Bancassurance: Marriage made in financial heavens

Bancassurance is derived from the French amalgamation of the words bank and insurance. Bancassurance as a term first appeared in France in 1980, to define the sale of insurance products through banks' distribution channels.

The unification of the two financial types delivers a superior product through an alternative distribution channel that simply works in favour of the end user: the client.

Bancassurance, simply put, is a channel through which banks act as the point of sale for insurance products. While there are many models to achieve bancassurance, the most popular model globally is the distribution model, through which the bank and the insurance company can deliver insurance solutions to clients in the most efficient and effective manner.

Banks, more precisely the commercial banks, have been playing an important role in the economic development of Bangladesh. They provide investible funds to both the public sector, and especially the private sector.

Banks have been facilitating payment, finance and risk management services to the sector. Commercial banks are the primary trade facilitator of capital for private companies as well as individuals.

While banks facilitate capital, the insurance industry acts as the protector of capital and assets. This enables them to mitigate loss, to gain financial stability by promoting trade and commercial activities. This, in turn, results in economic growth and development.

In the event of natural disasters and/or accidents, dreams and aspirations can turn into another disaster for the companies and individuals who have taken loans. In such situations, banks have no room to offer relief to their aggrieved clients unless the clients are protected by an insurance product

Thus, insurance plays a crucial role in sustainable growth of an economy. Banks' affiliation with insurance companies is beneficial as insurance companies provide a cover for any possible damage. Affiliation with an insurance company gives an advantage over any possible damage.

Banks cater to businesses for capital finance and offer individuals with valuable personal loan type products such as home loan, auto loan, credit cards, education loans, etc.

Such loans are a medium of converting dreams and aspirations into reality. However, in the event of natural disasters and/or accidents, such dreams and aspirations can turn into another disaster for the companies and individuals who have taken loans.

In such situations, banks have no room to offer relief to their aggrieved clients unless the clients are protected by an insurance product. Hence, the core services by banks and insurance companies must be delivered together to ensure sustainable growth in the pursuit of corporate and individual economic well-being.

Furthermore, under the third installment of the BASEL framework, banks are required to maintain capital adequacy within the set parameter. As such, non-interest source of income and revenue concentration significantly affect bank risk in the overall analysis, and assists banks to maintain the prescribed capital adequacy.

Bancassurance can turbocharge the non-interest revenue of banks in Bangladesh, and thus, help banks achieve their BASEL III requirements.

Bancassurance provides a win-win situation for clients, banks, and insurance companies. The clients get the enhanced advantage of convenience - dedicated products designed to protect loans - with credible solutions.

Through bancassurance, the feedback and needs of clients are better delivered as a holistic approach to finance. Moreover, financial security can be studied through bancassurance.

The banks can secure their loan portfolio through bancassurance while creating a revenue diversification. Bancassurance also allows the banks to be a one-stop financial solution provider, thus increasing customer satisfaction and higher retention.  For the insurance industry, bancassurance is the natural progression as insurance companies are the core protector of capital, assets and personal finance.

In Europe, bancassurance accounts for the majority of premium collection. In France, 64% of all life insurance premiums are collected through bancassurance accounts, while bancassurance accounts for over 75% of all life insurance premiums collected in Turkey. Insurance agents contribute less than 7% in both France and Turkey.

Europe is not the only exceptionally successful case of bancassurance, India has seen a 22.6% compound Annual Growth Rate for life insurance premium through bancassurance between FY2014 to FY2018. By 2018, Gross Life Premium collected in India through bancassurance stood at a whopping $3.6 Billion.

This success of bancassurance accounts is enjoyed by all stakeholders, with the top 5 banks under bancassurance in India grossing INR 3102 Crore in FY2018 through service charges. India started its bancassurance accounts journey in early 2000s.

With Bangladesh graduating from LDC, this is the right time to arrange an alliance between the financiers of capital and the protectors of capital in Bangladesh.

If and when the regulators of financial institutions bless this union to create bancassurance in Bangladesh, based on empirical data available, it is safe to say that bancassurance will be successful in delivering the next boost for economic growth and welfare of the people of the country.
 
Sheikh M Danial is a director of Rupali Insurance Company Limited and Sonali Life Insurance Company Limited.