BANK INSURANCE

A face out for Insurance agencies? Or is it a heaven sent for Insurance Companies.


The bank insurance model (BIM), also known as Bancassurance is an arrangement where a bank and an insurance company form a partnership so that the insurance company sells its products to the bank's client base. This business model seems to have taken over the Kenyan market will almost all major banks option out to cash in on this option. Question is, will this be the enad of the insurance brokerage firms? Is this a heaven sent for the banks/ is it a great advantage or is it a disadvantage to the user?

This partnership arrangement is profitable for both parties where Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers. Although
Bancassurance arrangements are common in Europe, the same is slowly picking up in Africa. BIM allows an insurance company to keep a small direct sales team since their products are sold through the bank to bank customers by the banks staff.

Bank staff and tellers, become the point of sale and contact for the customer and not the insurance sales person. Bank staff are trained and supported by the insurance company on product information, marketing campaigns and sales trainings.

The insurance company shares the commissions with the bank but the Insurance policies administered by the insurance company itself.

BIM (Bancassurance) differs from the Traditional Insurance Model in that with the traditional model, insurance companies have large insurance sales team and generally work with insurance brokers and third party agents. The Bancassurance approach is a merger of the traditional and only that now, Insurance companies use the outsourced forces.

While still in its teething days, Bancassurance is slowly but surely gaining in popularity in the world.
However, some countries have strictly prohibited Bancassurance but a few have legalized this arrangement with the US leading in the lot. Private Bancassurance is a wealth management process being used globally where it combines private banking and investment management services with the sophisticated use of life assurance as a fiscal planning structure to achieve financial advantages and sanctuary for wealthy investors.

Banks play the role of an agent for the insurance companies and sell the insurance policies on their behalf.

Benefits of Bancassurance to the banks and Insurance firms

Compared to insurance companies, banks enjoy more advantages from this arrangement. By selling a wide array of insurance products in the life and non life sectors, Banks, not only market these products and facilities to customers but also make a good amount of money by extending the service. Psychology has I t that banks have a sound personal affinity with the public as well as a better understanding of their financial needs and therefore people are more responsive to their Banker's advice.

Bank personnel are proverbial and comfortable with the financial language and terminology, and as a result, they can easily study the subject on insurance, in order to sell the products. Furthermore, they are good with numbers and making a sales pitch therefore giving them that distinct advantage.

In order to leverage the benefits of both products and services, Banking and Insurance products can be combined to offer a better product mix to the consumer. The provision of insurance products through the bank enables the insurance companies to spend less on the agents to sell their products. It is expensive to an insurance company to identify, train, motivate, and compensate the insurance agents to push their products.

It is equally beneficial for the Banks and the Insurance firms, when Banks cross-sell insurance products, since both of them can leverage each others' products and services. Banks get an extra source of income from commissions and fees from the insurance business and especially the excessive competition for interest based products which have affected the bottom-line of the Banks who are now trying to build up alternative sources of income, through provision of non banking products and services.

Banks accommodate both categories of customers’ i.e.  The classes and the masses. Insurers then can take advantage of this by marketing relevant products through these distribution channels. Simple products for the masses, and more sophisticated ones for the classes.

The Flip side of Bancassurance: 

Bancassurance is not advantageous all the way for both Bankers and insurers since there are several issues that both of them are concerned about.

The most important issue and indeed the greatest fear of Bankers is losing business to the Insurance companies especially in relation to similar products. Insurers have their own perceptions of Bankers as their marketing forces since they feel that often Bankers do not do enough to push their products.

On the other hand, Banks feel that insurers gain more from Bancassurance because they do not incur expenses on infrastructure, labor and marketing whereas the returns accruing to Banks from the business are not worth the trouble.

When Banks are trying to save on costs by providing more and more services offsite, they feel that servicing insurance clients onsite (by Banks), may not be feasible, as it only adds to their costs. They are also at the risk of facing the wrath of the customers in case of poor follow up service, like claim settlement, etc., from the part of the insurers.

Bankers may not welcome certain finer points of the insurance products they sell and may consequently face administrative and legal hassles from the customers.

These are just some of the issues related to Bancassurance from both the bankers and insurers perspectives. Nonetheless, the success of this service depends on how well the concerned parties sort out their problems mutually without cutting into each others' cake.

The customer is the one that feels the pinch. Consider the case where you as the customer, you get an accident and are reequired to reposr to your insurer. This case will be very diffcult to handle with a abank as opposed to handling it with an agency. My point her is that the agency has a more direct link to the customer and service delivery is therefoe effective and on point. Banks will take long to get to you, or to the point of the accident therefore making you, the sufferer. In my opinion, Insuring through the bank is not a plus for you.

My two sense tell me to stick to my broker. Thats my take. Choice is yours to make though.