BANCASSURANCE: ELIXIR OF GROWTH
TARIQ AHMED SAEEDI
Sep 19 - 25, 2011
Bancassurance is emerging as an elixir of growth of underdeveloped insurance sector of Pakistan. The innovative concept that is helping the insurance companies to scale penetration of insurance with the collaborations of banks has gained attention of the banking customers evidently back in 2006, though it had completed four years of its existence much before that.
How effective has been the partnership of banks and insurance companies over the years in hoping up the slow growth of insurance sector in the country is anybody's guess thanks to the poor record maintained by the sector's regulator. However, one thing can be said for sure that insurance companies are making up for their key weakness in outreach by banking on the wide networks of commercial banks.
Banks extend the outreach of insurance policies through their branch networks having clear edge over insurance outlets in numbers as well as in market intelligence. Almost all commercial banks have opened up or braced up to launch insurance window operations from their branches all across the country. Several private and foreign banks are making their marks on the insurance landmark. They are growing very rapidly by providing modern banking plus insurance services to their customers since there is perceptible customer retention when financial intermediation and covers are provided at one window operation. Most importantly, this partnership is sprucing up insurers' images and building up confidence of banking clients over insurance services. As a matter of fact, they do not bother about the backend functionalities as long as they deal directly with the banks.
In a 12th Asian Conference on Bancassurance & Alternative Distribution Channels, held in Singapore in May this year, speakers said bancassurance has become indispensable for the insurers in Asia. "In the highly competitive era, insurers have been forced to pursue multiple means and channels to optimize distribution of insurance products across the region," noted a whitepaper.
PAGE discussed trends and prospects of still-growing bancassurance and insurance industry in particular in Pakistan with some young professionals serving in banks who were determined to do something special in the insurance sector from the day one they entered in the field. They are serving the sector not just for earning money but also with the commitments to serve humanity and render community services.
Insurance is very important for people living in this part of the world, said a business manager in the bancassurance department of a foreign-based bank. Serving the insurance sector for over a decade, he said be it general or life insurance, financial covers are necessary for the community at large.
Life insurance is the best service to humanity. Imagine the scenario when a person needs money in case of an emergency in his/her life. A possible loss to health and property can be compensated if he or she saves money and takes insurance policy. Although a loss to life can never be compensated in monetary terms, financial covers secure the future of deceased.
Life insurance is for medium and long term. Pakistan socioeconomic conditions are so volatile that a person must need a protection from risk that can render him/her unable to overcome financial challenges. When a person gets older, he or she is not necessarily well off to pass life comfortable and maintain good lifestyles for his/her family what he/she could afford when he/she would be economically active.
Contrasting government from private sector employees, while former draws monthly income from his/her organizations even after retirements, not all private employees are fortunate enough to secure their future in the face of vagaries after retirements. Pension funds are popular in the developed economies. Natural disasters have become so common, that persons need financial protection for their personal as well as commercial lives.
The general viewpoints were that there was need to bring a change in perception of the society about insurance. People think they do not need insurance specifically life insurance. What would be the luck of a driver whose car is insured but not he or she. Generally, people dangerously believe on luck and destiny. 'It happens because it was destined' a common groan a person maximally utters when trapped in an untoward situation. Interestingly, the situation is not limited to low income group but rich people also have the same mindsets. Latter can spend sizeable money reactively. But, as a nation we are not proactive.
Net premiums of life insurance companies in 2009 stood at Rs40 billion while gross premiums at Rs41 billion. Net premiums of nonlife insurers accounted for Rs25 billion while gross premiums stood at Rs43 billion.
A window in the bank has just extended the outreach of insurance products to the banking clients. Customer retention is a visible outcome after the bancassurance. Customers going from bancassurance channel are put in the priority list service in the insurance agencies.
Securities and commission of Pakistan (SECP) has issued guidelines of bancassurance. However, sector experts are not satisfied with the document. The guidelines are favourable to insurance companies alone and do not hold anything special for the banks that put their infrastructure in use to accelerate growth of the sector. Adding insult to the injury is the government decision of imposition of taxes on insurance proceeds that would also hamper the snail-paced growth, they commented. 98 per cent of country's population is still out of pool of insurance. Increase in minimum paid-up capital requirements will drag the small insurers to the exit doors. The development is seen good for the sector. Experts said small companies could not facilitate insured as a company with strong capital base does.
SECP can lend its support to banks and insurance companies to increase distribution of insurance policies to public. Financial covers do not only help in increasing savings to GDP ratio, but they also give people secure economic future. Its over-delayed policy responses and actions often come under criticism when its performances are compared with the banking regulator State bank of Pakistan.