical conduct:

Ethics can be defined as a set of moral principles, norms, values and standards

of conduct that govern an individual or group.

Ethics are those values we commonly hold to be ‘good’ and ‘right’.

Ethics is based on the study of situations and decisions that address moral

issues of right and wrong, others include truth, honesty, fairness, respect,

dignity and transparency among others.

Advisors with a record of good, honest dealings with clients build themselves a

good reputation, those that don’t behave ethically towards clients or are

dishonest in one way or another will not be recommended to other people.

The reputation of individuals affects not only their own standing in the

community but also that of their industry as a whole. Unethical conduct does

not only lead to suffering by the clients but is also subject to regulatory fines

and legal compensations leading to losses by companies.

The main reason for ethical conduct is each client’s moral right to be treated

properly and fairly in any financial transaction as seen from the emergence of

regulatory and legal bodies such as IRA, BOU and many others who ensure

that players act in an honest and ethical manner.

10A2 Ethical code/ Code of professional conduct:

All traditional professions, and newly emerging ones such as financial

planning, establish a professional body with a ‘code of conduct’ or ‘ethical code’

which is binding on its members.


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The code sets out the profession’s commitment to its members’ ethical conduct

in high level terms, often coupled with more specific regulation governing

specific responsibilities.

Any ethical code should highlight the following standards:

Acting honestly and fairly at all times

Acting in the best interests of each client.

Protecting the reputation of the industry.

Observing the highest professional standards.

Managing conflict of interest.

Not exceeding your area or level of competence.

Staying up-to-date.

The basic principle is that advisors should observe high standards of integrity

at all times. Personal integrity and honesty protect client’s interests, the

advisors reputation and public confidence in the industry.

When people take financial planning advice, they are often placing their future

happiness, or even economic survival, in the advisors hands. It is too important

a trust to be betrayed.

Personal integrity however needs to be supported by considerable professional

expertise so that advisors can act with due skill and diligence at all times.

10A3 Professional competence:

This involves knowledge and background of the adviser as they undertake their

daily activities of advising clients on financial, investment and insurance

products.

Because of the range of products available today, advisers must be well trained

and equipped to ensure that clients and other members of the public that they

interface with everyday are assured of competent service.

All advisers should atleast attain a certain minimum level of qualifications and

training by a professional examining body as proof of professional competence.


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10A4 Continuing professional development (CPD)

Because many factors affect advice given to clients, from interest rates, foreign

exchange rates, inflation, political affairs etc, advisers must stay uptodate with

new products and policies in an ever changing world and environment in which

they operate.

These changes affect product innovation and competition with new products

constantly coming on the market and old ones withdrawn.

Continuing professional development also helps advisers understand their

business more to the benefit of clients, the industry and for their own

professional growth. CPD activities include further studies, seminars,

trainings, regular readings and private studies among others.

10B Impact of ethics on business

Promoting standards of ethical behavior improves outcomes for consumers

and their perception of the financial services industry.

Good business ethics make good business sense for the firm, the

practitioner and for the sector as a whole.

A strong ethical culture helps in building trust and confidence among

consumers and therefore increases engagement in financial services.

A firm can strengthen its client relationship as a result of reputation for fair

dealing.

Critical to the encouragement of good business ethics is a strong training and

education process. The reason for this is that an advisor’s gap is often the

principle cause of non-compliance.

10B1 Impact of unethical behavior

A huge number of negative outcomes can occur when ethical standards are not

met. These include:


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Customers are sold products which carry a higher level of risk than they are

prepared to tolerate.

Customers are sold products that are unsuitable for their needs.

Customers feel that they are not being listened to or that they are being

pressurized to buy.

Customers are let down by empty promises or commitments.

Conflicts of interest arise and are not dealt with by the advisor.

High number of policies/products is cancelled owing to customer

dissatisfaction.

The reputation of a business that has behaved unethically is brought into

question.

Trust and loyalty from customer diminishes.

Businesses fail.

Customers no longer trust the financial services industry with their money.

10C Presenting recommendations to clients

When all the diagnostic work on the client fact –find has been completed in a

professional manner; the adviser is in a position to prepare a report for

presentation to the client. Good practice principles apply both to the content of

the presentation and to the skill with which it is delivered.

Recommendations are usually presented to the client orally at a meeting

arranged especially for this purpose. During the meeting, the adviser explains

the proposals or revised proposals and also helps the client to complete

product application forms.

10C1 Recommendations: presentation structure

The normal structure of a presentation meeting should be as shown below. A

high level of professional conduct and professional skills is required at each

stage.

1. Checking the client’s commitment to the needs is simple but

important procedure. It consists of reminding the client of the needs

and priorities agreed, in principle, during fact- finding. Care needs to


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be taken to confine each need to a simple statement. Over-elaborate

reminders will merely confuse the client.

If, for any reason, the client’s situation or concerns have changed, the

adviser may have to prepare a new set of proposals. Where, as usually

happens, the adviser has correctly interpreted the client’s concerns and

wishes, the adviser can proceed with the planned presentation.

2. Before explaining the recommendation in detail, the adviser should

explain the concept behind the proposals. This concept should be very

closely linked to the client’s needs and expressed concerns. Each item

should be linked so that the client will subsequently appreciate how

each detailed proposal fits into a single, coherent, overall plan.

3. In outlining the recommendation for each need, the adviser has the

duty to see that the client understands the key features of the product

recommended, why it is recommended and what disadvantages the

product may have for the client. For example, it is a failure for

professionalism if the client is not aware of any restrictions or risks

that may limit their right benefit in the future or may involve them in

an investment loss.

4. In some circumstances, there will be too much detail for it all to be

covered in the main presentation. However, professional conduct

requires that clients should understand the key features of each

product recommended before a sale is completed. Many advisers and

product providers these days produce key features sheets.

5. At the end of the presentation, the adviser sums up the proposals and

seeks the client’s authority to proceed. The extent to which client

approval is easy or difficult to obtain depends on the quality of the

proposals and the skill with which the presentation has been made.

Occasional open-ended questions, such as ‘what do you think about that, Mr.

X?’ or ‘how do you feel about the proposals, Mr. X?’ are valuable. They enable

the client to express fears and doubts in the context to which they belong. It is

best to deal with doubts and anxieties when they arise and to understand that

they need honest but sensitive handling.

It goes without saying that the adviser should explain points simply, in client-

friendly language. The adviser’s points should proceed in a logical order.

Wherever approved visual aids are available, they should be used to simplify

understanding. Above all, professionalism demands that all explanations and

all answers to questions should be accurate and honest. Any risks borne by the


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client should not be minimized by the incentive for potential gain. Finally,

clients should not be put under undue pressure to accept proposals about

which they are unconvinced or which they cannot afford. The client who does

not accept today may think differently after a few days of reflection.

10D Acceptance and rejection of recommendations

When a client accepts recommendations, it is often possible to complete the

documentation at the same meeting. However, complex cases, particularly

those involving the drafting of wills or other legal documents, may require

further meetings.

Even the completion of application forms, especially those for insurance and

pension products, calls for the adviser’s professional knowledge. Health

questions are difficult for the general public to interpret; pension questions

may require technical understanding; and questions on occupation and leisure

activities may require supplementary information not indicated on the

questionnaire.

Worse still there will be places where untruthful answers appear to be more

helpful to the success of the client’s application than the truth. For example

the client may not wish to disclose that they are overweight or have unhealthy

habits. Good practice demands that the adviser insists on truthful answers and

points out the moral and legal implications of misrepresentation and non-

disclosure.

Once the client’s business has been placed and the client’s financial plans

established, good practice demands that the adviser sets up a regular review

system with the client, say on a six –monthly basis. These review meetings

enable the adviser to provide continuing advice to the client and to update

financial plans as the client’s circumstances change. As mentioned earlier, the

client should also have a telephone helpline to adviser for any emergency help

required.

10D1 Rejection of recommendations

This can happen in two different ways. First, the client may decide not to go

ahead with the adviser’s proposals. This may mean any one of several different

things. Perhaps the client does not wish to proceed with financial planning at

the moment, or the client may genuinely want a few days to think about it or

consult someone else. Maybe the client has decided to accept proposals from a

competitor or maybe the adviser failed to present recommendations

convincingly. Good questioning technique may enable the adviser to uncover


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the reason and even remove the obstacle to acceptance of the proposals. Failing

this, the adviser must respect the client’s right to decline and seek to obtain

permission to re-approach the client at some future date.

What should an adviser do if a client accepts some, but not all of their

recommendations?

In such circumstances the adviser is in a difficult dilemma. The adviser is

unable to change the professional advice which is based on sound needs

analysis. On the other hand, the client has the right to ignore advice and invest

money in any way the client pleases. The professional way for the adviser to

proceed is to re-state the advice given and reasons for it. The adviser should

also explain the reasons why the client’s own instructions may not be in the

client’s best interests. The adviser may demonstrate these points with

scenarios of possible future events. In the event that the client still wishes to

act against the adviser’s advice, the adviser should express readiness to carry

out the client’s instructions. However, it should be made clear that the

transaction is not recommended by the adviser. Documents such as the fact-

find and the adviser’s recommendations should be endorsed to this effect and

signed by all parties.

10E Product switching and Churning:

One major industry concern for many years is product switching, though

hopefully this is now being brought under control with the growth of

professionalism. Unscrupulous advisers recommend to new clients that they

should surrender their existing insurances or investments and replace them

with products being sold by the adviser. The net result of these transactions

was usually that the client lost money and incurred new charges, one provider

gained new business at the expense of another and the adviser earned more

commission by selling unnecessary new products. It is still possible to meet

members of the public who have been advised to swap financial products by a

series of advisers over several years and have very little to show for it.

Repeatedly encouraging clients to switch policies or investments known as

churning is possibly the most unethical behavior an adviser can practice.

Churning is a very bad practice and should not happen. Again this is

increasingly being scrutinized by regulators.

However, it is not to say that switching should never take place. There will be

situations in which clients have been mis-sold policies that do not match their

needs. There will be times when clients are holding products that are not good


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value for money or they may desperately need to reduce expenditure or re-

schedule their debts. Unfortunately, in these situations clients are often all too

willing to cancel existing policies and may even volunteer to do so. In such

circumstances, it may occasionally be legitimate to advise the client to

surrender a product and, possibly, take out a more appropriate one. However,

such advice should only be given where a switch is clearly in the client’s best

interest. Even then, no surrender or switch should ever be recommended until

the adviser has explained what the client will lose as well as what the client

may gain from change.

10F Customer complaints

Customers are the life blood of any business and in an ideal world they would

all be satisfied with the products and service they enjoy from a company. A

company’s products, processes, communications, safe guards, and employee

behaviors are all designed with customer satisfaction in mind. This is

important to encourage customer loyalty and a long, hopefully profitable,

relationship.

However, from time to time things do go wrong from the customer’s point of

view and this can result in a complaint. Complaints should not be viewed by

the company as an entirely negative experience – they present an opportunity

for the company, as follows:

If you handle the complaint successfully, your customer is likely to prove

more loyal than if nothing had gone wrong.

The complaint may alert you to a problem experienced by many others

who silently took their custom elsewhere.

Not only is it morally right that companies should be concerned about the

grievances of their customers but, commercially, a satisfied customer is a good

customer.

10F1 Effective complaints handling

It is very important that the company receiving the complaint is not dismissive

of the customer’s problem- even if the company’s convinced that it’s not at


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fault. Complaints should be handled courteously, sympathetically and- above

all- swiftly.

The following stages are essential in the handling of each complaint:

It must be reported immediately to complaints department of the

product provider

Full details of the complaint and its source must be logged

A prompt written response must be made to the complainant

A full internal investigation into the complaint should be conducted

immediately by the product provider.

The firm’s decision, remedy or offer should be sent to the complainant

without delay

Dissatisfied complainants must be advised if they have the right to

pursue their grievance with another external body


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All actions should be recorded in writing, even those where the original

complainant, or any dealings with the complaint, were conducted orally.

Copies of all correspondence and notes of conversations must be held in

the specified files

Classification of complaints by type helps to produce a statistical analysis of

volume of complaints, their frequency and their source. In this way, companies

can identify organizational weaknesses and take remedial action to reduce

complaints in the future.

Research: what else in your view would constitute unethical behavior in

bancassurance?

Chapter summary

Ethics are widely defined as those values we commonly hold to be ‘good’

and ‘right’.

Any ethical code should highlight the following standards:

Acting honestly and fairly at all times

Acting in the best interests of each client.

Protecting the reputation of the industry.

Observing the highest professional standards.

Managing conflict of interest.

Not exceeding your area or level of competence.

Staying up-to-date.

Recommendation should be presented in the structure as follows:

Checking the clients commitment

Explaining the concept behind the proposal.

Making the client understand the key features of the product before

proceeding to the next step.

Seeking the client’s authority to proceed at the end of the presentation.

Complaints present an opportunity for the company as follows:

If you handle the complaint successfully, your customer is likely to prove

more loyal than if nothing had gone wrong.


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The complaint may alert you to a problem experienced by many others

who silently took their custom elsewhere.

Sample questions

4. Discuss what level of professionalism and ethics is required in the sales

process.

5. Discuss the impact of ethics on business.

6. Explain what is involved and structure of presenting recommendations.

7. How should the advisor deal with acceptance and rejection of

recommendations?

8. Explain what is involved in product switching.

9. Discuss the ways of handling customer complaints

FURTHER READING

Career Times (date?). Bancassurance: a growing concept. Career

Times Online Limited.

Chang, P. R., Peng, J. L., & Fan, C. K. (2011). A comparison of

bancassurance and traditional insurer sales channels. The

Geneva Papers on Risk and Insurance-Issues and Practice,

36(1), 76-93.

Davis, S. I. (2007). Bancassurance: the lessons of global experience

in banking and insurance collaboration. VRL KnowledgeBank.

Fiordelisi, F., & Ricci, D. O. (2011). Bancassurance in Europe: Past,

Present and Future. Palgrave Macmillan.

Kumar, R. V. V. (2006). Bancassurance: Trends and Opportunities.

The ICFAI University Press

Vikrant Sehgal Rahul Abrol (2006). Bancassurannce: The Indian

Perspectives

http://archive.org/search.php?query=creator%3A%22Career+Times+Online+Limited%22


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