Bancassurance means selling insurance product through banks. Banks and insurance company come up in a partnership wherein the bank sells the tied insurance company’s insurance products to its clients.
Bancassurance arrangement benefits both the firms. On the one hand, the bank earns fee amount (non interest income) from the insurance company apart from the interest income whereas on the other hand, the insurance firm increases its market reach and customers.
The bank acts as an intermediary, helping insurance firm reach its target customer in order to increase its market share.TRAVEL START
Bancassurance enables a bank to satisfy the risk protection needs of its clients without assuming underwriting risk. Both life and non-life insurance business provide additional flow of float funds besides fee based income to banks, through the same channel of distribution and with the same people
With the opening up of the insurance sector and with so many players entering the Kenyan insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price.
New entrants in the insurance sector had no difficulty in matching their products with the customers’ needs and offering them at a price acceptable to the customer.
But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies.
Further insurable population of over one billion spread all over the country has made the traditional channels of the insurance companies costlier.
Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices. With these developments and increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services.
At this juncture, banking sector with it’s far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. This union of the two sectors is what is known as Bancassurance.
Bancassurance is a new concept in financial services sector means using the bank’s distribution channels to sell insurance products. The idea behind Bancassurance is to combine the manufacturing capability sand selling culture of insurance companies with the distribution network and large receptive client base of banks. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services.
To put it simply, Bancassurance tries to exploit synergies between both the insurance companies and banks. Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants’, banks, insurers and the customer.