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Website: www.itc.ac.ug Phone: 0417 333 500

Bancassurance Principles & Practices

Revision Session 1st May 2020

10:00am – 12:00pm

Sylvester Rokani: BA ECON,MA EPP, DIP IIU,AWB

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THE FINANCIAL SERVICES SECTOR

Learning Outcomes

• Have a fair understanding of the Financial Services Sector.

• Explain the role of the Financial services sector.

• Understand banks and banking regulation in Uganda.

• Understand the main bank products and distribution channels.

• Understand Insurance and insurance regulation.

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ROLE OF THE FINANCIAL SERVICES SECTOR

• Facilitate payment systems including cheques, credit cards, online payments, mobile payments.

• Economic growth through availability of capital for investment.

• Job creation through direct and indirect employment.

• Insurance and risk management which enables and stimulates investment.

• Long term investment through shares and bonds through capital markets

• Offers investment opportunities through foreign investment.

• Pensions, retirement planning and management.

4The Insurance Industry in Uganda

IRA is a government body mandated under the Insurance Act (amended) 2011, to regulate, monitor and license all players in the Uganda Insurance industry.

• 20 Non Life Insurance Companies

• 9 Life Assurance Companies

• 1 Reinsurer

• Over 30 Brokers

• Other service providers

• UIA (Umbrella body of insurers)

• ITC (Training arm of the industry)

• Bancassurance Technical Committee.

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Distribution channels in insurance

• Insurance Agents

• Insurance Brokers

• Banks

• Internal sales force

• Branches

• Internet

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INTRODUCTION TO BANCASSURANCE

Learning Outcomes

• Define bancassurance.

• Explain the origin and the evolution of bancassurance.

• Discuss Uganda’s bancassurance journey.

• Explain the benefits and challenges of bancassurance.

• Describe the critical success factor of a bancassurance arrangement.

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MEANING OF BANCASSURANCE

• Bancassurance is the selling of insurance products through banks.

• It can also be defined as an arrangement between a bank and an insurance company where insurance products are sold to the bank’s customers generally through its branches.

• Bancassurance is the process of using a bank’s branches, sales networks and customer relationships to develop sales of insurance products.

8Origins & History of Bancassurance

• Emerged in 20th Century and the first countries were Spain and France.

• Bancassurance is a French term and is universally accepted as referring to banks selling insurance products.

• French started in the 1960s but only saw the full effect in the 1980s after the law legalising bancassurance was passed.

• It started with short term products associated with lending

• Spanish started in the 1980s driven by a need for banks to bypass middlemen and insure their clients themselves through acquiring a stake in an insurance company or setting up a subsidiary.

• From a purely historical point of view, the real pioneers of bancassurance were the British with the creation of Barclays Life in 1965.

• In Asia some of the leading countries include India, Malaysia, Singapore.

• In South America Brazil is the leading country.

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Uganda’ Bancassurance Journey

• August 2011, Amendment of the Insurance Act to provide for Bancassurance as a new distribution channel.

• January 2016, Uganda’s Parliament passed into law, amendments to the Financial Institutions Act (FIA) 2004 that allowed insurance companies to use banks as a distribution channel to extend insurance policies.

• The Insurance Regulatory Authority of Uganda (IRA) circulated the draft bancassurance regulations for comments from all the concerned stakeholders that included banks, insurance companies, Insurance Agents and brokerage firms. Gazetted in July 2017.

• First bank granted licence in Oct 2017.

• Over 20 banks are now licensed bancassurance agents.

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Benefits of Bancassurance

To the Bank

• Diversified new revenue streams.

• Expanded product offerings.

• More productive use of customer database and branch network.

• Reduces credit risk.

• Builds customer loyalty.

• Builds brand value.

• Minimal capital required to set up.

• Enhances product value.

• Increased deposits.

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Benefits of Bancassurance

To the Insurer

• Improve sales effectiveness & after sales service.

• Enhance ability to segment markets to support more effective product design and marketing efforts.

• Cost savings & Increased profitability.

• Lower distribution costs.

• Immediate access to new markets.

• Develop new financial products more efficiently.

• Increased Brand value and Trust.

• Joint Product development.

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Benefits of Bancassurance

To the Customer

• Convenience/One stop Shop /Access to a wide range of financial services.

• Competitively priced insurance products as Insurers pass on cost savings arising from lower distribution costs.

• Effective use of technology & higher investments in human resource development leading to improved customer service.

• Buying of insurance from trustworthy source.

• Reduced risk to family/business.

• Better match between customer needs and solutions provided.

• Increased sensitization through marketing.

• Attractive pricing due to lower costs.

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Challenges of Bancassurance

• Privacy and data protection since insurance and banks share customer information.

• Unethical practices by bancassurance advisers.

• Mismatch of needs due to insufficient fact finding process.

• Cannibalism by the insurance company where they tend to want to sell more to bank customers.

• Claims: Poor level claims service affecting the bank’s ability to deliver satisfactory service.

• Threat from other intermediaries who view bancassurance as a replacement of their service.

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• Critical Success Factors for Bancassurance

• Product and process simplicity.

• Affordability of products.

• Executive commitment.

• Automation and integration.

• Spotting, training and retaining high quality employees.

• Product design responsive to customer needs.

• Existence of proper regulatory framework.

• Incentives to key personnel involved in bancassurance selling.

• Choice of Bancassurance model.

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REGULATORY FRAMEWORK OF BANCASSURANCE IN UGANDA

Learning Outcomes

• Highlight the Authorisation requirements for bancassurance.

• Explain the obligations of a bancassurance agent.

• Identify key Bancassurance Staff & their roles.

• Explain the legislation governing bancassurance in Uganda.

• Describe the emerging trends in Bancassurance.

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AUTHORISATION REQUIREMENTS FOR A BANCASSURANCE AGENT IN UGANDA

• An application form accompanied with a registration fee.

• A board resolution approving bancassurance operations.

• A letter of no objection from the central bank.

• A copy of the bank license from BOU.

• Agency agreements with the insurer whose products the agent will distribute.

• A completed fit and proper form for the principal officer.

• Application form for the specified persons together.

• Proof of membership to the insurance training college.

• Fidelity Guarantee and Professional Indemnity cover for Principal and Specified Officers.

• Proof of payment of annual compliance fees.

17KEY STAFF UNDER BANCASSURANCE

Principal Officer

• Must be a fit and proper person of high moral standards.

• Be responsible for insurance activities under the bancassurance agent.

• Representative in all bancassurance related matters.

• Education: Bachelors degree and 4 years insurance experience or 2 years insurance experience and a Diploma e.g. DIU, CII.

Specified Person

Responsible for soliciting business on behalf of the bancassurance agent.

• Proper identification and the insurer represented.

• Provide necessary information on the insurance product being sold.

• Inform prospects of the rate charged.

• Explain to the prospect the importance of disclosure.

• Inform the insurer of any material facts that may affect acceptance of the proposal.

• Promptly inform the prospect about acceptance or rejection of the proposal

• Assist the policyholder in settlement of a claim.

• Advise the policyholder of the effect of any changes in any material facts.

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Restrictions on the Principal Officer & Specified Person

• Not to solicit for business without bancassurance authorization by IRA.

• Induce prospect to omit material information.

• Induce prospect to submit wrong information.

• Behave in a discourteous manner with respect to the prospect or IRA.

• Offer different rates and terms from those of the insurer.

• Receive or demand for a share of benefits under the policy.

• Compel the policyholder to terminate an existing policy without a valid reason.

• Be a director or agent of any other licensee under the Act.

• Not have any arrangement with another person other than the specified insurer to refer or provide contact details of prospective policyholders.

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Variation, suspension & revocation of the bancassurance Authorization

• Non remittance of premiums

• Failure to furnish information to IRA relating to bancassurance business.

• Furnishing wrong / false information with IRA

• Failure to submit periodic returns.

• Failure to resolve complaints with policyholders.

• Failure to co-operate with any inspection conducted by IRA.

• Acting in a manner that threatens the interest of policyholders or the public.

• Contravention of provisions of the Insurance Act.

• Financial institution ceases to hold a license under the Financial Institutions Act.

• Financial institution applies to IRA in writing for revocation of authorization.

• Contravenes the provisions of the insurance Act.

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BANCASSURANCE MODELS AND STRATEGIES

Learning Outcomes

• Discuss the different arrangements used by the banks and insurance companies.

• Explain the different models under bancassurance.

• Highlight the advantages and disadvantages of each model.

• Show the involvement of different parties in the various models.

• The strategy for success of bancassurance.

• Bancassurance process and documentation.

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BANCASSURANCE MODELS

Bancassurance started in form of mutual distribution agreements between banks and insurance companies. However, these have evolved into five typical arrangements/models:

1. Pure Distributor -Referral

2. Pure Distributor – Corporate Agency

3. Strategic Alliance

4. Joint Venture

5. Wholly owned Subsidiary

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Bancassurance Strategies

1. Product & Process Simplicity.

2. Training Staff.

3. Customer Profiling.

4. Embed insurance on existing bank products.

5. Promote use of IPF.

6. Incentives.

7. Profit Sharing.

8. Promotional Materials.

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Bancassurance Process & Documentation

The simplest process involves the following:

1. Risk identification at customer touch point.

2. Completion of the proposal form.

3. Proposal form forwarded to insurer for cover.

4. Insurer issues cover and debit note.

5. Agency debits the branch / customer and credits the insurer’s account.

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COMMON BANCASSURANCE PRODUCTS

Learning Outcomes

After completing this topic one should be able to:

• Distinguish between Life and Non Life products.

• Discuss the most common Non Life products under bancassurance.

• Discuss the most common Life products under bancassurance

• Outline the different riders under Life Insurance products.

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Distinction between Life and Non - Life Bancassurance Pdcts

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Most Common Non - Life Products under Bancassurance

Medical Insurance

Medical insurance is a type of insurance coverage that pays for medical, surgical, and sometimes dental expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly.

Accident Insurance

Accident insurance is insurance that provides compensation for the financial impact of accidental injury or death. Accident insurance covers death, dismemberment, loss of sight, loss of income, and medical expenses caused by accidental injury.

Travel Insurance

Travel insurance is a plan you purchase that protects you from certain unforeseen risks and losses that can occur while traveling. These losses can be minor, like a delayed suitcase, or significant, like a last-minute trip cancellation or a medical emergency overseas.

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Home and Contents Insurance

Home insurance is a form of property insurance that covers accidental losses and damages to an individual's residence, along with fixtures and fittings in the home. Contents insurance pays for damage to, or loss of, an individual's personal possessions while they are located within that individual’s premise.

Motor Insurance

Covers Indemnity against fire, accidental loss of or damage to the insured vehicle including theft and damage caused and legal liability arising out of the use of the vehicle.

Business All Risks Insurance

These policies are designed to meet the needs of small and medium sized enterprises. A combined policy covering the trader’s business for common risks like Fire, Burglary, Money, Fidelity, Public Liability, GIT, Workers Compensation.

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Most Common Life Products under Bancassurance

These products are be divided into 3 main categories:

1. Finance and Repayment Products.

2. Depositors’ Products.

3. Simple Standardized Products.

1. Finance and Repayment Products

A financial institution which grants loans or credit to its customers is concerned that In the case of early death, the outstanding loan or credit amount may not be recoverable. Examples include credit insurance and overdraft insurance offered on Personal Loans, Mortgages, Overdrafts, Credit Cards.

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2. Depositors Products

• These products are designed to attract the public to deposit money with a particular bank. It can be offered on all deposit accounts but usually a minimum deposit amount is required.

• The amount of cover is usually a multiple of the cash balance in the deposit account. In case of death of the depositor, this cash balance is increased accordingly.

3. Simple Standardized Products

• These are usually group policies which cost the customer less than if they were bought individually.

• They are usually combined covers.

• They are usually sold over the counter by bank employees and are less complicated.

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SAVINGS, INVESTMENT AND RETIREMENT

Learning Outcomes

• Savings and investment needs.

• Need for savings and investment advice.

• Personal factors affecting choice of savings and investment products.

• Main types of savings and investment products.

• Retirement planning needs.

• Personal factors affecting retirement planning needs.

• Retirement planning products.

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Saving is setting aside money you don't spend now for emergencies or for a future purchase.

Investing is buying assets such as stocks, bonds, mutual funds or real estate with the expectation that your investment will make money for you.

Common Reasons for Saving

• Build an emergency fund.

• Purchase a substantial item such as a car, a yacht or a dream holiday;

• Put down a substantial deposit on the purchase of a house /land.

• Provide education for children;

• Pay for children’s weddings and help children set up their own homes;

• Set up a business or re-equip an existing one.

• Supply a good retirement income for life.

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The need for saving & investment advice.

• People do not know how to identify their own savings and investment needs.

• Most people are unaware of the full range of financial products available to them.

• For those who are aware there is a wide choice to select from.

• Most products are complex and need skilled advisers to explain.

• We all need expert advice to achieve our goals.

Personal factors affecting choice of Savings & Investment Products.

• The time available to achieve the financial objective.

• The amount of disposable income and / or capital available.

• Existing assets and liabilities.

• The client’s attitude to risk (or ‘risk profile’)

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Main types of savings and investment products

1. Cash deposit accounts.

2. Government securities.

3. Equities.

4. Endowment policies.

5. Annuities.

6. Packaged Investment Funds.

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Retirement Planning Needs

• The cost of living is increasing every year—especially health care expenses.

• People are living longer and want to thrive in retirement.

• You might need more money than you think if you want to purchase a home or fund your children’s education post-retirement.

• To have a comfortable, secure—and fun—retirement, you need to build the financial cushion that will fund it all.

Retirement Planning Products

• National Pension Schemes(NSSF)

• Employer Provident Fund

• Life Insurance Pension Fund

• Equities.

• Endowment policies.

• Annuities.

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FACT FINDING IN BANCASSURANCE

Learning Outcomes

• Definition of Fact finding.

• Objectives of a fact find.

• Fact Finding methods.

• Advantages & Disadvantages of each method.

• After the Fact Find?

• Evaluation of completed fact finds.

• Making recommendations.

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Definition

• Fact-finding refers to the gathering of information. It is often part of an initial mission.

• Fact finding is the process of collecting data and information based on techniques.

Fact Finding Objectives

• Identify the client’s needs.

• Quantify the needs of the customer.

• Understand customer personal details.

• Identify client’s disposable income.

• Uncover anticipated changes in the client’s circumstances.

• Build a profile for each of your clients.

• Establish priorities for allocation of funds.

• Recommend products that meet the client’s needs.

37Fact Finding Methods

1. Interviews

In an interview, it is usual to have at least a set of questions to ask. The client’s financial planning needs must be determined solely by the information collected from the client.

2. Questionnaires

These are special-purpose documents that allow facts to be gathered from a large number of people while upholding some control over their responses. Users fill up the questions which are given by the interviewer and then give the answers back to the interviewer.

3. Fact Finding without Interviews

• Fact Finding by Telephone

When potential clients ring, a telephone interviewer asks a standard series of questions about their needs, the product features they require and any existing arrangements they have with other providers.

• Fact finding by post

The client’s needs, interests and personal data can be sent in by letter.

38After the Fact Find?

This involves Evaluation and making recommendations to the client.

Evaluation

• Analyze all information gathered

• Set out needs in priority order.

• Research information to prepare a good financial recommendation.

• Carry out shortfall calculations.

• Has the customer made adequate provision to meet his needs?

Making Recommendations

• Customize solutions & provide options.

• Identify suitable products.

• Prepare quotation and CBA, KFD.

• Present report and recommendations.

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GOOD & ETHICAL CLIENT SERVICE IN BANCASSURANCE

Learning Outcomes

• Definition and meaning of Ethics.

• Professionalism and ethics in the sales process.

• Impact of ethics on business.

• Presenting recommendations.

• Acceptance and rejection of recommendations.

• Product switching.

• Customer complaints handling.

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Definition and meaning of Ethics.

• At its simplest, ethics is a system of moral principles or values. They affect how people make decisions and lead their lives. Ethics is concerned with what is good for individuals and society and is also described as moral philosophy.

Need for Ethics in the sales process

• They may attract customers to the firm's products, thereby boosting sales

and profits.

• They help maintain a great reputation,

• Help avoid significant financial and legal issues.

• Every employee desires to work for an organization that is fair and ethical in

its practices.

• Benefits the financial services industry as it helps build professionalism.

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Ethical Standards to be adhered to

• A commitment to behave ethically towards clients.

• A code of professional conduct.

• A minimum standard of professional competence.

• Not exceeding your area or level of competence.

• Managing conflict of interest.

• Protecting the reputation of the industry.

• Acting honestly and fairly at all times.

• A commitment to continuing professional development.

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Impact of Unethical Behaviour

To the business;

A number of negative outcomes can occur when ethical standards are not met. These include:

• Customers are sold products which carry a higher level of risk than they are prepared to tolerate.

• Customers are sold products that are unsuitable for their needs.

• Customers feel that they are not being listened to or that they are being pressurized to buy.

• Customers are let down by empty promises or commitments.

• Conflicts of interest arise and are not dealt with by the advisor.

• High number of policies/products is cancelled owing to customer dissatisfaction.

• The reputation of a business that has behaved unethically is brought into question.

• Trust and loyalty from customer diminishes.

• Businesses fail.

• Customers no longer trust the financial services industry with their money.

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Impact of Unethical Behaviour

Unethical behaviour also has serious consequences for individuals;

• One can lose their job and reputation.

• One may have their licence withdrawn.

• General morale and productivity can decline.

• The behaviour can result in significant fines and/or financial loss.

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Complaints & Claims Handling

A consumer complaint or customer complaint is "an expression of

dissatisfaction on a consumer's behalf to a responsible party"

It can also be described in a positive sense as a report from a

consumer providing documentation about a problem with a product or

service.

Complaints present an opportunity for the company, as follows:

• If you handle the complaint successfully, your customer is likely to prove more loyal than if nothing had gone wrong.

• The complaint may alert you to a problem experienced by many others who silently took their custom elsewhere.

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Effective Complaints Handling

Essential Stages in the handling of complaints

• It must be reported immediately to complaints department of the product provider.

• Full details of the complaint and its source must be logged.

• A prompt written response must be made to the complainant.

• A full internal investigation into the complaint should be conducted immediately by the

product provider.

• The firm’s decision, remedy or offer should be sent to the complainant without delay.

• Dissatisfied complainants must be advised if they have the right to pursue their grievance

with another external body.

• All actions should be recorded in writing, even those where the original complainant, or

any dealings with the complaint, were conducted orally. Copies of all correspondence and

notes of conversations must be held in the specified files.

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Thank You

Questions & Comments?