Simmering rift over bancassurance

The rise of bancassurance in Uganda has sparked a silent war between banks and insurers.
While banks are bagging more income from the innovation, insurance agents have raised fears over becoming irrelevant in the market.

Now that bancassurance is slowly becoming insurance’s favourite child, will intermediaries such as agents and brokers be sidelined? Will they remain relevant? More importantly, will they still earn as much?

If not, how can they bank on bancassurance so they are not left behind?
Bancassurance was introduced in 2017 with Stanbic bank as the pioneer.
Bancassurance simply means banks act as intermediaries through which insurance policies are sold.
Essentially, a customer can buy an insurance policy through the bank. This before was only the role of intermediaries such as brokers or agents who attracted customers into buying insurance.

At the close of 2018, 16 commercial banks had been licenced to write insurance business.
According to information from Insurance Regulatory Authority, total gross written premiums in 2018 were Shs855.9b of which bancassurance contributed Shs26b in its first year of operation.
Of the total, Shs19.6b was in respect of life business while Shs6.3b was derived from non-life business otherwise known as general.

Brokers performance
Gross written premium income collected through the brokerage distribution channel has increased from Shs45.5b in 2006 to Shs280b in 2018 compared to Shs233.3b in 2017.
The number of brokers in the sector have been on an upward trajectory since 2006 when only 150 people were employed in brokerage firms to 319 in 2015.
Licensed brokerage firms have also grown albeit marginally over the years to 36 in 2018.
The firms’ gross commission has also grown from Shs7.7b in 2006 to Shs47.4b in 2018.

Into their space
Partnerships, although a good strategy, usually come with their own set of challenges.
Bancassurance, an innovation aimed at increasing insurance penetration in one of two ways – signing up new business or taking business from intermediaries.

Tasked to respond to whether bancassurance has interfered with intermediaries, Ms Josephine Mutabuza, head bancassurance retail and business banking division, recognised that while some of the intermediaries’ customers are bank clients, there is need for them (intermediaries) to reinvent themselves.

Highlighting the low insurance penetration in Uganda rated at 0.8 per cent, she said the market presents immense opportunities for all players.

“However, we also need to start reinventing ourselves as brokers, agents to seize the opportunity. So bancassurance is here and our target customer was in the bank. Now the bank is coming to take over our customer. How do we reinvent ourselves to see that we are relevant in the industry? I will leave this one to you the intermediaries,” she advised.

She also disputed the fallacy that banks are eating into brokers’ space, saying about 50 per cent of Barclays bank premiums was new money derived from new insurance buyers.
Mr Solomon Rubondo, chairman Insurance Brokers Association of Uganda (IBAU) probed the matter further.

“If 50 per cent of bancassurance money is new money, which I do not believe, then the other 50 per cent is our lunch, the brokers, which bancassurance is taking. We shall live with it. We shall reinvent ourselves,” he said in consolation.

Allaying fears that bancassurance is eating into intermediaries’ income, he said the onus is on the regulator to initiate dialogue between the two segments which will streamline the different areas of operation.

Whereas the commission is lost to banks, the brokers’ main concern is loss of the service to the clients.

“As brokers, we are professional advisors; we have got a service element. The bank is a selling point but when it comes to documentation, claims, which would be our role, it is all lost, concern is more on the service foregone,” he noted.

Banks versus brokers
Banks have the advantage of trust from their customer. A well-built distribution network system which eliminates investment in additional brick and mortar and the addition of a one-stop service centre when banking.

All this could trickle down to increased uptake of insurance.
However, banks only sell but do not settle or have any engagement in claims settlement.
Brokers, on the other hand, in addition to designing programmes, educating and negotiating good terms for the client, follow up claims settlement.

Despite the discomfort, Mr Rubondo inclined the narrative by all insurance players to lean towards jointly pushing for increased insurance uptake.

But it remains to be seen from the statistics if bancassurance warrants the concern from intermediaries.