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الثلاثاء، 29 ديسمبر 2015

Bancassurance… Out of the Box Thinking - By Anthony Bechara

Without going into the different Bancassurance definitions which the internet is full of them for the same meaning, I’d like to raise an issue that the market is facing but still a taboo since the Bancassurance deals in MENA region are still in the introductory phases. Whose responsibility is it for the operational profitability? The Bank, or the Insurer? Who should be making the marketing investment to ensure its success? Is it really a win-win situation for both entities?
Traditionally, the insurance company uses the bank’s branches as an alternative distribution channel to increase its market share by targeting the bank’s database for different products: “Motor, Travel, PA, Saving Plans, etc”. In return, the bank earns a kickback as a profit for letting the insurer using its facilities, and its employees a certain incentive for promoting them.


The model used for selling different insurance lines is based on the nature of the product itself. For simple regulated products with easy wordings (i.e. Motor Insurance), the insurer can design it in a way that will be simple for the bank official (who has limited insurance knowledge) to promote and earn his incentive (i.e. 10% discount on Motor Rates for all ABC Bank clients and premium is paid directly from the client’s bank account). This model is known as the “Integrated Model”. However, for more complex products (i.e. Retirement & Education pension plans), the “Non-Integrated Model” is adopted where the insurer’s sales team will target the clients directly as their sale requires certain technical knowledge that the banker might not have, or transmit a confusing message to the client which will not give the desired results. Sometimes, the model adoption depends on the regulatory environment in the country.
What’s the key to a successful “Bancassurance” deal? The answer is very simple: TRANSPARENCY.
Both parties (Bank & insurer) should realize that it is a common project that will generate additional profits to their income statements. Some of the bank’s Non-Financial benefits are:
-          Increase in employees motivation thanks to the incentive received;
-          Free Sales trainings received from the insurer which have a lot of commons with banking products being of the same nature (financial products);
-          Increase in productivity;
-          Increase in market exposure as clients will open new accounts just to benefit from insurance facilities which will give him the chance to promote its own products.
Some of the insurer’s Non-Financial benefits are:
-          Diversification of portfolio especially for Life products which generates more profits and low administration charges;
-          Increase of market share;
-          Cross selling multiple products;
-          Increase of market exposure and credibility.

Again, disregarding the financial aspect of Bancassurance deals, it generates equal benefits and help achieving strategic objectives, so whose responsibility it is for its success? 50/50
Resources should be allocated equally to both parties (Financial & Non-Financial) as the Return On Investment (ROI) will be the same to both entities, and bottom line profitable party is the mutual client they are both having.
In addition to the above, there are certain “Secondary Advantages” that both entities can benefit from since they are both operation under the Financial Services umbrella:
1-      Aligning Marketing Strategies: As both operations are integrated into each other, both entities can develop a common Marketing Strategy that will help cross-sell all other products (i.e. No Administration charges on any Car Loan taken if the Motor Insurance is taken from XYZ Insurance company, or Free Contents Insurance policy for any Home Loan taken from ABC Bank, etc).
2-      Market Segmentation: Both entities have different Market Segmentation techniques to determine their strategic objectives, but if we combine both of them, it will reach of full-fledged Financial Services Market Segmentation study that will assist both of them tailoring their products.
3-      Product development: As there will be alignment of Marketing Strategies and Market Segmentation studies, new products will arise that meets the target market more accurately, as both data are analyzed for countless information whether economic, social, demographic, geographical, etc
4-      Claims history: The bank can benefit from the claims history analysis of the insurer to assist in defining its Credit Policy guidelines especially for Car & Housing Loans since both properties are mortgaged to the bank (i.e. High Loss Ratio Drivers profiling, High Risk areas for houses, etc).

The above raised ideas are out of the scope of traditional Bancassurance agreements, but certainly provide a cutting edge competitive advantage for both entities to increase profitability from side operations, that will create more common grounds for a strategic business relationship aside of the core product held in caption.


 By Anthony Bechara