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Are insurers and bankers on the same page?

23 April 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

The trend among modern day financial services providers is toward product diversification. Large companies strive to offer their customers a ‘one stop’ solution by providing a store front with as wide a selection of risk and investment solutions as possib

The report is compiled by an independent US-based bank insurance consultancy firm, C F Effron Company LLC. Company president Carmen Effron was on hand to discuss the findings after a survey of South African companies, including 13 insurers and five affiliated banks. An identical questionnaire was sent to participating banks and insurers in which they were asked to respond to a range of statements using the familiar 1 to 5 scale. The average response from banks is then subtracted from that of insurers to reveal a ‘gap’ which indicates how far apart bank and insurance thinking is. A ‘gap’ of more than 1.0 points indicates a significant culture divergence. The overarching objective of the research is to answer the question: How do we make banks and insurers work more effectively together? “They’re two very different businesses – they do things in different ways – but they do have a common purpose,” says Effron.

What is bancassurance?

Before poring over some of the more technical aspects of the study we need to understand the business relationship we’re examining. There are numerous definitions of bancassurance with industry stakeholders stressing the importance of a distinction between ‘bancassurance’ and insurance banking. The former describes the selling of any type of insurance product using a bank’s distribution channels. Local banks are already marketing a range of insurance products including term life, whole life, funeral, health insurance, disability income, lump sum disability and mortgage protection.

What motivates local banks and insurers to pursue bancassurance opportunities? The majority of survey respondents point to the importance (to their customers) of a ‘one stop’ risk and investment product offering. Although each party can list unique advantages the common thread is profit. Effron notes: “Fee income ranked as the most important reason for bancassurance distribution among all participants.” The hunger for fee income is the reason 19% of ‘gaps’ identified by the survey are greater than 1.0 points. “There are more competitors in the market and they’re pushing to make the changes required to increase their non-fee income,” says Effron.

On distribution, marketing and sales

The report assessed bank and insurer interaction under six operational headings: distribution, marketing and sales, product and process design, administration and operations, effectiveness and risk and profitability. We’ll focus on some of the more interesting report findings under these headings, starting with the best way to approach the market – the effectiveness of distribution. Johann van Niekerk, head of business development for RGA South Africa says the study helps bank and life insurers continue meaningful discussions that will create a more efficient and profitable distribution channel.

All of the participating banks indicated that the development of a full financial services offering, including insurance, was critical for long-term success. But banks and insurers differed on the best channels to market and distribute insurance product. Banks consider inbound marketing as extremely effective, scoring the channel at 4.2 out of a possible 5 points. Insurers only rated this channel at 2.7 points for a gap of 1.7 points. “Insurers feel that joint ventures between themselves and the bank are a more effective approach to working together,” says Effron. Respondents agreed that building an agency business from scratch was ineffective.

The survey offers a detailed assessment of 12 sales and marketing techniques typically employed in the insurance industry. These techniques were ranked for banks and insurers. Banks rated outbound call centres, agents in branches and sales through banking employees in branch as their top three selling tools, while insurers favoured agents in branches, independent brokers and outbound call centres. Independent brokers were viewed as ineffective by banks, but highly rated by insurers, leading to one of the largest ‘gaps’ in the survey. Skills shortages came to the fore in this section of the report too. All respondents admitted to difficulties in finding, training and retaining agents – a fact demonstrated by the ageing agent force.

Product, administration and operation

The optimisation of product and process is viewed as important by both bank and insurer. Aspects such as the flexibility of product design, variety and extent of product availability, simplified underwriting for products and ease of sales process scored from 3.6 to 4.8 points. But participants differed when rating their effectiveness in each of these categories. Banks weren’t totally satisfied with their performance, while insurers felt their product and process performance was optimal.

Banks showed dissatisfaction with five of the six attributes ‘tested’ in the administration section of the survey. The survey focused on bank customer database management, insurer provision of training to bank staff, compatibility of administrative platform between bank and insurer, insurance compliance expertise and integration of product to bank internal procedure. “Banks are very outspoken about the fact they cannot afford not to be compliant,” says Effron. There business processes are under constant regulatory scrutiny, perhaps explaining the 1.4 point ‘gap’ in bank satisfaction with insurance compliance. South Africa has a long way to go to compete with US, UK and Asian bancassurance offerings in areas such as system integration, database management and administrative platforms!

Local banks feel they are on track with training. “Banks and insurers are satisfied they are spending the correct amount of time on continuing education, sales training and existing product training,” says Effron. But there is some concern about the technology solutions at point of sale. A major bancassurance challenge is to increase awareness among customers and bank employees that insurance is sold through banks. Although banks participating in the report felt their customers were highly aware of their insurance offerings the reality is quite different. Bank staff and customers alike are often oblivious to the fact they can sell or purchase insurance in branch.


South Africa’s bancassurance industry is in its infancy. “In the multicultural society that defines our country, bancassurance is still an exciting development that continues to grow and transform in light of regulatory and technological changes,” says van Niekerk. André Dreyer, director of market development for RGA International Corporation, adds: “The South African study shows that banks and life insurers must engage in more open and frequent communication to reduce the number of disconnects, improve areas of concern and increase institutional trust and confidence.”

Editor’s thoughts: If South Africa follows international trends you can expect consumer preferences for bancassurance to grow exponentially. Do you view bancassurance as a threat to financial services intermediaries? Add your comments below, or send them to

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