The term “Banc assurance” refers to the partnership or relationship between the Bank and the Insurance Company whereby the insurance company uses the Bank distribution channels in order to sell insurance products. This allows the insurance company to sell its products to the Bank client base.
This partnership arrangement is indeed profitable for both companies. Banks earn additional revenue (through commissions) by selling insurance products, and insurance companies expand their customer bases without increasing their sales force or paying agent and broker commissions. The Bank manages both the marketing and selling of the insurance product while the Insurance company handles the underwriting process (assessing the risk of a potential customer, how much coverage the client should receive as well as how much they should pay for it).
Products are therefore packaged to reflect the image of the Bank while the insurance company operates in the background. For example FNB Family Protection Plan, Barclays Bank Travel Insurance, Zanaco Hospital cash plan, Stanbic Bank Homeowner’s Protection Plan and Cavmont Bank Credit Life Assurance.
Models of Banc assurance include the following:
Distribution agreements (also known as tied agent): The bank’s personnel sell the products of one insurer exclusively, either in stand-alone basis or bundled with bank products.
Strategic alliance: Under this model the Bank invests sizably in insurance business without any contingent liability. This involves higher degree of intervention in product development, service provision and channel management.
Joint venture: The Bank and Insurance Company enter into a partnership to develop new distribution model. Alternatively, a bank and insurance company may agree to have cross holdings between them to share the profits.
Financial service group: An insurance company may build/buy a bank or a bank may build/buy an insurance company.
Most of the Banc assurance operations fall in the first model. No Bank in Zambia is allowed to be an agent to more than one insurance company. However, Insurance companies can have partnerships with more than one Bank. Prudential Life for example has partnerships with both Zanaco and Cavmont.
Advantages to the Bank include the following:
Generation of additional profits. The recent published financial statements for commercial banks validate this advantage. All commercial banks were out done by a non-bank financial institution (Bayport) in terms of profit figures. Banks can therefore utilize commissions generated from insurance partnerships to boost their revenue lines.
Certain life insurance products will protect or minimize their risk exposure – mortgage or other loans e.g. Barclays Bank Credit Life protection and Stanbic Bank Homeowner’s Protection Plan. The insurance company settles the credit facility outstanding balance in an event of the death of the principle borrower.
Retention of “existing” and acquisition of “new” customers.
Ability to sell bank products to life insurer’s clients.
Improved customer satisfaction resulting in higher customer retention levels.This is because the bank is able to provide both banking and insurance products under one roof.
Branch achieves profitability target.
Advantages to the Insurance Company include the following:
Generation of additional sales. The recent partnership between Zanaco and Prudential Life has enabled Prudential Life to have access to the Bank’s more than 1.2 million customers in its 69 branches across the country.
Increase in profits.
Captures premium of bank financed assets.
Gaining credibility in customer mindset by associating with bank.
Additional funds for investment. The Insurance Company rides on the Bank
network therefore saves funds earmarked for expansion activities. Such funds
are therefore channeled in other investment projects.
Insurers can exploit the banks’ wide network of branches for distribution of products. The penetration of banks’ branches into the rural areas can be utilized to sell products in those areas. This resonates well with the call by various lobby group for the need of financial players (Banks and Insurance companies included) to expand product offerings into the rural areas to
improve the country’s financial inclusion statics.
Potential for cross selling.
Ease of renewals and lower lapse incidence.
Advantages to Consumers include the following:
Access to Innovative and better product ranges.
Easy accesses for claims, as customers visit banks regularly.
Enhanced convenience on the part of the insured.
Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.
However, such market innovations will not succeed if certain factors are not adopted and implemented. Factors that appear to be critical for the success of Banc assurance are:
Handling of customers: With customer awareness levels increasing, they are demanding greater convenience in financial services.
Commitment of senior management: Senior management of the bank must be committed to Banc assurance as a core strategy that should be integrated with other core strategies.
Banc assurance should not be merely viewed as an add-on product but as an important aspect of the business.
Change in culture: Bank’s culture must be transformed to sell insurance.
Creation of newer innovative distribution channels: Internet Banking and Mobile are some of the tools Banks can use to distribute insurance products.
Insurance penetration in Zambia is very low. Lack of innovations in product design and delivery, low insurance culture and lack of insurance knowledge are cited among contributing factors. Currently the industry contributes fewer than 2% to the
Country’s Gross Domestic Product (GDP). With more stake holders such as Banks playing a role, the Insurance sector should record significant growth in the near
About the Author
A Bachelor of Arts Degree holder in Financial Services from the university of Zambia with work experience in the Insurance sector (Banc assurance model ) and with interests in company process re-engineering and data analysis.
He has a proven track record of being effective and reliable in the assignments undertook. He has a passion for insurance and banking and the role the two sectors play in the economic development of the country at large.