Bancassurance Opportunities and Challenges by Elias Fakhoury

Venue:Villa Rosa Kempinski /Nairobi/

Kenya

Presentation By: Elias Fakhoury

BANCASSURANCE CONFRENCE

The Presentation Includes :

1) The Nigerian Journey on Bancassurance

2) Key Success Factors

3) What it takes to define a winning strategy with

banks?

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Bancassurance: Opportunities and Challenges

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According to NAICOM and CBN:

Bancassurance has been defined as “theprocess of using bank’s branches, salesnetwork, and customer relationships to developsales of insurance products”.

Bancassurance is a strategy for entrenching

insurance culture in the country.

Bancassurance is neither an insurance

product nor a means for banks to do

underwriting business. It is a channel for

distribution of insurance products.

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Banking and Insurance

BOFI Act

CBN Act

Deposits

Withdrawals

Negotiable

instruments

Insurance Act

NAICOM Act

Premiums

Risk Underwriting

Claims

Proposal Forms

Certificate

Debtor Creditor

relationship

Principal Agent Bailee

Bailor

Rights and duties of

bank & Customer –use

of deposit, notice,

statements, privacy.

Provide finance charge

interest

Utmost Good Faith

Indemnity

Insurable Interest

Subrogation

Contribution

Proximate Cause

Distribution Channel

Added

Customer Value

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2010

• Universal Banking ceased

2010 – 2014

• Uncertainty about Bancassurance

July 2014

• CBN Circular disbanding Bancassurance

• NAICOM/CBN discussed

October 2014

• CBN set up Committee to examine Bancassurance

• NAICOM submits position paper on Bancassurance

December 2014

• National Insurance Summit where Bancassurance was discussed

January 2015

• CBN exposed Bancassurance guidelines

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Features of CBN Bancassurance Guidelines Referral model only- Banks can focus on core banking business.

Disclose commission in annual accounts report.

Referral to insurer as the partner of the Bank

Banks cannot pay premium on behalf of a customer.

Must state the name of the underwriter

Must exclude all liability of Bank .

Do due diligence/periodic assessment (in its inspection).

Use only two (2) insurance companies.

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Features of CBN Bancassurance Guidelines Products must be approved by NAICOM.

List of items needed to get CBN approval.

Bank name must not appear at the product.

Insurance staff can occupy banking hall.

Bank can collect premium “as collecting agent” and pay to insurer’s

account with bank.

Not share premium with insurer.

Cannot compel a customer to use particular insurer.

Don't charge customers any service charge or administration fee.

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Key Success factors according to NAICOM & CBN

Success of Bancassurance would largelydepend on how well regulatoryresponsibilities are apportioned, products arepackaged, premiums are remitted andcustomers changing needs are met.

There is a huge untapped market in Nigeria,and with Bancassurance insurance sector isset to increase insurance penetration level.

If implemented properly Bancassurance can be a win-win situation for all participants': viz. banks, insurers and the customers with coordinated and collaborator regulatory monitoring.

And Pragmatism to Strengthen and Sustain the Heart of Strategy

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No Jargon, No Crap, No

Nonsense

Just Facts, Serious Analysis, and

Actual Experience


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Key Developments, Major Drivers, Product Development

Why Bancassurance

(Innovative) Bus Models (Strategic Alliance, Full Integration,

Mixed), Multichannel Approach

Digital Revolution in Bancassurance, Digital Thinking, Social Media

Strategy

Creating Positive Consumer Experience, Personalized Customer

Solution

Global Analysis: France, UK, Spain, Portugal, South Korea, USA,

Japan, Sub-Saharan Africa, Kenya

Bancassurance SWOT Analysis and Porter’s Five Forces Model

See Bancassurance - Laying the Foundation for Growth/The Insurance Survey 2014


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SWOT Analysis

STRENGTHS

Huge pool of skilled professionals Established credibility of the banks Wide network of branches, even in the remotestareas

Understanding about the attitude and behaviourof the consumers

Market expansion for insurance companies Trained staff, brand name and reliability High untapped market potentials

WEAKNESSES

Rural branches not under banking system,and under-staffing issues

No ready availability of trained staff Lack of personalized service Differences in approaches between banksand insurance companies

Customers constrained by time Inflexibility of the products

OPPORTUNITIES

Huge untappedmarket Requirements of urban customers can be tapped Database can be used to find homogenous group Cross-selling of insurance products for bankingproducts

Corporate and salaried customers can betargeted for specific products claimingconvenience and ease of access

THREATS

Changes in work culture and attitudedifficult among bank employees

Non-response from targeted customers May affect the portfolio of banks ifinsurance is perceived as a substitute forbank savings

There may be loss of business confidence Competition between existing players Unsuitable marketing strategy andpersonnel may result in more harm thanbenefit


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“Inability to articulate a strategy in a

single, incisive, natural – sounding

sentence is a sure sign that there is

something wrong in the strategy itself”


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“ When you can measure what you are speaking

about, and express it in numbers, you know

something about it; but when you cannot measure it,

when you cannot express it in numbers, your

knowledge is of a meager and unsatisfactory kind.”

- William Thompson (Lord Kelvin), 1824- 1907


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Strategic planning, as the job of collecting and

analyzing the enormous amounts of data that

characterize the modern world and monitoring

changes in markets and the competitive environment,

provides the raw material and factual basis for

strategic thinking and opportunistic decision making.

Synthesize this raw material into an integrated set

of actions designed to create a sustainable advantage

over competitors.


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S/N COUNTRY %

2013

1. Taiwan 14.5

2. South Africa 12.7

3. Hong Kong 11.7

4. Japan 8.8

5. United Kingdom 8.8

6. Finland 8.7

7. South Korea 7.5

8. Denmark 6.9

9. Portugal 6.4

10. Ireland 6.0

11. Namibia 5.4

12. Mauritius 4.0

13 Kenya 1.2

14 Egypt 0.3

15 Nigeria 0.2

Insurance Penetration: Premium as a % of GDP for Life Business

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S/N COUNTRY USD

2013

1 Hong Kong 4445

2 Switzerland 4211

3 Finland 4109

4 Denmark 4093

5 United Kingdom 3474

6 Japan 3346

7 Sweden 3215

8 Taiwan 3204

9 Ireland 2869

10 France 2391

11 Singapore 2388

12 South Africa 844

13 Mauritius 382

14 Namibia 288

15 Kenya 12

16 Egypt 10

17 Nigeria 3


Insurance Density: Premium Per Capita for Life Business

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The Gap is Huge and the Harvest is

Plentiful, but the laborers are few;

therefore entreat the lord of the

harvest to send more laborers, actually

reapers, into his field.

Identify disconnect between needs/wants and

solutions - between crisis and customer

responses

Preparedness gap

Advice gap insufficient education and

guidance

Supply issue: the market is there

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Market

General

Needs

Specific

Needs

Solutions Gap

CAPEX GROUP Competition Proposed Solutions

Offerings Distribution Offerings Distribution Offerings Distribution


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MPD LINKAGE


China: Premiums From Online Business Grow by 200% p.a in 2011-2013

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Internet users aged 30-50 pay the most attention to

insurance at 58 percent, higher than the national

average of 18 percent. Male Internet users, are more

interested in insurance than female users.

High-school or lower education are most

interested in insurance online.

Premiums collected through Internet sales still

amounted to less than 3 percent of the total

insurance premiums.

India: Mobiles are the new growth story for insurers


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Insurers are increasingly equipping agents with tablets and mobile phones loaded

with proprietary software to quicken the insurance sales process, prevent mis-selling,

reach out to customers in distant places and improve productivity.

Agents to adopt a digital sales process which takes the prospective consumer

through a series of steps that will help select a product.

Agents are Moving to sell through digital means (laptop or tablet)

With the adoption of technology, a new set of agents emerge.

Mobile technology has helped improving overall productivity of agents by 10-15%.

Mobile technology is helping life insurers reach out to distant areas by reducing the

need for physical infrastructure.


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F2F


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Bancassurance Contribution


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REFERRAL DISTRIBUTION INTEGRATED

Commission for dataInsurance Marketersdo the selling. Refer customers toinsurance deskPracticed in India,Indonesia, and SouthAfrica

Banks Staff promote and market Insurance

Bank Collects thePremium and Remits toInsurer.

Practiced in USA,Germany, UK, Japan, andSouth-Korea.

Insurance and Banking products are sold together as one.

The bank is directly involved in selling.

Practiced in France,Belgium, Spain, UK andIreland.


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Banks – Added Income

Banks Customers –Added Value

Financial Inclusion : Increase Through Access To Finance

Insurers –Product

Distribution

Bancassurance Virtuous Cycle


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To Banks – Revenue Growth:

Increased Revenue & Diversification - Risk

free non-interest income

Customs Retention, loyalty and greater

brand recognition

Staff of Branch productivity and so lower

operating expenses

Market Competition – spare decrease in

interest margins

Contain Changing Customer Preferences


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To Customers – Customer Value:

Ease of access to financial services

Simplified insurance products

Competitive pricing

Simplified payment Method


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To Insurers – Market growth :

Access to customers – deepening

Insurance penetration .

Access to established distribution

network.

Source of new business – Large

customer base.

New products

Leveraging banks brand.


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Basics :The Right Partners

Clarified Expectations

Technical Competency

Trust & Brand (contamination)

Compensation: optimize compensation level

and structure keeping in mind customer

value and business viability


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Basics : Privacy Concerns

Products & Processes: bridge the gap and

strengthen partnership and compliance

(Lack of) Integration (Sales & Operations)

Multiple Data Management Platforms

(Lack of) Unified Commands

Contain Core Business Interference


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Products Sold Via Bancassurance Model

Credit life insurance /Personal loans.

Comprehensive Motor insurance/ Car loans.

Home property Insurance /Mortgage loans.

This insurance products offer protection to Banks against loan impairmentsdue to death of the borrower or loss or damage of the asset that the loanwas used to purchase.

This enhances the security of loans and improves the Banks risk profilethereby fostering long term financial sector confidence.

Insurance products most commonly sold through Bancassurancearrangements are insurance that are linked to banking products


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Products Sold Via Bancassurance Model

Health/Medical insurance;

Accident & Disability;

Education insurance;

Third party motor vehicle insurance;

Other forms of property insurance;

Professional indemnity insurance etc.


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I

ALICO, NBK in Marketing Tie-Up news article that appeared in Kuwait / Gulf dailiesback in October 1998.

You will notice focus on segmented markets:

‘’…..a good fit, simple, flexible, low-touch, easy to understand product packaged anddelivered to segmented markets.”

“…Few institutions know their customers more intimately in a financial sensethan banks. Some customer segments”, Fakhoury added. “do not have adequateinsurance and are not presently targeted by insurers. Banks offer a way of that largemarket to be reached and as savvy insurers ALICO capitalize on this opportunity.With the right strategy bancassurance can be a significant avenue for growthespecially we know how much NBK focus on analyzing their customers’ financial needsthe value of life insurance as an efficient solution to their customers” incomereplacement and estate planning needs.”

The Voice of Experience


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You will also see the stress placed on New Frontier, finite amount of Shelf Space andActuarial Capabilities:

“….We are proud of our strategic relation with NBK – the leading bank in Kuwait,” Mr.Fakhoury added. “We view this relation as a New Frontier – an exciting newopportunity for ALICO and NBK to mutually continue to build, grow and prosper.There is a finite amount of shelf space in the banking market and we plan tofill it with our products. As we wrap our resources around our customers’needs, we generate an on-going, dynamic stream of breakthrough market-responsive value packages. With our in-house actuaries we have a strongproduct portfolio (in excess of 200,000 packages) and we can develop more in areaslike: Education Protection, Wedding Plans, Health Insurance, ProfessionalDismemberment, Professional Liability, Employee Benefits, Personal Accident, DisabilityIncome, Mortgage life, Credit Life Annuities, Retirement Packages, Salary / IncomeContinuation Plans, Standard of Living Plan, etc.”


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Moreover the Financial Supermarket and Glocal Relationshipwere emphasized:

“….ALICO/NBK collaboration agreement offers a sort of “one-stop shopping” for consumers seeking financial security andindependence: Full financial services through one source – aFinancial Supermarket.” Fakhoury continued “Together withNBK we weave a Glocal relationship – a global coverage withlocal presence. International depth with national identity.A Tradition of Confidence a Future of Security.”


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II.

1. Risk transfer may help banks release some of their reserves to enhance their bottom-line accordingly.2. All commercial and retail banking clients are purchasers of insurance products.3. The expansion of consumer lending has made it imperative for

banks to “partner” with insurance companies to provide a comprehensive service for their customers.4. Banks need to diversify their revenue stream to become less of

interest margin-dependent organizations. The value proposition includes enhancing the profitability of banks through added source of fee/commission income. Tap another area of profitability.


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5. Opportunities for greater customer lifecycle management.6. Drawing on above successes along with our Actuarial /

marketing expertise, we used to demonstrate our capabilities to research banks’ well-segmented database to tailor-make complementary products that could help banks differentiate their own products and so sell more.7. Diversify and grow revenue base from existing relationships.


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III.Real life insurance products (not the simple ones) are sold not bought …etc Hence we put RLGS / capabilities at the bank’s disposal (our outstanding performance with SABB is a common knowledge in Saudi).

ChurchassuranceMosqueassuranceClubassurance


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IV.

I also used to caution:

1. Patience is an important factor when it comes to revenue building.

Understanding differences in marketing style and culture is critical. For example, banks are used to a transactional environment; sales happen right away and in real time. In contrast, insurance sales can take longer.

2. We – both parties – need to weigh the investment we are making vs

expected return.3. Education on both sides of the table is an important ingredient. We

have researched and are learning how banks think and work; ditto for bank management


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4. We – both parties – need to enter the

relationship with eyes wide open. Forging a successful relationship takes commitment, time and hard work.5. We may need to help the regulatory

authorities, both in the banking and insurance sectors, to facilitate strategic relationships.


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Regulators are our Allies

Create Synergy making the whole

greater than the sum of its parts

(2+2 = 5 or more)

Share customers → boost revenues

Share resources → cut cost


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Just Keep In Mind

High FYC must be appropriately reserved for, and

annualization must be balanced through a claw back

provision where you need to reserved for sales team

turnover. Naturally, this could impact customer value on

the one hand and defeat the purpose on the other hand –

reflecting on business sustainability in most cases. Hence,

you must focus on customer value leveraging a persistency

provision and revenue therefrom towards proper

alignment to motivate all parties.

Thank You

Economy & Finance

Bancassurance Opportunities and Challenges by Elias Fakhoury