Bancassurance is an arrangement between a bank and an insurer whereby the insurer distributes insurance products through the bank branches/channels to the bank customers, employees and the general public. In return, the bank earns additional income for providing the platform to the insurance company. The income earned by the bank may be in form of insurance commission which is statutory as every insurance business usually attracts a commission payable to the person or company that brings the business to the insurer. Alternatively, the insurer may prefer to pay the bank a defined service fee as agreed by both parties for the bank allowing the insurance or providing a space in the banking hall for the insurer to distribute insurance products to bank customers, employees and the general public.
Bancassurance is simply a product distribution strategy or insurance marketing model used by insurers to increase insurance penetration, especially in emerging markets and developing countries. Insurers leverage on the banking platform since in most cases financial products consumers or bank customers rely on the strength of the bank in making their insurance buying decision. Bancassurance does not involve underwriting at the primary level as practiced by insurers and as envisaged by section 4 of the 2010 CBN regulation. The challenge facing bancassurance in Nigeria is that some people are innocently misinterpreting, misconstruing or confusing it to be the same thing as risk underwriting prohibited under section 4 of the 2010 CBN regulation titled ‘CBN Scope, Conditions & Minimum Standards for Commercial Banks Regulations No. 01, 2010’.
Specifically, section 4 of the above mentioned guideline states: “No commercial bank shall be permitted to carry out the following business activities: a) Insurance underwriting; b) Loss adjusting services; c) Re-insurance services; d) Asset management services; e) Issuing house and capital market underwriting services; f) Investment in equity or hybrid-equity instruments, save and except for the investments permissible under BOFIA; g) Proprietary trading, save as permitted by these regulations; h) Provision of financial advisory other than in accordance with provisions in Section 3(h); and i) Any other business activities that may be restricted by the CBN from time to time.”
Based on the above provisions, it is clear that bancassurance is not prohibited in Nigeria by any CBN regulations. Bancassurance is an enabler because it enhances the role of the insurance industry to secure lives, properties, and liabilities against risks in order to protect the national economy; collect, develop, and invest the national savings to sustain the economic development of the state; encourage fair and effective competition; provide the best insurance services in competitive premiums and coverage.
Our challenge here is that some people are misinterpreting bancassurance as insurance underwriting and the regulators (CNB/NAICOM) themselves need to understand this and move forward with a clear guideline and definition of bancassurance in Nigeria. This is why all stakeholders should come together to take another critical look at bancassurance and clearly adopt a definition and also define the model of operations in the country. One of the key objectives of the forthcoming first ‘Sub-Saharan Africa Insurance, Pension, and Bancassurance Summit’ scheduled to hold February 24-26, 2015 in Lagos is to enable the insurance and banking industry leaders, especially the regulators (CBN/NAICOM), draw experience from global bancassurance professionals and, thereafter, be able to shape the future of bancassurance in Nigeria with a view to adopting a business strategy on the best way forward for the benefit of the economy. We need to have this kind of conference of top industry experts from outside our shores to speak at this event, giving us the opportunity to gain first-hand experience from these global financial services industry leaders and share ideas on how bancassurance channel can be maximized to increase the penetration of insurance in Nigeria and also improve the overall banking revenue.
Through presentations, case study and interactive panel discussions, the forthcoming summit aims at bringing together business and intelligence to provide financial services companies with competitive advantage. Delegates/participants will be able to: understand the concept of bancassurnace as practiced globally; distinguish between bancassurance and universal banking in Nigeria; determine the requisite guidelines/regulatory framework to be adopted in Nigeria; gain insight on available opportunities and business strategies for a successful bancassurance operation; and understand global best practice for banks and insurers under the bancassurance model
The summit will bring together leading regulators and key stakeholders in the insurance, banking and pension value chain, including insurers, banks, pension administrators, actuaries, brokers, affinity partners, advisors and IT providers, to identify market growth strategies as well as models to improve returns and profitability in the region. Through industry analysis, global and local best practice sharing, in-depth discussions and networking, the three-day summit will focus on the impact of latest regulations, trends and developments in insurance and pension, product development and innovation, new technologies for distribution and social media, while the post-summit workshop will focus on approaches to creating better efficiencies through governance, risk management and compliance. It will look at effective strategies to improve insurance and pension penetration, avoid unnecessary price competition as well as tips to improve and create successful long-term bancassurance partnerships.
With the deregulation of the financial sector and opening up of insurance sector, many foreign players are entering the banking and insurance industry. The insurance industry is progressing at a rapid rate powered by the laudable activities of NAICOM Market Restructuring and Development Initiative (MRDI). The size of the country with a diverse set of people, combined with problems of lack of insurance education, particularly in rural areas, makes insurance penetration in Nigeria a very difficult task. Life insurance companies require good distribution strength, mobile communication-driven technology and tremendous manpower to reach out to such a huge customer base. While the government through the CBN is favourable to market expansion by allowing bancassurance to drive financial inclusion and increase insurance penetration, the market players should adhere to self-regulated market discipline. Banks need to exercise due care as they bring a customer database, leverage their name, recognition and reputation for both local and international level transactions. Even at that, the proper implementation of bancassurance will still face many hurdles because of poor manpower management, lack of effective and efficient call centres, non-personal contact with customers, inadequate or non-availability of incentives to agents, and non-fulfilment of other essential requirements.
Finally, we can say that the success of bancassurance in Nigeria will mostly depend on a proper understanding between insurers and bankers, how they are capturing the opportunity, and how much better service they are providing to their customers. I believe that once the CBN and NAICOM jointly come out with the guidelines on bancassurance operations model and the players abide by the rules, bancassurance will succeed in Nigeria.
Obasi Ngwuta