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TRENDS IN MENA Bancassurance

PERSPECTIVES FROM THE REGION’S LEADING ORGANISATIONS

In the GCC, insurance products are gaining in popularity, but the region is still lagging when it comes to insurance penetration. Consequently there are many opportunities in the market, and one of the most signifi cant of these is the opportunity off ered by bancassurance.

First Gulf Bank fi gures indicate that insurance penetration in the region is currently at just 1.4 percent, compared to 7.9 percent in the US and 7.1 percent in Europe. They believe that factors such as a young population and high disposable incomes, combined with low penetration make bancassurance an attractive proposition.

A STUDY BY

Insurance really does provide banks with a great opportunity to grow their business and diversify their product range.

Jamie McNish, Regional Director – Partnership Distribution, Friends Provident International

BANCASSURANCE EXPANSION TRENDS IN MENA: INSIGHT, CHALLENGES AND DIFFERENTIATORS

IIR Middle East conducted this qualitative study with leading bancassurance providers, to gain insight into the key issues facing the market, how they see the industry developing, how they have built their businesses and what advice would this give to banks looking to enter the market.


Q1. Why Is Bancassurance Particularly Attractive To Banks In MENA?

There was a general consensus amongst the survey respondents that bancassurance is attractive because banks are able to leverage their existing customer bases and build on their product offerings, providing a wide range of financial products which will contribute to customer retention. Bancassurance, which offers a stable profit stream, is also a way for banks to diversify their product ranges in a non capital intensive manner.

OPPORTUNITIES ABOUNDThe survey respondents pointed to what they see as considerable opportunity for bancassurance products in the GCC market. They mentioned both the low penetration levels of insurance products, and the scope that bancassurance products provides for banks to become comprehensive financial service providers which will help build customer loyalty and retention.

Ashish Sood, Deputy CEO, Retail & Private Banking, Ahli Bank, highlights the large foreign workforce in the region and the lack of a government linked insurance or savings plan available to this workforce post-retirement as key factors that make bancassurace attractive. The transitional nature of much of the population, high disposable income levels and low penetration of insurance products are also cited by Amol Shah, Business Head Bancassurance, First Gulf Bank, as factors which contribute to the attractiveness of bancassurance.

LEVERAGE NETWORKSAnother major reason that bancassurance is regarded as being so attractive is because banks already have an established distribution network, via their branches. Banks that have already invested in building customer loyalty will be able to leverage this loyalty by offering a wider range of products and services in a way that Ahmed Ali Al Mamari, Director, Financial & Technical Regulations of Oman’s Capital Market Authority, believes will introduce ‘choice, competition and convenience’.

On the business banking side, J G Shields, Head Bancassurance, Absa Business Banking , states that, ‘A proper bancassurance model in business banking, where insurance products are applied through innovative concepts, should improve the bank’s ability to advance money to customers.’

A SOURCE OF ADDITIONAL AND RECURRING INCOMEThere is widespread agreement that introducing insurance products will provide banks with a strong source of additional and recurring income. It is regarded as comparatively risk-free and provides a fee-based income. Such diversification is seen as positive by the banks, particularly as the introduction of bancassurance is seen as requiring very little additional investment.

INTRODUCE CUSTOMERS TO OThER PRODUCTSAn additional reason for bancassurance’s attractiveness is that it creates opportunities to offer a wider range of financial products to existing and new customers. This is seen as a way to:

• Buildcustomerloyalty

• Increasethe‘stickiness’ofthecustomertothebank

• Helpsincreasingthewalletshareofthecustomer

• Offercustomersconvenienceintheformofa‘onestopbanking solution’.

• Provideopportunitiesforcross-selling

Jitender (Kumar) Nangia, Vice President & Cluster Head, HDFC Bank, India, suggests that the provision of bancassurance can be a factor in the market’s perception of the bank as a ‘more reliable entity.’

Globally, banks increasingly see insurance products as a way to offer a more

comprehensive range of additional products and service.

Ahmed Ali Al Mamari, Director, Financial & Technical Regulations, Capital Market Authority, Oman

[Bancassurance offers] potential to on board customers for other products and services (stickiness of customers increase if they purchase more than one product).

Ashish Sood, Deputy CEO, Retail & Private Banking, Ahli Bank, Oman


Q2. What Top Tips Would You Give To Banks Looking To Penetrate The MENA Bancassurance Market?

When it comes to penetrating the MENA bancassurance market, banks can focus on a range of issues to help them make the most of the available opportunities.

UNDERSTAND ThE MARKET AND YOUR ROLE IN ITUnderstanding the market was cited by many respondents as one of the most important things that a bank can do as it prepares to introduce bancassurance offerings. This is not just about the demographics, but also about regulatory frameworks.

In a July 2013 report, Alpen Capital states, ‘Bancassurance, which is a popular medium of selling insurance products in several mature insurance markets across the globe, has so far seen restricted progress in the GCC due to insufficient training, improper incentives structure, and regulatory issues.’ (http://www.alpencapital.com/downloads/GCC%20Insurance%20Industry%20Report%202013_1%20July.pdf accessed 4 Jan 2014).

Clyde and Co, in a September 2013 statement, said that, ‘Bancassurance undoubtedly represents a great potential opportunity for the insurance industry. However care needs to be taken to ensure that the arrangements are properly drafted in order to reflect the parties’ expectations and to adequately define their respective roles, duties and the service standards to be maintained. As and when the Draft Circular is implemented insurers, and their bank partners will need to obtain approval from the UAE Central Bank and the Insurance Authority for their arrangements. Accordingly, they should be seeking to ensure that their arrangements are compliant with the requirements of the Bancassurance Regulations.’ (http://www.clydeco.com/insight/updates/banking-on-bancassurance accessed 4 Jan 2014)

Preparation is the key. Before making a decision to diversify into bancassurance, banks need to conduct in-depth research into the government policies and the regulations in each market. It is also important for them to have a clear understanding of their competitors. Other tips relating to the understanding of the market provided by the survey respondents included:

• Identifywhatyouwanttogetoutofbancassurance

• Makesurethatyourbancassuranceandretailbankingstrategies are congruent

• Understandthelocalsocio-economicchallenges

• Considerwhoyourcompetitorswillbeinafewyearstime. Amol Shah of First Gulf Bank suggests that the competition may not be limited to banks, but might also include technology companies, telecom companies, broking firms and the like.

ThINK LONG TERMBancassurance does not lead to immediate results is the general consensus among survey respondents. They advised that as well as investing time and effort, banks need to be patient because the gains are ones that will be achieved over the medium to long term.

FOCUS ON ThE CUSTOMERFocusing on the customer is seen as a key factor when looking to further realise the potential in the bancassurance business. Customer-centricity was a constant theme in the survey responses, and survey respondents emphasised the importance of having the right data, that will give you valuable insights into your market if you are going to be successful. It is also seen as vital to consider bancassurance as part of the Customer Value Proposition and not as ‘just another product’. Jamie McNish, Regional Director – Partnership Distribution, Friends Provident International says, ‘Focus on the customer – intimately understand their attitudes, needs and behaviors.’

Colin Harrison of HSBC Bank Middle East suggests that banks should start by determining what their customers need, rather than deciding what they want to sell them.

Look at medium to long term goals, forget about the short term ones.

Emad Louis, Vice President, Head of Barclays Direct Business, Barclays, Egypt

Don’t look at short term gains.

Sreenath Manghat, Head, Bancassurance Products & Services - Consumer Banking, Bank Muscat, Oman

Bancassurance doesn’t start giving results immediately … you need to invest time and effort

and, more importantly, have the patience to see the opportunity giving the desired results. Banks fail because

they give up too easily and too early..

Gautam Duggal, Regional Head: Wealth Management, Priority & International Banking - Africa,

Standard Chartered Bank, UAE

Adopt a customer centric focus with a clear priority on delivering exceptional levels of sales

and service throughout the customer journey.


Place customer centricity above income opportunity within the bank’s vision and strategic approach. Income will look after itself in a proper

Bancassurance model.

JG Shields, Head, Bancassurance, Absa Business Banking, South Africa

Understand your customer needs and adopt a customer centric focus with an aim to offer

products throughout the customer life cycle.



INNOVATEAnother tip offered by survey respondents was to be innovative. This involved creating innovative propositions and products that were designed to meet the customer needs in each local market. Amol Shah of First Gulf Bank also emphasises the need to ‘keep it simple, actionable and relevant for each local market’.

Innovative products should also be designed to outpace inflation according to Jitendar (Kumar) Nagia of India’s HDFC Bank, while Ashish Sood of Oman’s Ahli Bank suggested the need to link savings schemes to customers’ end goals, such as children’s education.

WORK WITh ThE RIGhT PARTNEROf course having the right partnership in place is going to be important for the success of any bancassurance business. Sreeenath Manghat of Bank Muscat mentions the importance of ensuring ‘strategic alignment between the insurance provider and the bank with an agreed approach to distribution, products, technology and operating models’. Other tips included:

• Selectyourpartnerbasedonwhereyouwouldlikethebusiness to be in the next five years

• Requesttransparency,withjointbusinessmodels,salesand marketing plans as well as a single governance structure

• Gettherightinsurancepartnerwhoalsobelievesinthe opportunity. If you fail in this, the pace of the two organisations might be different leading to frustrations down the track

ThINK CAREFULLY ABOUT DISTRIBUTIONClearly one of the principal advantages of bancassurance is the ability of the business to take advantage of existing distribution networks such as branches. It is important that banks carefully consider the behavior of the customers such as which channels they prefer to interact with as well as offer services through multiple channels such as face-to-face, telephone and online.

Amol Shah of the UAE’s First Gulf Bank suggests, ‘Think about your distribution like Unilever, sell like McDonald's and service your customer like the Ritz-Carlton’.

SUPPORT ThE BUSINESS UNIT APPROPRIATELYAs well as collaborating with the right partner and developing a robust multi-channel distribution network, it is vital that the bancassurance business unit be appropriately supported. A strong back office processing capability and a dedicated, experienced sales force will help ensure that the customer experience is positive and contributes to customer retention.

Many business problems are really customer experience problems. Set up a strong backend

processing capability and invest in a Retention Unit.

Amol Shah, Business Head Bancassurance, First Gulf Bank, UAE

Adopt a customer centric focus with a clear priority on delivering exceptional levels of sales and

service throughout the customer journey.



Q3. What Are The Key Factors Of Creating A Strong Partnership In Bancassurance?Creating a strong partnership is not the result of simply choosing the right partner. The survey respondents also identified the need to select the right product (or products), the importance of having a strong, committed management team and the right operational support, as important factors in the development of a strong bancassurance partnership.

ThE RIGhT PARTNERWhen it came to partner selection the emphasis was on the fit between the two organisations in terms of shared goals, subject matter expertise and investment. But top of the list was the issue of trust.

Other important components of the partnership included:

• Creatingapartnershipwhereboththeinsurancecompany and the bank focused on creating the best customer proposition, rather than focusing on the model

• Developingarelationshipwherebothpartiesshareservices and develop products together where possible, sharing expertise across all functions

• Developingsharedgoals

• Contributingbothfinancialandnon-financialinvestmentfrom both parties

• Agreeingjointlyonthestrategicpartnershipobjectivesand developing detailed Service Level Agreements and Key Performance Indicators, designed for long term sustainable growth and to protect customers and the investments made by both partners

• Choosingapartnerwithasimilarbusinessvisionandapproach to customers

• Developingagoodrelationship,basedonunderstandingeach other’s strengths and weaknesses, and promoting excellent team work between bank and the product provider

• Alongtermcommitmentfrombothpartiestostayinthegame

ThE RIGhT PRODUCTSSelecting the ‘right’ products was cited as an important component of the partnership. Key tips included:

• Selectproductsthatsuitmajorcustomersegmentsandnot just the ones that you like

• Keepitsimple–products,salesandservice

• Buildpropositionsratherthanproducts,becausepropositions will help you differentiate yourself from the competition

ThE RIGhT TEAM AND MANAGEMENTWith any partnership between organisations it is imperative that the management and teams suit each other, and have shared values. To be successful in the bancassurance market requires engagement of the management team from the top down. The senior managers of the bank need to be completely committed to bancassurance and treat it with the same respect as the rest of the bank’s products. In the words of Gautam Duggal of Standard Chartered Bank, ‘ownership’ is important. ‘The message has to come right from the top of the organisation that this is an opportunity that merits investment.’

Joint governance is also important with high quality, accurate, timely management information reviewed regularly by the two parties.

GET YOUR OPERATIONS RIGhTWhile a good strategic fit between the partners, and the selection of the right products, are important, the venture can fail if the operational aspects of the program are not in place. Survey respondents suggested:

• Createasingle,scalableplatformandoperatingmodelwhich drives synergies in IT, operations and customer service

• Focusoneaseofapplicationprocess,payment,clearand concise policies as well as putting in place a simple method of claims’ payment

• Keeptheproducts,salesandserviceassimpleaspossible

• Embedasalescultureintheorganisation.Makesurethesales force can deliver what the customer wants through all of your distribution channels

TRUST – insurance companies are not here to take the bank’s customers away

and the banks are not here to sell only insurance products. Both parties need to

understand and accept this.

Gautam Duggal, Regional Head: Wealth Management, Priority & International Banking,

Africa, Standard Chartered Bank, UAE

Mutual Trust – First and foremost, like-minded professionals, on both the bank

and the insurance company’s side, who trust each other.



Q4. Life, non-life and corporate? Which products are the most attractive for Banks?

Q5. Are some distribution channels progressing better than others for certain products? Which ones and why?

The consensus on the question of which products are most attractive comes down firmly as ‘it depends’, with each product category having its own advantages and challenges. According to Oman’s Capital Market Authority, ‘Within MENA, the most successful insurance products have traditionally been related to compulsory insurance requirements, such as auto and, in some jurisdictions, medical and mortgage. Non-mandatory insurance classes, such as personal property, individual life and SME have also been introduced and are gaining traction.’

Offering products which complement the bank’s core products is seen as a strategy which is likely to ensure good returns and allow the bank to leverage its existing customer base effectively.

Again the survey respondents emphasise the importance of focusing on the customers and accurately identifying their needs to identify key customer segments. They also state that it is vital that products be offered through appropriate distribution channels.

Within MENA, multiple and integrated distribution is key to the future of successful bancassurance models and, depending on the product, the channel preference will alter over time, and at different speeds of consumer adoption. Banks are ideally situated to take advantage of their existing channels and relationships to sell bancassurance products.

Put simply, those products which require considerable knowledge on the part of the sales force, and which require a substantial investment, have traditionally been sold through direct selling and wealth management services, and this is likely to continue. On the other hand, sales of auto, travel and home insurance, which were traditionally sold face-to-face and by brokers, are shifting more towards online, phone and ATM channels.

Customers generally appreciate the opportunity to switch between channels as part of their bank relationship and it is likely that they will appreciate being able to do this when it comes to bancassurance as well. Simple, template products are perfect for distribution through branches or by telemarketing, but are also highly suitable for online channels.

LIFE• Lifeinsuranceisamuchbiggerticketitem,butitneeds

a significant investment in the sales force development, management and oversight

• Volumesaregenerallysmall,butwithhighmargins

• Lifeinsuranceismandatedbyallregulatorsforalllending products (for example, personal loans)

• Insurance-linkedsavingschemesarefastbecomingattractive in terms of both customer benefits and fee income for banks

NON-LIFE • Non-lifeinsuranceislesscomplexthanlifeinsurance,

but it is highly transactional and needs significant volumes to generate returns

• Volumesarefairlyhigh,andnon-lifeproductsarerelatively easy to sell, so require less investment in the development of the sales force

• Theyhelpincreasecustomerloyaltyandretention

CORPORATE• Thecorporatemarketiscomplex,andaccesstoitis

made challenging by a strong and highly competitive broker market

• Offeringcorporateproductswouldhelpthebankbea one-stop shop for a customer’s complete financial needs

Customers require the convenience of choosing which channel to adopt. This will develop as a

requirement to switch between channels as part of their bank relationship.


... the opportunity or next wave is technology driven.

Gautam Duggal, Regional Head: Wealth Management, Priority & International Banking - Africa, Standard Chartered Bank, UAE

Wealth management is widely acknowledged as the best channel for distributing insurance products;

one of the major drivers for this is the significant revenue opportunity it provides.



Q6. How can you go about creating a more customer centric approach in Bancassurance? Friends Provident International sum up the approach that organisations need to take perfectly. ‘We need to understand the customers’ needs, attitudes and behaviors. The bank has a wealth of information on their customers which, if used correctly, can greatly assist in building a customer centric approach and proposition focused on the needs of the customer rather than the bank or insurer.’

It is all about understanding the customer and putting the customer at the center of the process. Some key aspects of customer behavior that banks need to understand include:

• Expectationsofcustomerexperienceareevolving–speed,convenience and low effort are increasingly important

• Customersareadoptingdigitaltechnologieswhichisshifting control from organisations to customers

• Customersinteractwiththebankacrossmultiplechannelsand expect integrated experiences

• Customerrelationshipsarebecomingmorecomplex,withcustomers becoming less loyal

PROFILING AND SEGMENTATIONSegmentation is absolutely essential when it comes to customer centricity. The survey responses indicate that profiling helps ensure that the product is suitable for the customer and that the customers will gain real benefits from the products. By profiling your customer base you will develop a deep understanding of their product needs and will be able to match them. This helps organisations select the best products for their existing customers, and also allows them to focus staff training efforts on a few well-targeted products that will meet the needs of the most valuable customers.

BUILD RELATIONShIPSAhmed Ali Al Mamari, of Oman’s Capital Market Authority, states, ‘Continued advances in technology, communications, data capture and analytics have given rise to a more empowered global consumer which is forcing insurers to dramatically change their operating model.’

Consumers have more choices than ever, meaning that the customer relationship is more important than ever. As the industry landscape changes, product remains important. But customers are willing to buy more from companies that they trust, and from companies that make the experience easy and convenient.

‘This means that every employee, whether they deal directly with a customer or not, should understand how his or her actions every day, affect everyone who purchases and uses the company’s products or services’, states Amol Shah of First Gulf Bank. ‘Customer centricity is everyone’s job…it begins at the top and permeates through the entire organisation.’ Shah continues by suggesting that there are three critical areas involved:

1. Experience design - review the portfolio of products and services, understand the customer journey and align your insurance proposition from the customers’ perspectives

2. Understand the voice of the customer, regarding all of your services, not just insurance, using information gleaned from social media, online reviews and call center data

3. Bring the customer experience to life – help employees understand the impact their roles have on the customer experience

Other suggestions for developing a customer-centric approach included:

• Employeesshouldtakeclearownershipforcustomerproblems and manage issues through to resolution

• DesigntrueintegratedCustomerValuePropositionsincluding the correct sales channels, sales tools, pricing benefits etc

• Approachthemodeldesignfromacustomerneedsperspective and not from an income perspective

Make sure through phone banking that customers have understood each and every aspect of the policies

they have bought.

Jitender (Kumar) Nangia, Vice President & Cluster Head, hDFC Bank, India

Profiling is a must and ensures product suitability to the customer.


Break down organisational silos and structure incentives to promote a customer-centric culture.


Segmentation is a key factor – knowing the profile of the customer will always help in

choosing the right product for them.


Banks should work with a mantra of acquiring, retaining and up-selling to customers and should move

away from selling/pushing insurance products.


We need to understand the customers’ needs, attitudes and behaviors. The bank has

a wealth of information on their customers which, if used correctly, can greatly assist in building a customer centric approach and proposition focused on the needs of the

customer rather on than the bank or insurer.

Jamie McNish, Regional Director – Partnership Distribution, Friends Provident International


CONCLUSION

Our study suggests that bancassurance truly is an attractive area for growth and diversification in the financial services sector. The survey respondents agree that the customer should be at the center of the process, and that by profiling their existing customers, they will be well placed to make insurance offerings that are carefully designed to meet the customers’ needs.

Whilst bancassurance is seen as a relatively low-risk business, with high growth potential, the survey respondents offer some cautionary notes. They emphasise the importance of selecting the right partner and working within a framework of trust, where each side of the partnership, banking and insurance, are equal. They also highlight the necessity to select the appropriate channel for each product and the importance of a multichannel distribution strategy.

As the population becomes increasingly familiar with the products, and as technology develops, it is likely that customers will change channels, and will look for simpler ways to purchase bancassurance products. Providers need to keep abreast, even ahead, of these developments if they are going to maintain and grow market share.

Perhaps the strongest message coming through from the responses is the need to know and deeply understand the market – to know the customers, the products, the regulatory framework, as well as the competition.


THANKSIIR Middle East would like to thank all the Bancassurance MENA speakers for their contributions to this report, with special thanks to:

Respondents


Jamie McNish, Regional Director, Partnership Distribution, Friends Provident International, UAE


Gautam Duggal, Regional Head, Wealth Management, Priority & International Banking Africa, Standard Chartered Bank, UAE

Colin Harrison, Regional Insurance, Retail Banking & Wealth Management, HSBC Bank Middle East, UAE



Sreenath Manghat, Head, Bancassurance Products & Services, Consumer Banking, Bank Muscat, Oman

Nur Ain Ramli, Vice President & Head of Wealth Management Department, Bank Muamalat Malaysia Berhad, Malaysia

Jitender (Kumar) Nangia, Vice President & Cluster Head, HDFC Bank, India

JG Shields, Head, Bancassurance, Absa Business Banking, South Africa

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