Unlocking the value in Bancassurance

What you need to know:

While the concept of selling Insurance through banks dated to the 19th century, in Uganda, this provision was only made possible this year (2017) through the Financial Institutions (Amendment) Act of 2016. This means commercial banks in Uganda are now permitted to sell insurance products on behalf of insurance companies through their distribution channels, Josephine Mutabuza writes.

Bancassurance can be an efficient distribution mechanism with potentially higher sales than traditional distribution channels. The main Insurance distribution channels include Brokers and Agents of which the Brokers have dominated this market for a long time. Uganda has over 2,000 licensed agents distributed across the 31 insurance companies. The third channel is the direct business channel where insurers acquire customers directly on their own. Bancassurance is now the fourth distribution channel, and it has proved to be a very effective channel in a number of countries In Europe, Latin America, Asia and Australia.

Bancassurance
Bancassurance refers to selling insurance products through banks’ distribution channels. Banks leverage their extensive customer base and wide geographical spread. This arrangement can lead to an established and growing channel for Insurance distribution. In this partnership, bank staff become the point of sale and point of contact for the customers.
In the Bancassurance arrangement, it is the bank’s brand that is sought after. Customers trust there banker more than they trust Insurers and will therefore feel more confident buying an insurance product from their banker. It is therefore crucial that the banks partner with the right insurance companies that guard their brands jealously. Since insurers are in the business of selling promises they must be absolutely transparent in the way this promise is made. The customer must understand the terms and conditions of the promise to ensure that there are no surprises during the term of the contract.

Benefits
Bancassurance offers many advantages to banks, insurers and customers. For banks, Bancassurance is diversified non -interest revenue stream, Bancassurance allows banks to enrich their customer’s value proposition, and provides convenience to customers by offering a one stop shop for all their financial services.
The insurance companies get better geographical reach and therefore increased penetration at no extra cost. Banks have invested heavily in digital channels and this will allow banks and insurers to distribute products through more convenient and cheaper channels.
The institution of Bancassurance in Uganda will help drive achievement of broader financial inclusion. Uganda has very low insurance penetration levels at 0.85 per cent, meaning that a significant number of Ugandans are excluded from the formal financial system. Bancassurance will help change this situation by making insurance more accessible to the public and creating greater confidence in both the banking and insurance sector which is key to economic growth, transformation and development.