The bancassurance era, will brokers remain relevant?

In certain developing markets, insurance and bank products have been sold together for many years without there being any specific legislation to govern the conduct of banks that sell insurance products.

Within the east Africa region, we have recently seen Kenya adopt rules that would regulate Kenyan banks offering insurance products, which were previously regulated as insurance brokers instead of bancassurance agents or operators.

The Tanzania Insurance Regulatory Authority (TIRA) officially launched the insurance (bancassurance) regulations that were published in the united republic of Tanzania under government notice no 216 of 2019 on March 15th,2019. This came as a step by the regulator in an attempt to increase insurance penetration which stands at 0.53% for the year 2018, representing a decline in comparison with the penetration ratio of 0.54% and 0.61%  for the years 2017 and 2016 respectively (source: TIRA’s annual insurance market performance report for year ended 31st December 2018).

HIGHLIGHTS OF THE REGULATIONS

• Bancassurance agents may act for a minimum of three and a maximum of ten insurers
• Bancassurance agents are to apply to the Commissioner for Insurance for a license to conduct bancassurance business.
• There is a one-time registration fee (~US$ 2,200) and an annual license maintenance fee (~US$ 450) applicable to licensees.
• Bancassurance agents have to maintain their minimum capital as provided for under the Banking and Financial Institutions Act, 2006 – banks or financial institutions that are already compliant with the minimum capital requirement, no further work or changes would be required.
• In the spirit of consumer protection, bancassurance agents are prohibited from engaging in the practice of tied-selling - where a customer must purchase an insurance product if a bank product is purchased or vice versa.

It is important to note that Tanzania has had a bancassurance framework since 2009 and banks have been selling insurance throughout this period, either as agents or subsidiary companies of the banks registered as brokers through their broking Licenses. The law now states they may continue to do so for a period of not more than 2 years from the commencement date of the regulations.

What does this regulation mean for insurance brokers? Should they be worried they will be phased out? The short answer is NO. As evidenced in markets where bancassurance has proven successful, Kenya being one of them, the success was built on simple retail products (e.g. life, household, microinsurance and health).

As per the Insurance Journal of Africa nov-dec,2019, by Anselmi Ancellmi:

• The role of brokers in the insurance value chain cannot be easily replaced by bancassurers. The insurance distribution value chain was demonstrated posing four (4) core functions preliminary information search, presales activities, selling and post sales activity. The inherent nature of the bank forces bancassurer to focus on the selling function only, leaving out the other key distribution functions.
• We cannot argue that Brokers have the extensive expertise in matters of insurance compared to the banks. Insurance is not a core function of the bank; thus its discharge will not take precedence over the core functions of savings and loan offering. This means the bank may shy away from employing the required expertise on complex insurance matters to maintain its staff costs. As a result, bancassurers will not only be able to excel with products that are very simple to understand and easy to sell, leaving the professional brokers with the market of complex products requiring specific skills.
• Inefficiency of bancassurance as a sales channel when compared to traditional intermediation is another issue. A study offering a comparison of bancassurance and traditional sales channels using a data envelopment analysis approach to compute the efficiencies of bancassurance and traditional sales channels, revealed that the efficiency score of the traditional sales channel is significantly higher than that of a comparable bancassurance channel.
• The nature of operations of Banks also limit bancassurers in implementing activities across the insurance value chain. It should be noted that a bancassurer is only an agent, followed by all disadvantages of using an agent in the insurance transaction as the agent represents the interests of the principal, while the insurance broker is an independent professional intermediary mediating the interests of both parties. 

To the insured; the insurance brokers role includes negotiating competitive covers, ensuring competition among underwriters, ensuring cover adequacy by limiting overlapping and under insurance, assess budget forecasts, screen financial capacity of underwriters, market intelligence, forecast environmental changes, developing contract wordings and scope for the client, quick claims settlement and risk managers function.

To the insurer; the insurance broker’s role includes conducting risk surveys, facts finding, tailoring and developing innovative insurance products, providing global connections, arranging complex covers, and delivering risk management services.

In summary, both the short and the long answer to the question whether brokers should be worried they will be phased out demonstrate that brokers will continue to play a relevant role, even in the bancassurance era.

Neema Msangi ǀ Divisional Director ǀ Minet Tanzania