You can insure yourself at banks from this year

Bancassurance, the distribution of insurance products through banking channels, is set to be introduced by the end of this year with the central bank close to finalising the guidelines.

The model is based on partnerships between banks and insurance companies, which will be a win-win for both the sectors, say both bankers and insurers.

An insurance company will be able to leverage a partner bank's distribution channel and client base to sell its products while the bank will enjoy revenue growth as well.

The global Bancassurance market is growing steadily with a rising popularity in Asian countries including Malaysia, South Korea, Singapore, Indonesia and the Philippines.

A technical committee comprising representatives of the Bangladesh Bank, the Insurance Development and Regulatory Authority (IDRA), commercial banks, insurance companies and the consulting firm PricewaterhouseCoopers (PwC) Bangladesh Pvt Ltd is working on finalising the guideline for the Bancassurance business.

Once introduced, people will be able to purchase insurance products from nearly 11,000 branches of the banks operating across Bangladesh. The banks will set up dedicated desks for their partner insurance companies, allowing insurance customers to deposit premiums and seek related information directly from the banks.

"The guidelines for launching the Bancassurance services are almost final. The final draft prepared by the technical committee will be forwarded to the finance ministry and the service will be rolled out by the end of this year," said Serajul Islam, executive director of the Bangladesh Bank.  

The term Bancassurance was coined by combining the words bank and insurance in French and the concept was first developed in 1980 in France and Spain. Many countries in the last few decades have been successful in selling insurance policies through the Bancassurance model.

Under the system, banks act as an effective alternative channel which will reduce the cost of collecting premiums for insurance companies. On the other hand, the bank can offer various insurance benefits to its customers at no extra cost. Apart from that, as customers have more confidence in banks, they are also more attracted towards buying insurance policies.

Banks and insurers say that under the partnership agreement executed between banks and insurance companies, the bank will sell insurance products to its customers on behalf of the insurance company. This will increase the commission income of the bank and will benefit both the companies by expanding the business of the insurance company.

In addition, banks will be able to provide one-stop financial services to their customers if they have the opportunity to conduct insurance marketing activities, and Bancassurance will allow the insurance sector to contribute more to the country's Gross Domestic Product (GDP).

"After Bancassurance is introduced both sectors will benefit and we have been trying for it for years but the Bangladesh Bank was initially reluctant. However, we were able to convince the Bangladesh Bank after talking with the banks," Bangladesh Insurance Association President Sheikh Kabir Hossain said and added that finally it is the central bank that is preparing the guideline.

"They asked for our opinions and we have forwarded our opinions. From what we understand the draft will be released very soon," said Kabir.

The technical committee, tasked with finalising the guideline held its last meeting in mid-March.

Sadeq-Uz-Zaman, Member of Technical committee and Associate Director at PwC Bangladesh said, "The goal is to formulate a guideline that safeguards people's confidence and financial security. Opinions of all stakeholders including IDRA have also been taken. Now the legal issues are being reviewed before the draft is ready for release in two-three months."

He added that if all stays on track the service will be ready for implementation by the end of this year.   

Under the guideline, banks have to enter into agreements with insurance companies to sell insurance products. Banks could be allowed as Bancassurance agents of one or more Life and Non-Life insurance companies.  Bancassurance agents cannot claim any fee, processing fee, service charge or any other fee from the policyholder and insurance company will pay commission for the Bancassurance agent based on the commission structure of IDRA.

Banks, as Corporate Agent, under the Bancassurance agreement between insurance company and bank, have to propose, advertise, sell, distribute or market insurance policies to its account holders/clients/general people through its branches, telemarketing centre, agent banking, digital channels and website. Banks have to obtain a No Objection Certificate (NOC) from Bangladesh Bank to act as agent of an insurance company.

Bancassurance prospect in Bangladesh

Bancassurance provides a new avenue for banks and insurance companies operating in Bangladesh for boosting their commission-based income through their joint collaboration.

There is a huge untapped market as currently less than 1% of the total of 160 million population have insurance. Banks hold enough information about their customers that can facilitate cross-sell and up the sale of appropriate insurance products. There are 60 scheduled banks licensed and operating in Bangladesh. These banks have a total number of 10,803 branches as of December 2020. On the other hand, there are 79 insurance companies operating in Bangladesh. These insurance companies have a total number of 4,38,872 agents as of December 2019.

Besides, if allowed in Bangladesh, Bancassurance would help many more people to have access to insurance by taking advantage of the nationwide reach of bank branch networks to avail insurance products.

"The introduction of Bancassurance would benefit both the banking and insurance sectors and would be a milestone in the financial inclusion of the people," said Naser Ezaz Bijoy, CEO of Standard Chartered Bangladesh.

"Trust is a big issue when it comes to insurance in our country. This problem will be solved after Bancassurance is introduced. Some 11 crore people who have bank accounts will automatically come under the insurance facility. Insurance companies will get a huge number of customers. At the same time non-interest income of banks will increase," he added.

Global outlook of Bancassurance

Originating in Europe in the 1980s Bancassurance has now become popular all over the world. The global Bancassurance market reached around $1.3 Billion in 2020. On a geographical front, Europe enjoys the leading position in the market due to a favourable tax structure. Bancassurance represents over 65% of the premium income in Life Insurance in Spain, 60% in France, 50% in Belgium and Italy. In these countries, in only ten years, Bancassurance has become widely recognised as a successful model.

Emerging markets such as China and India are exhibiting high growth potential for the Bancassurance market. They recognised the potential of the Bancassurance model and adopted appropriate norms to encourage private insurance players to integrate with banks.

Bancassurance is well established across Asia, including Malaysia, Indonesia, Thailand, Philippines, Singapore and Hong Kong. In South Asia, Bancassurance is available in Bhutan, India, Nepal, Sri Lanka, Pakistan and Myanmar. Despite having a larger and faster growing economy in South Asia, Bangladesh is lagging behind in terms of financial security through insurance.

Legal framework for Bancassurance

The Bank Companies Act 1991, which is effective for the financial sector in the country, does not include provisions that allow banks to do insurance business. However, according to Section 7(3) of the amended Bank Companies Act, a bank may be required to register as a stock-broker, stock-dealer, merchant banker portfolio manager or approval from the securities and exchange commission to directly engage in such businesses.

A high official of Bangladesh Bank and member of the technical committee said, the Bank Companies Act will empower Bangladesh Bank to formulate and circulate regulations of Bancassurance for banks using Sec 120(2)/ (3) of Ch8 under the law.

On the other hand, the Insurance Act, 2010 allows the corporate bodies to act as "Insurance Agents" upon obtaining appropriate registration from the regulators. "Insurance Agent" defined at section 2(29) as a person registered under the said Act who receives or agrees to receive payment by way of commission or other form of remuneration in consideration of his soliciting or procuring insurance business including continuance, renewal or reinstatement of policies of insurance. While "Person" is defined at section 2(32) as any person, and shall also include any establishment, company, partnership business, firm, or any other organisation.

Bancassurance Models

There are a number of models in which institutions in a country may engage in the Bancassurance business depending on the regulatory and tax environment, the extent of financial control and the degree of operational integration to which the banks and insurers wish to get involved, the relative size and structure of the banking and insurance sectors in a country etc.

A Bank may choose to diversify its product offering and offer one-stop financial services or insurance companies may choose to leverage a bank' s distribution channel and client base in any of the cross shareholdings between them or a bank may wholly or partially acquire an insurance company. A bank may establish a new insurance company wholly owned by the bank. A bank and an insurance company owned by a common group may agree to do the same as well.  

This model has the potential for fully integrated operations, systems and products, high capability to leverage on the banks' existing customers and other service provision and one stop financial services products. However, all this comes at the cost of capital investment, management grooming, and limitations due to regulations involving financial services.

Weaknesses

Lack of skilled professional in the insurance industry, lack of understanding and expertise on insurance business of the bank personnel, some cultural difference among banks and insurers that may arise for the nature of products, strategies and revenue recognition, lack of networking among bank branches i.e. banks in the rural and semi-urban areas where full-fledged IT framework is yet to be established are identified as major weakness for an integrated service as Bancassurance.

Pertinent institutional training facility about Bancassurance is currently not available.

Customers usually visit their banks for simple transactions like to make a deposit or withdrawal. Thanks to ATM and e-banking facilities most of the customers hardly visit their banks nowadays.