'Bancassurance will help improve insurance penetration by building trust'

Bancassurance, the selling of insurance products through bank branches, will enable banks to become trusted providers of financial and insurance solutions. By building customer trust in insurance services, it will ultimately improve insurance penetration in the country.

The country's private commercial bank, City Bank, the first lender to receive regulatory approval for Bancassurance, will sell insurance solutions through its digital platform Citytouch apps to simplify purchasing and managing policies for customers.

Md Ashanur Rahman, chief economist and country business manager at City Bank, played an important role in the development of Bancassurance in Bangladesh.

As a member of the Bangladesh Bank's Technical and Guideline Preparation Committees, his influence has been significant. Under his leadership, City Bank secured the first Bancassurance license in the country from the Bangladesh Bank and the Insurance Development and Regulatory Authority (IDRA).

Prime Minister Sheikh Hasina will inaugurate Bancassurance at the National Insurance Day event scheduled to be held on March 1 at the Bangabandhu International Conference Center.

In an interview with The Business Standard, Md Ashanur Rahman shared his insights on how banks can contribute to building trust in the insurance sector.

Insurance penetration is the lowest in South Asia, with less than 1%. What opportunities does City Bank see to tap into the market through Bancassurance?

Insurance penetration varies significantly across South Asian countries, with India at 4.2% and Bangladesh at 0.4%. Understanding the reasons behind this lower penetration presents opportunities for banks to enhance coverage.

Traditionally, banks have focused on account holders, neglecting their families. Bancassurance enables banks to extend coverage to family members, securing their future and assets, fostering loyalty, and encouraging exploration of additional financial services.

Integrating insurance with loan products can mitigate risks for banks and customers, providing coverage for home, personal, or business loans. Through strategic partnerships, innovation, education, and digital integration, City Bank can tap into Bangladesh's untapped insurance market, positioning itself as a trusted provider of financial and insurance solutions.

When 81 insurance companies have struggled to popularise their products, what challenges do you foresee for banks in selling insurance products to customers?

Insurance products can be complex, often leaving customers confused about their terms, conditions, and coverage options. Many perceive insurance as unnecessary or overly complicated, posing challenges for banks in overcoming these misconceptions and simplifying policy information.

Building trust in the banking sector's ability to provide reliable insurance products can be difficult, especially amid trust issues with the insurance industry. Economic downturns or instability further affect customers' willingness to invest in insurance, requiring banks to adapt their offerings accordingly. Moreover, a poor reputation for claim settlement can hinder the success of insurance products.

To tackle these challenges, City Bank aims to carefully select partners from a pool of 35 life and 46 non-life insurance companies, considering factors like product strength, claim settlement ratio, credit risk, and corporate governance. However, accessing crucial data from audited annual reports for evaluating insurers' performance has proven challenging due to its unavailability.

What is City Bank's product design for selling Bancassurance, and how will it benefit customers?

City Bank's Bancassurance strategy focuses on meeting customer needs, delivering value, and addressing traditional insurance hurdles. Before introducing endowment and protection products, the bank evaluates insurers' offerings based on customer internal rate of return (IRR).

A user-friendly digital platform accessible via online banking and Citytouch apps simplifies browsing, purchasing, and managing term insurance policies, offering optimal protection at lower premiums. This streamlined access enhances customer experience, drives cross-selling, and promotes financial well-being.

Bundling banking products like loans and DPS with insurance services adds further financial benefits. City Bank aims to be a customer-centric provider of comprehensive insurance solutions, ensuring simplicity, convenience, and peace of mind.

How can banks play a role in increasing people's trust in insurance and improving insurance penetration in Bangladesh?

To enhance insurance penetration in Bangladesh, banks must address challenges and leverage their strengths. Unlike commission-driven traditional channels, banks prioritise transparency by employing certified Bancassurance staff who adhere to strict internal codes of conduct.

Advisory services align insurance products with customer financial goals, fostering trust. Digital media campaigns and community outreach initiatives educate the public about the benefits of insurance, thereby enhancing penetration.

Partnering with reputable insurers known for fair claim settlements also helps build trust. Additionally, user-friendly digital platforms empower customers to manage their policies, increasing their sense of control. By implementing these strategies, banks can drive insurance uptake and trust in Bangladesh.

Can you elaborate on the cost of Bancassurance for a customer?

Through the Bancassurance channel, customers do not incur any additional costs. Instead, policy owners receive increased bonuses from the life insurer. The life insurance company stands to save significantly on direct costs (such as override expenses to branch managers and unit managers, typically 12% to 15%) and indirect costs (including agency office expenses and rent, around 10% of the premium).

Moreover, the average cost for premium collection, ranging from Tk32 to Tk60 per transaction, is further reduced as banks collect premiums through standing instructions (SI) or Electronic Fund Transfer (EFT) Debit.

Consequently, Life Insurance companies can allocate a higher bonus rate to policyholders, with 90% of actuarial surplus typically going to the policy owner. Additionally, the government benefits from increased tax revenue.

How will you encourage a customer to take out an insurance policy through a bank?

Understanding and addressing customer needs while aligning insurance benefits with their financial goals is crucial. Leveraging existing bank relationships builds trust and comfort for customers considering insurance products. Providing excellent customer service and transparent policy explanations further enhance trust in Bancassurance. 

Banks can simplify the application and claims process by utilising technology in collaboration with insurance companies, ensuring quick coverage and payouts. Offering bundled financial products or incentives for multiple-account holders demonstrates how insurance seamlessly integrates with banking services, creating a cohesive and rewarding financial package.

Claim settlement rates are notably low within the insurance industry. How can we mitigate the risk associated with claim settlement alongside insurance companies?

Understanding and fulfilling customer needs, coupled with clear communication of insurance benefits, is paramount. Leveraging existing bank relationships bolsters customer confidence in insurance offerings. Providing transparent policy explanations and excellent service further enhances trust in Bancassurance.

By collaborating with insurers, banks can utilise technology to streamline the application and claims processes, thereby ensuring swift coverage and payouts. Bundling financial products for multiple-account holders showcases how insurance seamlessly integrates with banking services, creating a comprehensive and rewarding financial package.

Do tell us about the mechanism of collecting premium and claim settlement.

City Bank's Bancassurance system is seamlessly integrated with its insurance partners, enabling efficient premium calculations, instant product illustrations, and swift customer support. Regular premiums are collected via Standing Instruction (SI), saving time and costs for customers. At our organisation, we promptly receive clients' claims through various channels and swiftly forward these requests to our trusted partners.

We meticulously maintain a digital log of all claims and diligently follow up with our partners to ensure efficient processing. It is important to note that the ultimate responsibility for claim settlement rests with the insurance company.

However, our bank has established a service level agreement with the insurance company to ensure timely settlement. We are fully committed to supporting our clients throughout the process, offering assistance and guidance to ensure they receive their claims promptly.