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Published On: Tue, Sep 6th, 2016

NAICOM, CBN at war over bancassurance

A serious dispute between the National Insurance Commission (NAICOM) and the Central Bank of Nigeria (CBN) over the right model for the implementation of bancassurance in Nigeria last week recorded casualties.

The biggest victims are all bancassurance partnership deals between insurance firms and banks, which have been suspended indefinitely by NAICOM pending when the two regulatory parties agree on a workable model.

Also suspended by the regulatory body are other insurance product distribution channels including airlines, online or web-based aggregators, telecom and other platforms not approved by NAICOM.

The bone of contention is the refusal of the CBN to allow NAICOM license banks that want to have bancassurance partnership with insurance companies. The move which is threatening financial services penetration and inclusion may constitute more cost than benefit to the economy in general and insurance sector in particular if not well addressed.

Bancassurance involves selling insurance through the banks. It is an arrangement between a bank and an insurance company, where insurance products are sold in the banking halls. The bank mainly sells the insurance products to customers who visit the banking halls. Brand credibility is a major prerequisite in bancassurance partnership.

It is strategically relevant to deepen the penetration of insurance because banks have wider distribution coverage and also have higher brand share of mind.

Therefore banks provide a huge customer base and a payment infrastructure that supports high persistence of premium payments which insurers can leverage over a period of time to grow their market share.

Disclosing the suspension last Tuesday commissioner for Insurance, Mr. Mohammed Kari   said, “From today, all relationships the commission had hitherto accommodated, where insurance companies pay commission/ fees to banks for insurance transactions, referral or introduction, in any guise are no more valid.

“Insurance companies utilising or intending to utilise any institution including banks, airlines, online or web-based aggregators, shall ensure that those institutions have been licensed by the commission, as we have resolved to ensure strict compliance and impose appropriate sanctions to erring insurance institutions. You are warned accordingly.”

Kari who was speaking during the investiture of Eddie Efekoha, managing director/CEO, Consolidated Hallmark Insurance Plc as the 20th chairman of the Nigerian Insurers Association (NIA), said the decision to suspend this programme was to ensure that transparency, ethics and compliance with set out rules in the insurance transaction are followed.

Kari said, “In a letter we received last week, the CBN asserted that NAICOM is not in a position to license banks and thus, we cannot go ahead with the arrangement for now. However, NAICOM would continue to engage the CBN until all the grey areas are resolved.

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“Licensing such channels is imperative to protecting the consumers and also to ensuring ethical and orderly practice and in further protecting the credibility of the insurance sector which are the principal mandate of the commission. However, the employment of such channels can only be utilised if that institution is licensed by the commission, in line with the provisions of the extant law.

“This is an insurance business and we regulate insurance, so any institution coming to do insurance must comply with the regulation”.

Kari noted that “the commission discovered that an insurance company had signed a 12-year partnership agreement with a bank, when it is supposed to be renewable every two years, this is wrong. We also noticed that an insurance company had paid commission in advance to one of the banks, and this is abnormal.”

The concept, which originated from France, has now become a strategic business model for many insurers around Asia, Africa and Latin America, even though it was earlier prohibited in most parts of Asia.

 

It also provides insurers opportunity for additional distribution line, besides brokers, agents and direct businesses. Bancassurance has proven to be an effective and efficient distribution channel in and around the world.

It has success stories in Europe contributing about 35 per cent of total premiums in the life insurance market, 60 per cent in France, 50 per cent in Belgium and over 65 per cent in Spain.

However, President of Association of Registered Insurance Agents of Nigeria (ARIAN) Mr. Gbadebo Olamerun, does not see it as a suspension but a proclamation over which stakeholders in the insurance sector will sit shortly before taking a position.

In a telephone interview with BusinessHallmark, Olamerun said, “ I think it is not a suspension yet. It is just a proclamation. Stakeholders in the industry will have to sit with the commissioner for insurance shortly to look at it.

He speaks further: “Business in the 20st century is all about partnership. I know the commissioner wants the insurance industry money to remain in the industry

“ But if that happens (suspension of bancassurance), it will have advantage but a bigger disadvantage to the insurance industry.”

Also reacting to the pronouncement Mr. Pius Onwuka, an insurance broker said Nigeria would lose a lot if it fails to take advantage of bancassurance as a channel to deepen penetration.

Onwuka further observed that both regulators should sit down again and review the model, consult widely so that they can tap from the knowledge of experts who understand bancassurance.

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The CBN had in 2014 issued ‘Guidelines on Bancassurance Products- Referral Model’ and addressed to all banks, stating that the guidelines were issued based on recent developments and the need to ensure synergy in the financial system in exercise of its powers.

The guidelines set out the regulatory framework for the offering of bancassurance products through the non-integrated referral model. The apex bank explained that bancassurance refers to an arrangement in which insurance companies leverage on the customer base of banks to sell insurance products to banks’ customers.

This model however, has suffered defects, as both regulators were yet to agree for effective implementation before the latest decision to suspend further implementation of the plan.

How bancassurance works

An insurance company partners a bank for its range of insurance products to be sold across selected bank branches. These products typically range from life to non-life products especially motor and fire insurance.

The insurance company is responsible for providing training to the selected staff of the bank, making them the interface with the prospective clients. The bank not only collects the premiums on behalf of the insurer, but also earns an agreed commission on all policies received from the bank.

Through the partnership, the insurance company is able to expand its client base, without necessarily increasing its direct sales force or brokers. Unlike the typical banking products, bancassurance products, especially the investment ones, are mainly medium to long-term products. These products provide both investment and risks components.

In the bancassurance arrangements, the design and pricing of the policies are usually affected by the nature of the target market. An important aspect of bancassurance is the opportunity for collating clients’ demographic information, using the bank as a conduit. This also helps in future design and pricing of products.

Bancassurance in Ghana

In Ghana, while many of the life insurers have bancassurance partnerships, only a few non-life insurers have such arrangements. Particularly, many life insurers now sell their educational, investment-linked and funeral policies through their partner banks, besides the other traditional channels.

The increasing focus on bancassurance by insurers is in part, a result of the ever increasing cost of recruiting and maintaining direct agents and brokers which typically includes training/retraining, welfare, medicals among others.

Similarly the general public tends to have a stronger confidence in doing business with the banks compared with the insurance companies, a development that is fueled by the general negative perception about insurance.

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