" />
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.

READ  Emefiele dismisses fears over MPC meeting, insists economy is strong

“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.

READ  Emefiele dismisses fears over MPC meeting, insists economy is strong

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.

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Most Shared

Recent posts

  • FG grants PPAs of 14 solar projects another 6 months extension

    For the second time since 2016, the Federal Government  has extended by another six months, the deadline for the execution of the power purchase agreements (PPAs) it signed with investors for 14 utility solar power projects to be built in some states of the country. According to OGN reports it was reportedly rolled over after […]

  • Dangote Sugar targets 25% sales volumes in 2018

    The acting Managing Director of Dangote Sugar Refinery Plc, Abdullahi Sule, believes the company’s  sales volumes could rise as much as 25 percent in 2018 after last year’s downturn. Nigeria’s economy, which contracted in 2016, is recovering after the government relaxed some currency controls implemented after the price of oil, its main export, crashed in […]

  • Emefiele dismisses fears over MPC meeting, insists economy is strong

    The Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele, has allayed the fears of Nigerians and the international community over the inability to hold the meeting of the Monetary Policy Committee (MPC) for January. A statement signed by Emefiele in Abuja on Monday, said that the meeting, which was earlier scheduled for the day […]

  • Nigeria, Angola crude overhang could pressurize Asian crude

    Traders have said that unsold barrels of crude from West Africa could put pressure on the premiums of Malaysian crude cargoes for March loading.   Platts reports that weaker demand, particularly from independent refineries in China, for February-loading Angolan and Nigerian grades has resulted in an overhang, traders said. Traders indicated that these grades were […]

  • NBS: 77.5m Nigerians engage in economic activities in Q3

    The National Bureau of Statistics (NBS) says 77.55 million people are engaged in economic activities out of a labour force of 85.08 million in the third quarter of 2017. The NBS disclosed this in a “Labour Force Statistics Volume 2: Employment by Sector report for Third Quarter of 2017’’ released by the bureau on Monday […]

  • Lassa fever: Schools reopen in Ebonyi

    Public and private schools in Ebonyi shut on Jan. 18 to check the spread of Lassa fever outbreak in the state have reopened the News Agency of Nigeria (NAN) reports. Prof. John Eke, the Commissioner for Education, told NAN on Monday in Abakaliki, that the schools were reopened as no new case of the disease […]

  • Four major markets in Nigeria need 36.27MW to grow efficiency – REA

    A baseline survey of the energy needs of four of the major markets in Nigeria, which the Rural Electrification Agency (REA) conducted, has indicated that with 36.27 megawatts (MW) of stable electricity provided to them, economic productivity in the markets could expand and bring more prosperity to about 50,900 shop owners there, OGN reports. The […]

  • ALSCON: Nigeria, Russia sign Share Purchase agreement

    Nigeria has signed the Renewed Share Purchase Agreement with Messrs UC Rusal of Russia in respect of the Aluminium Smelter Company of Nigeria (ALSCON). The agreement was signed in in Abuja on Friday by the relevant government stakeholders, including the Minister of Mines and Steel Development, Dr Kayode Fayemi. Present at the ceremony were the […]

  • Slimming drugs: Expert calls for stiff regulation

    Dr Bamidele Iwalokun, a medical researcher with the Nigerian Institute of Medical Research (NIMR) in Yaba, Lagos, has called for stiffer regulation of slimming drugs to safeguard the health of consumers. Iwalokun made the call in an interview with the News Agency of Nigeria (NAN) in Lagos on Sunday. He said there was the need […]

  • Derivatives trading: US expert speaks on the pluses and pitfalls

    As part of strategic initiatives to enhance the efficiency of capital market operations in Nigeria, The Nigerian Stock Exchange and Coronation Merchant Bank invited the former Chair of the US Commodities Futures Trading Commission (US CFTC), Mr. James Stone to deliver a special lecture on ‘Pluses and Pitfalls of Derivatives Trading’ at the Nigerian Stock […]

  • Ajimobi: Oyo set to increase institutions subventions

    The Oyo State Governor, Abiola Ajimobi, has appealed to the striking state-owned higher institutions that his administration is prepared to increase their subventions. The governor said this would be achieved as soon as government’s renewed efforts to improve its revenue-base begin to bear fruits. Ajimobi, who made the appeal while inaugurating the governing councils of […]

  • SEC’s e-dividend free registration ends Feb 28

    The Securities and Exchange Commission (SEC) has extended period for the free e-dividend registration to Feb. 28, to encourage more shareholders participation in the initiative. The commission in a statement obtained by the News Agency of Nigeria (NAN) in Lagos, indicated that the extension was part of its developmental role. It said that the extension […]

  • Nigerian equities market goes bearish after hitting over nine year high

    FELIX OLOYEDE Profit-taking caused the Nigerian Stock market to go bearish for the first time this week after reaching over nine year high on Wednesday. The All Share Index declined -0.08 per cent to close at 44,848.74 point on Thursday after hitting 44885.24 point the previous day, the highest since September 2008 when it closed […]

  • 2019: Wike gets second term endorsement

    Residents of River state have endorsed the Governor, Nyesom Wike, for another term of four years. They declared their support for the governor when over 15,000 non-indigenes of the state visited the Government House on Wednesday in Port Harcourt, the state capital, Channels TV reports. Wike urged Nigerians irrespective of their linguistic and religious affiliation […]

  • Banks enjoy improved liquidity as overnight rate drops three consecutive days

    FELIX OLOYEDE The redemption of Treasury Bills by Federal Government has helped to improve liquidity in Nigerian banking sector as overnight rate declined three consecutive times this week. Overnight (O/N) rate dropped -0.75 per cent to 5.75 per cent on Thursday, while Open Buy Back (OBB) rate was down -0.92 per cent to 5.25 per […]

  • Lassa fever: Ebonyi Schools proceed on forced break

    Schools in Ebonyi State have been directed to close for a week following the outbreak of Lassa fever in the state. The state government said the directive was given as part of measures to contain the spread of the disease in the state. Commissioner for Health, Umuzuruike Daniel, also confirmed the death of three victims […]