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?
”
2
Bancassurance: Opportunities and Challenges

3
According to NAICOM and CBN:
 Bancassurance has been defined as “the
process of using bank’s branches, sales
network, and customer relationships to develop
sales 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.

4
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
CustomerValue

5
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

6
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.

8
Key Success factors according to NAICOM & CBN
Success of Bancassurance would largely
depend on how well regulatory
responsibilities are apportioned, products are
packaged, premiums are remitted and
customers changing needs are met.
There is a huge untapped market in Nigeria,
and with Bancassurance insurance sector is
set 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

10
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 remotest
areas
 Understanding about the attitude and behaviour
of 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 banks
and insurance companies
 Customers constrained by time
 Inflexibility of the products
OPPORTUNITIES
 Huge untapped market
 Requirements of urban customers can be tapped
 Database can be used to find homogenous group
 Cross-selling of insurance products for banking
products
 Corporate and salaried customers can be
targeted for specific products claiming
convenience and ease of access
THREATS
 Changes in work culture and attitude
difficult among bank employees
 Non-response from targeted customers
 May affect the portfolio of banks if
insurance is perceived as a substitute for
bank savings
 There may be loss of business confidence
 Competition between existing players
 Unsuitable marketing strategy and
personnel may result in more harm than
benefit

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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”

13
“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.

15

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
Insurance Penetration: Premium as a % of GDP for Life Business
16

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
17

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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
19

20

Market
General
Needs
Specific
Needs
Solutions Gap
CAPEX GROUP Competition Proposed Solutions
Offerings Distribution Offerings Distribution Offerings Distribution
21
MPD LINKAGE

China: Premiums From Online Business Grow by 200% p.a in 2011-2013
22
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.

24
F2F

25
Bancassurance Contribution

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REFERRAL DISTRIBUTION INTEGRATED
Commission for data
Insurance Marketers
do the selling.
 Refer customers to
insurance desk
Practiced in India,
Indonesia, and South
Africa
Banks Staff promote and
market Insurance
Bank Collects the
Premium and Remits to
Insurer.
Practiced in USA,
Germany, UK, Japan, and
South-Korea.
Insurance and Banking
products are sold
together as one.
The bank is directly
involved in selling.
Practiced in France,
Belgium, Spain, UK and
Ireland.

27
Banks – Added
Income
Banks
Customers –
AddedValue
Financial Inclusion :
Increase Through
AccessTo Finance
Insurers –
Product
Distribution
BancassuranceVirtuous Cycle

28
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

29
To Customers – CustomerValue:
 Ease of access to financial services
 Simplified insurance products
 Competitive pricing
 Simplified payment Method

30
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.

31
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 impairments
due to death of the borrower or loss or damage of the asset that the loan
was used to purchase.
 This enhances the security of loans and improves the Banks risk profile
thereby fostering long term financial sector confidence.
 Insurance products most commonly sold through Bancassurance
arrangements are insurance that are linked to banking products

34
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.

35
I
ALICO, NBK in Marketing Tie-Up news article that appeared in Kuwait / Gulf dailies
back in October 1998.
You will notice focus on segmented markets:
‘’…..a good fit, simple, flexible, low-touch, easy to understand product packaged and
delivered to segmented markets.”
“…Few institutions know their customers more intimately in a financial sense
than banks. Some customer segments”, Fakhoury added. “do not have adequate
insurance and are not presently targeted by insurers. Banks offer a way of that large
market to be reached and as savvy insurers ALICO capitalize on this opportunity.
With the right strategy bancassurance can be a significant avenue for growth
especially we know how much NBK focus on analyzing their customers’ financial needs
the value of life insurance as an efficient solution to their customers” income
replacement and estate planning needs.”
TheVoice of Experience

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You will also see the stress placed on New Frontier, finite amount of Shelf Space and
Actuarial 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 new
opportunity 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 to
fill 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 strong
product portfolio (in excess of 200,000 packages) and we can develop more in areas
like: Education Protection, Wedding Plans, Health Insurance, Professiona
Dismemberment, Professional Liability, Employee Benefits, Personal Accident, Disability
Income, Mortgage life, Credit Life Annuities, Retirement Packages, Salary / Income
Continuation Plans, Standard of Living Plan, etc.”

37
Moreover the Financial Supermarket and Glocal Relationship
were emphasized:
“….ALICO/NBK collaboration agreement offers a sort of “one-
stop shopping” for consumers seeking financial security and
independence: Full financial services through one source – a
Financial Supermarket.” Fakhoury continued “Together with
NBK we weave a Glocal relationship – a global coverage with
local presence. International depth with national identity.
A Tradition of Confidence a Future of Security.”

38
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.

39
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.

40
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).
Churchassurance
Mosqueassurance
Clubassurance

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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.

Bancassurance Opportunities and Challenges by Elias Fakhoury

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