THE IMPORTANCE OF BANCASSURANCE TO OUR FINANCIAL SERVICE INDUSTRY

 Banking and Insurance form a critical element of financial services, which in turn creates financial inclusion of the population. The insurance companies hope to attract further business from both existing and new policyholders. This is simply because insurers can now offer a wider range of services than before. Bancassurance gives insurance companies access to the banks’ customer base and hence automatically increasing their market share. The following are the advantages of bancassurance to our financial service industry. 

Advantages to customers

• One-stop shop for all financial needs. Bancassurance provides bank customers with a customized insurance solution at a location they already get other financial services. Banks become sort of supermarket for all their financial solutions, saving their customers both time and energy. This improves the overall customer experience and improves customer satisfaction levels. 

• Improved application and policy processing time. Banks already have the data and documentation of customers. This real-time information accessibility speeds up the underwriting process and the claims process. This improves the turnaround time which further improves the customer experience. 

• Ease of renewals. In bancassurance, banks being the front dealing with customers, handle renewals as well. This reduces the burden on the customers and quickens the insurance policy renewal process compared to other insurance distribution channels. Also, with advancements in technology and improved data access for the bancassurance channel, tracking the renewals becomes easy for all parties involved including customers. For example, there would be no need to manually transfer payments from your bank to your insurance company since your bank is already connected to your insurer. 

• Trust, customers trust their banks to sell them the right products. The trust they would place on insurance carriers and other insurance intermediaries is comparatively lesser. Therefore, the propensity to buy insurance products from their banks is higher. 

• Expert advice. Banks sit on mounds of customer data. This, along with insurance carriers’ expertise in packaging insurance products helps the alliance suggest the right products. Customers also recognize this expertise, majorly because of their trust in their banks.

Advantages to insurance companies

• Increased market penetration. Banks have a wider distribution network than insurance companies. Banks grant insurers access to their wide-ranging customers to sell their insurance products in return for which they earn income. Tapping on that potential only sets up insurance companies on accessing more customers that they would not otherwise have reached on their own. For example, now insurance companies can use the already existing outlets of banks in the rural areas to sell insurance products in those areas.

• Marketing and processing capabilities. Banks have wide experience in marketing their products to existing customers as well as outsiders. Existing customers form a ready market for retention and cross-selling, and outside customers are relied on for acquisition and awareness of their access to multiple communication channels. For instance, NMB launched a “UMEBIMA?” marketing campaign that entails posters on sides of mwendokasi / BRT (the bus rapid transit) buses, roadside posters along with television and multimedia advertisements something that most insurance companies in the country do not do. 

• Access to banks’ customer data. Banks have a huge customer base whose data can be properly leveraged. This includes their demographic and financial info, transactional information, spending patterns, credit repayment history (investment and purchase capability), and more. Insurance companies and banks can use this information to forge intelligent engagement workflows and to customize relevant insurance covers.

• Increased premium turnover. With increased market penetration, insurers’ motive of increasing premium turnover is also achieved using bancassurance as the driving force. Through the bancassurance distribution, channel insurance companies are able to tap in a much wider customer base. Banks are effective distribution channels for the sale of insurance, particularly personal line insurance.

• Increased operational efficiency and reduced costs. In several of the bancassurance distribution model, the bank employees are on the forefront, closing the deals and taking responsibility. A similar reach through traditional insurance distribution channels would need them to hire several hundred agents in different parts of the country. Through bancassurance, their market penetration goals can thus be met in a much shorter timeframe than through traditional insurance distribution channels.

• Improved turnaround times. Bank employees are on the forefront, data access ensures that the turn-around-time is low (responsiveness is high). This is important because responsiveness is rated by most customers as a very important factor in insurance buying.

Advantages to banks

• Diversification of customer portfolio. Banks already have a relationship with their customers selling them an amalgamation of financial products. With Bancassurance, insurance is added to the banks’ product mix, diversifying their customer portfolio, and increasing their penetration in the market.

• Improved profitability. In Bancassurance models, banks can easily generate risk-free income in the form of commissions from insurance carriers. This is an additional income to the banks which only adds up to their overall revenue. Multiple studies have been done in the bancassurance context globally and have shown the positive impact bancassurance has on the bank’s profitability.

• Customer loyalty and retention. Banks enjoy the benefit of being able to provide yet another product to their customers. Providing integrated financial services strengthens customer relationships and builds better customer loyalty and retention levels. With increased customer loyalty and improved retention rates, the customer lifetime value to the banks increases dramatically. 

• Cost effective use of existing resources. Banks use their existing premises and employees (tellers and branch staff) for the sale of the new insurance products. This means that there’s no additional cost of operation in selling insurance. They also utilize the insurance company’s expertise in training bank employees and packaging insurance products. This reduces the cost of distribution for both insurers and the banks, increasing the channel’s profitability.

Advantages to the economy as a whole

• Jobs creation. The introduction of the bancassurance channel creates new employment opportunities to the young graduates in the country as more workers are needed to facilitate the program. 

• More revenue to the partnering parties equals more taxes to the government. The bancassurance model has proven to provide more revenue streams for both insurance companies and banks. These increased revenue streams will translate into more taxes which will, in turn, be used for development purposes through Government projects. 

• Accessibility of insurance products to a large number of Tanzanians. With bancassurance, insurance products become easily accessible because now customers can purchase insurance policies in any of their accustomed bank’s branches. The process becomes as easy as withdrawing money or making a deposit. For instance, CRDB Bank has a network of 260 branches nationwide, hence giving their partner insurance companies access to that distribution channel to meet a larger number of Tanzanians. 

Bancassurance as a sales channel for insurance products is becoming one of the fastest-growing and the most dominant sales channels in the insurance business. Bancassurance is positive for both the insurance and banking sectors. The insurance companies will benefit from a wide, established, and trusted distribution network, while the banks have an avenue to earn revenue from commissions. It is therefore mutually beneficial to develop and grow bancassurance. 

One concern, however, that arises with the development of bancassurance is the compromise on data security. Data management of an individual customer’s identity and contact details may result in the insurance company utilizing the details to market their products, thus compromising on data security. There is also a possibility of a conflict of interest between the other products of bank and insurance policies (like money back policy). This could confuse the customer regarding where he has to invest.