By Jamshaid Islam,
Deputy General Manager (Operations) and Actuary
EFU Life Assurance Ltd
May 20 -June 02, 2002
"Bancassurance" in French means the selling
of insurance products by banks through their own distribution channels.
Although a not so familiar term in Pakistan, bancassurance has been well
established in Europe and insurance companies and banks in Asia are now
gearing for this inevitable linkup. As shown in figure 1, the percentage
of new life and pensions premium sold via banks in Spain has been 73% of
total new business sold in 1999. In France this percentage has been 60%.
This shows the success of bancassurance in Europe and how the financial
services industry is moving towards integration.
There have been a number of factors which have lead
to the development and success of bancassurance. For Banks the driving
factors have been
• Pressure on
banks' profit margins. Bancassurance offers another area of
profitability to banks with little or no capital outlay. A small capital
outlay in turn means a high return on equity.
•A desire to
provide one-stop customer service. Today, convenience is a major issue
in managing a person's day to day activities. A bank, which is able to
market insurance products, has a competitive edge over its competitors.
It can provide complete financial planning services to its customers
under one roof.
Opportunities for sophisticated product offerings.
Opportunities for greater customer lifecycle management.
and grow revenue base from existing relationships.
risks by tapping another area of profitability.
realisation that insurance is a necessary consumer need. Banks can use
their large base of existing customers to sell insurance products.
• Bank aims
to increase percentage of non-interest fee income
effective use of premises
loyalty. Life insurance contracts are long term in nature with terms
ranging from 10 years to 40 year and over. This allows life insurance
companies to establish a long-term relationship with their clients.
Banks can benefit from this relationship, and retain and increase their
customer base by offering life insurance products. The product —
loyalty relationship is shown graphically in figure 2. The loyalty of
bank customer can be increased many fold by offering a diversity of
For insurance companies Banks offer an untapped and
successful mode of distribution. Banks with their brand image and
existing customer relationship offer a natural market for selling of
insurance products. Analysis has shown that consumers trust banks more
than insurance companies. Insurance companies with the cooperation of
banks can leverage this "trust" factor.
Bancassurance also offers lower distribution costs
and higher productivity. Traditionally, insurance products have been
sold through full-time sales agents. The commissions paid to the sales
agents and the international productivity standard of 4-6 sales per
month made this distribution channel an expensive one. The reason the
productivity is low in the traditional sales agent distribution system
is the amount of time the agent has to spend on prospecting or trying to
find the right customer. Almost 80% of a sales agent's time goes towards
prospecting. Banks on the other hand provide a cheaper and highly
productive distribution system to insurance companies. The typical
productivity per producer in bank sales is 20- 30 per month. The reason
being that no amount is spent on prospecting and a ready market is
available with the cooperation of the bank.
Insurance companies also expect a greater quality of
sale through bancassurance. With a debit arrangement with the bank, the
insurance company can expect better persistency of its product through a
For customers, bancassurance offers convenience and a
one-stop financial super market. The customer has the satisfaction of
the brand strength of the bank, his/her existing relationship and trust
on the bank. The products sold through bancassurance can give better
value and offer cheaper premiums due to lower distribution costs.
HOW DOES BANCASSURANCE WORK?
The success of bancassurance has been limited to life
insurance mostly, primarily because of the matching of banking products
with the personal financial needs of individuals and families.
Bancassurance works through a process system that highlights consumer
lifestyle changes. Traditionally, insurance products have been sold
through a process called event-based selling. This process serves to
identify individuals or families who require life insurance coverage due
to the happening of certain events which tend to increase future
liabilities. Many of these events can be easily matched with banking
transactions as shown in the following table:
New Account opened
Home Loan Application
Had a Child
Child Endowment Account
Gone into business
Once a banking customer has entered into or completed
a banking transaction indicative of a lifestyle change, he/she is
referred to a Bancassurance Consultant. This person is responsible for
selling the product to the customer. The internationally accepted
anticipated strike rates on event types resulting in leads are given in
the following table:
Strike Rates % of event types resulting in leads
Credit Card Applications
Opening Cheque Accounts
Opening Savings Accounts
Personal Loan Enquiries
FORMS OF BANCASSURANCE
Under a strategic alliance, there is a tie-up between a bank and an
insurance company. The bank only markets the products of the insurance
company. Except for marketing the products, no other insurance functions
are carried out by the bank.
This arrangement entails a full integration of banking and insurance
services. The bank sells the insurance products under its brand acting
as a provider of financial solutions matching customer needs. Bank
controls sales and insurer service levels including approach to claims.
Under such an arrangement the Bank has an additional core activity
almost similar to that of an insurance company.
this approach, the marketing is done by the insurer's staff and the bank
is responsible for generating leads only. In other words, the database
of the bank is sold to the insurance company. The approach requires very
little technical investment.
BANCASSURANCE IN PAKISTAN
Bancassurance in Pakistan is not completely
non-existent. Life insurance companies have worked with banks on various
insurance products, but all these arrangements have been short of a true
bancassurance arrangement. EFU Life Assurance Ltd was the first company
in Pakistan to introduce a product which provided insurance coverage to
a bank's account holders. The Company has also worked with banks to
design products specifically for the bank's customers such as products
for bank's credit cardholders and loan protection products for the
bank's borrowers. Marketing through banks is a strategy EFU Life is
Another form of non-traditional marketing channel of
insurance products existing in Pakistan is "postassurance".
The term signifies insurance sold by post offices. Postal Life Assurance
has been selling life insurance products through this channel.
Bancassurance, e-commerce and all forms of
non-traditional marketing channels are here to stay. All these
developments are in response to customer needs and due to the
advancement in technology. The rewards in bancassurance outweigh the
risks and with its success in Europe and rapid development in South East
Asia, we can forsee bancassurance capture a share of the insurance
market in Pakistan The bancassurance market in the country is untapped
and the opportunities for both banks and insurance companies are
immense. The first to enter into an alliance can tap the tremendous
potential of bancassurance and find themselves at a competitive edge
over their competitors.