AN ASSESSMENT OF THE DETERMINANTS OF GROWTH OF

BANCASSURANCE IN KENYA

BY

MWANGI JANE. W.

D61/P/7183/03

A MANAGEMENT RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION OF THE UNIVERSITY OF

NAIROBI

OCTOBER, 2010

DECLA RATIO N

This is to certify that this research project as my original work and it has not been

presented for in any other institution of higher learning.

Date:......JLll=£!.?...MWANGI JANE. W.

REG NO D61/P/7183/03

This project has been submitted for examination with my approval as university

supervisor.

I y JjtfZ sD lb

II

DEDICATIO N

To my loving parents

Mzee Gabriel Mwangi

And

Mum Tabitha Wanjiku

for the sacrifice you made for me to complete this project.

iii

A C K N O W LED G EM EN TS

I take this opportunity to thank God for good health and for bringing me this far.

My gratitude goes to all my lecturers and all friends and all colleagues, who

encouraged inspired, challenged and in all helped me to bear the burden.

Special gratitude goes to my supervisor Mr. Barasa J.L, for the great partnership we

have made. Your guidance, encouragement and patience in reading, correcting, re­

reading and refining this project to its present state.

Further I would like to recognize all the Bank managers who provided me with the

raw information required to complete this project.

Finally to my loving Parents Mzee Mwangi and Tabitha Mwangi who encouraged me

all along, for their love, care, concern, support, and enthusiasm that inspired me to

achieve this goal.

All errors, mistakes and omissions are my own and no one else.

IV

DECLARATION...........................................................................................................ii

DEDICATION............................................................................................................... iiiACKNOWLEDGEMENT................................................................................................ iv

TABLE OF CONTENTS.............................................................................................. v

LIST OF TABLES........................................................................................................vii

LIST OF FIGURES...................................................................................................... ix

CHAPTER ONE.............................................................................................................1

INTRODUCTION..........................................................................................................11.1 Background of study.............................................................................................. 1

1.1.1 Bancassurance in Kenya............................................................................... 21.2 Statement of the Problem....................................................................................... 31.3 Objectives of the study........................................................................................... 51.4 Importance of the Study......................................................................................... 5

CHAPTER TWO.............................................................................................................7

LITRATURE REVIEW................................................................................................. 7

2.1 Introduction............................................................................................................72.2 Theoretical Review................................................................................................ 7

2.2.1 Financial intermediation theory.......................................................................72.2.2 Risk and related attributes............................................................................... 82.2.3 Theories for Mergers, tender offers and joint ventures..................................9

2.3 Bancassurance..................................................................................................... 112.3.1 An Overview of Bancassurance Models....................................................... 152.3.2 Integrated Models.......................................................................................... 152.3.3 Non-integrated Models.................................................................................. 152.3.4 Open Architecture Models.............................................................................162.3.5 Risk mitigations............................................................................................. 16

2.4 Empirical Review..................................................................................................172.5 Bancassurance in Kenya.......................................................................................21

2.5.1 Important Statistics on life insurance in Kenya........................................... 212.5.2 The Bancassurance opportunity in Kenya................................................... 23

2.6 Challenges facing the establishment of bancassurance.......................................232.6.1 Legal Framework...........................................................................................232.6.2 Inadequate Regulations................................................................................. 24

2.7 Conclusion............................................................................................................24CHAPTER THREE...................................................................................... 28

RESEARCH METHODOLOGY............................................................................... 28

3.1 Introduction..........................................................................................................283.2 Research Design.................................................................................................. 283.3 Target Population................................................................................................. 283.4 Data Collection.................................................................................................... 28

TA BLE O F CONTENTS

3.5 Data Analysis and Presentation..........................................................................293.6 Data validity and reliability................................................................................29

CHAPTER FOUR......................................................................................................30

DATA ANALYSIS AND INTERPRETATION OF FINDINGS..........................30

4.1 Introduction......................................................................................................304.2 General information........................................................................................... 304.3 Extent of growth of bancassurance.....................................................................334.4 Determinants of growth of bancassurance......................................................... 42

CHAPTER FIVE.........................................................................................................52

DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS..................... 525.1 Introduction......................................................................................................525.2 Discussions of Key Findings............................................................................. 525.3 Conclusion...........................................................................................................545.4 Recommendation................................................................................................555.5 Recommendations for further research studies.................................................. 55

REFERENCE..............................................................................................................56

APPENDICIES........................................................................................................... 63Appendix I: Existing Commercial Banks................................................................ 63Appendix II: Questionnaire for Manager................................................................. 65

VI

LIST OF TABLES

Table 4. 1: Gender of the respondents........................ t...............................................29

Table 4. 2: Education level.......................................................................................... 30

Table 4. 3: Duration in the organization...................................................................... 31

Table 4. 4: Factors influencing the introduction of bank assurance.......................... 32

Table 4. 5: communalities of factor variance...............................................................33

Table 4. 6: Total Variance.......................................................................................... . 33

Table 4. 7: Total Variance........................................................................................... 34

Table 4. 8: Benefits of bancassurance......................................................................... 36

Table 4. 9: Communalities of factor variance..............................................................36

Table 4. 10: Total Variance.........................................................................................37

Table 4. 11: Component Matrix................................................................................... 37

Table 4. 12: Risks associated with bancassurance...................................................... 38

Table 4. 13: Communalities of factors........................................................................ 38

Table 4. 14: Total Variance......................................................................................... 39

Table 4. 15: Component Matrix................................................................................... 39

Table 4. 16: Prospects of bancassurance..................................................................... 41

Table 4. 17: Regulatory hurdles affect implementation of bancassurance................. 41

Table 4. 18: Communalities of factors........................................................................ 42

Table 4. 19: Total Variance............................. ............................................ .............. 42

Table 4. 20: Component Matrix................................................................................... 43

Table 4. 21: Operational hindrances affect bancassurance......................................... 44

Table 4. 22: Communalities of factors........................................................................ 44

Table 4. 23: Total Variance......................................................................................... 44

Table 4. 24: Component Matrix...................................................................................45

Table 4. 25: Factors contributing to the development of bancassurance................... 45

Table 4. 26: Communalities of factors........................................................................ 46

Table 4. 27: Total Variance.........................................................................................46

Table 4. 28: Component Matrix...................................................................................47

Table 4. 29: Factors affecting market penetration of products................................... 48

Table 4. 30: Communalities of factors................. - .....................................................48

Table 4. 31: Total Variance.........................................................................................48

vii

50Table 4. 32: Component Matrix

viii

LIST O F FIG U RES

Figure 4. 1: Age of the respondents.............................................................................30

Figure 4. 2: Position held in the organization..............................................................31

Figure 4. 3: Importance of bancassurance in the organization...................................40

Figure 4. 4: Reception of bancassurance by the customers........................................ 41

IX

ABBREVIATIONS

ABI: Association of British Insurers

ABSA: Amalgamated Banks of South Africa

ALICO: American Life Insurance Company

BHC: Bank Holding Company

BRITAK: British American Insurance of Kenya

CDS: Credit-Default Swaps

EU: European Union

FNB: First National Bank

G.D.P: Gross Domestic Product

LIMRA: Life Insurance Marketing and Research Association

RBA: Retirement Benefit Authority

U.S.A: United States of America

UK: United Kingdom

x

CHAPTER ONE

INTRODUCTION

1.1 Background of study

One school of thought says that the word “Bancassurance” came from the combination of

the French word Banque (that is Bank) and Assurance (that is insurance) (Voutilainen,

2004). In simple terms, it means that banks sell insurance policies and it is the system

widely adopted in Europe, U.S.A, Korea, India and Japan and most recently Kenya.

Bancassurance is also taken as the amalgamation of assurance and banking business

within a financial environment. In India, Bancassurance essentially means insurance

selling through bank staff, at bank counters; fully exploited the synergies between

banking and insurance, so as to develop and distribute cost effective banking products

(Tapen, 2005). The Life Insurance Marketing and Research Association (LIMRA)

insurance dictionary defines Bancassurance as the provision o f life insurance services by

banks and building societies.

The Association o f British Insurers (ABI) defines Bancassurance as insurance companies

that are subsidiaries o f banks and building societies and whose primary market is the

customer base o f the bank or building society. Another common definition of

Bancassurance is the involvement of banks, savings banks and building societies in the

manufacturing, marketing or distribution o f insurance products. Fully exploiting the

synergies between banking and insurance, so as to manufacture and distribute cost

effective banking and insurance products to a common customer base (Allen, 2007). For

the purpose of this report, the researcher will adopt the definition o f Mintel Research

which defines bancassurance as the provision of insurance and banking products through

a common distribution channel and / or the same client base (Staikouras & Nurullah,

2005).

One o f the most significant changes in financial services sector over the past few years

has been the appearance and development of bancassurance. Banking institutions and

1

insurance companies have found bancassurance to be an attractive and often profitable

complement to their existing activities. Through a series of mergers, takeovers and joint

ventures between banks and insurance companies, the past 20 years have seen the growth

of bancassurance to become an increasingly dominant force in key financial services

sectors across the globe a trend that is set to continue. The opportunities for the industry

to target new customer segments and develop new products are currently immense.

Emerging markets, changing employment patterns, growing disposable incomes and

longer retirement periods mean that consumers have increasingly complex insurance and

financial requirements. Until recently, most countries had regulations and laws that

strictly curtailed banks’ ability to sell or underwrite insurance products. Today, banks are

competing with insurers in Canada, France, the UK and other countries like U.S.A and

Japan. The current trend is that many countries are reviewing their laws to allow for

Bancassurance based on the gains that have been accrued from the practice around the

world especially in Europe where the model has enjoyed the greatest success (Saunders,

2004).

The success of bancassurance has been limited to life insurance mostly, primarily

because of the matching o f banking products with the personal financial needs of

individuals and families. Bancassurance works through a process system that highlights

consumer lifestyle changes. Traditionally, insurance products have been sold through a

process called event-based selling. This process serves to identify individuals or families

who require life insurance coverage due to the happening of certain events which tend to

increase future liabilities. Many of these events can be easily matched with banking

transactions (Jamshaid, 2002).

1.1.1 Bancassurance in Kenya

After years spent locked in a regulatory battle over whether banks should be allowed to

sell insurance, banks and insurance companies are recognizing that bancassurance a

French term for the selling of insurance by banks is finally becoming a reality. Most

players also recognize that the biggest untapped bancassurance opportunity is life

insurance, because it is currently distributed through expensive agent sales forces and has

2

yet to be purchased by many potential consumers. The question for both banks and life

insurers is how to organize to profit from this new opportunity. The answer, we believe,

is for them to form partnerships.

In Kenya, there are 43 banks, and use of the existing branch network would clearly be

more effective than sole reliance on insurance agents in terms of expansion of the

bancassurance at a minimal cost. The banking sector has achieved a deeper penetration

especially within the rural areas, where the insurance companies do not have branches.

With increased integration o f financial services and banks seeking to expand the range of

services offered to clients, a perfect opportunity exists for the two sectors to enter into a

bancassurance partnership (Venkitararamanan, 2000).

Banks and insurance companies in Kenya have some form of a working relationship.

Moreover, consumer credit is secured through insurance companies leading to the

products offered by banks to have complementary insurance products. The consolidated

financial services industry will see the convergence o f banking and insurance business.

The Kenya Commercial bank, Equity bank/and Family Bank are conducting

bancassurance over the counter. There is great potential for development and growth of

bancassurance in Kenya (Mwaniki, 2008).

The banking sector has achieved a deeper penetration especially within the rural areas,

where the insurance companies do not have branches. With increased integration of

financial services and banks seeking to expand the range of services offered to clients, a

perfect opportunity exists for the two sectors to enter into a bancassurance partnership.

In Kenya, the market has witnessed the acquisition o f insurance companies by banks. In

2005, ALICO Kenya (American Life Insurance Company) was acquired by CFC group

and subsequently changed its name to CFC Life. A recent move saw Commercial Bank

of Africa acquire a third o f AIG insurance company’s total interest. The consolidated

financial services industry will see the convergence of banking and insurance business.

There is also an agreement between British American Insurance of Kenya (BRITAK)

With Equity bank and commercial bank of Africa. There is great potential for

3

development and growth of bancassurance in Kenya. However, the market is yet to

experience bancassurance in its truest form (Mwaniki, 2008).

1.2 Statement of the Problem

The competitive nature o f any market would ensure that the reduction in costs would

result in benefits in terms o f lower premium rates being passed on to the customers.

Combining insurance and banking activities, or cross-selling banking and insurance

products through joint distribution channels, afford a number o f key benefits from both a

business and financial perspective. The bank network is spread across the length and

breadth o f the country. This enables the insurance companies to reach out to each and

every individual in the country who needs insurance. From the bank's perspective, such a

model offers a great opportunity to improve their profitability by enhancing fee-based

income. This income is purely risk free for the bank since the bank simply plays the role

of an intermediary for sourcing business to the insurance company (Saunders, 2004).

Bancassurance has been a successful model in the European countries contributing 35%

of premium income in the European life insurance market. It contributes over 65% of the

life insurance premium income in Spain, 60% in France, 50% in Belgium and Italy

(Nurullah, 2000). In the US, the banks were earlier not allowed to sell insurance due to

the restrictions imposed by Glass-Stegall Act of 1933, which acted as a Chinese wall

between banking and insurance (Maijorie & Berangere, 2005). In the Asian markets,

bancassurance has a limited share of the total sales primarily because of the near

monopoly o f the life agents in Japan, which is the largest life market. But there is a shift

in stance with markets like Japan, South Korea and the Philippines where bancassurance

was previously prohibited, taking a more accommodating stance towards this channel.

South Africa has embraced different distribution channels and the benefits are clearly

visible. The contribution to G.D.P is 16% despite the small number (8) of the life

insurance companies. This small number ensures fair pricing in the market competition.

Banks and life insurers offer similar investment product and in addition, banks have

wholly owned insurance brokerage companies that offer services to the public. However,

high cost ratios for banks and increased acquisition expenses for insurance companies

4

have been one o f the major forces for bancassurance in South Africa. Most banking

institutions and insurance companies have found bancassurance to be an attractive and

often profitable compliment to their core business (Blom, 2004). Kenya and South Africa

have similar business environment, the two countries share similar income distributions,

and their insurance Acts are similar in their origin- both British Bancassurance in Kenya

has been able to achieve a penetration level of less than 1% compared to 15% in South

Africa (Boal, 2003).

In 2005, ALICO Kenya (American Life Insurance Company) was acquired by CFC

group and subsequently changed its name to CFC Life. A recent move saw Commercial

Bank of Africa acquire a third of AIG insurance company’s total interest. There is also an

agreement between British American Insurance of Kenya (BRJTAK) with Equity bank

and commercial bank o f Africa. There is great potential for development and growth of

bancassurance in Kenya. However, bancassurance in Kenya is relatively low (Mwaniniki,

2008).

In Kenya studies have been done on banks individually. Nyamai (1989) did a study on

structure growth o f the banking industry in Kenya. Similarly, studies on insurance have

been done. Wamwati (2008) did a study on the critical success factors in the insurance

industry in Kenya. However, the extent and determinants of bancassurance have not been

assessed in Kenyan market. This is despite efficiency gains known to exist from

bancassurance. This study intended to explain this phenomenon.

1.3 Objectives of the study

1 To assess the extent o f growth of bancassurance in Kenya.

To establish determinants of growth of bancassurance in Kenya.

1.4 Importance of the Study

This study was of value to many users. The project was resource to banks and insurance

companies seeking to venture into the bancassurance partnerships. The report identifies

the motivations that can drive banks and insurance companies to follow ‘bancassurance’

strategies in Kenya. It traces the development of bancassurance around the globe and

5

identifies potential pitfalls in its implementation. The report concludes by providing

action points for the successful implementation of the model.

This study effectively demonstrates the need for the government to review the insurance

and banking acts in order to achieve growth in the industry. This will in turn create an

environment to carry out one of the government’s macro-economic policy of mobilizing

saving and investment for development.

This study provided information to potential and current scholars on factors leading to

Bancassurance. This will expand knowledge to Banks on bancassurance. The study also

provided and identifies areas for further study on research. The study also provided areas

for future research by recommending knowledge gap to be filled by future researchers.

Central Bank as a major policy maker will obtain knowledge of the banking sector

dynamics and the responses that are appropriate; they will therefore obtain guidance from

this study in designing appropriate policies that will regulate the sector.

The investors will identify the market factors that affect the banc assurance in Kenya as

well as determining the extent to which this and other environmental factors affect the

bancassurance products among the commercial banks. .

The savers will be able to identify products which they can use to enhance their savings

and investments through bancassurance. This will be due to the increase in knowledge in

terms of new products being offered by the banks.

The study will also give to the general public that will be beneficial to them in terms of

bancassurance. This will enhance growth o f industry which will be due to creation of

awareness to the members of the general public on this new product that have been

introduced in the banking market.

The borrowers will benefit from bancassurance partnerships as they will be able to access

their financial and insurance needs under one roof. One advantage of such partnership is

that borrowing cost will go down. Equally, the time taken to conclude a transaction will

he shorter and more efficient.

6

CHAPTER TWO

LITRATURE REVIEW

2.1 Introduction

This chapter covers the theoretical literature underlying bancassurance. The empirical

review and the conceptual framework also fall under this chapter.

2.2 Theoretical Review

Bancassurance is hinged on mergers and restructuring theories where insurance firms

merge with banks or banks restructure to have bancassurance under their roof. The

financial intermediation theory attempts to explain the rationale o f having banking and

insurance together by virtue o f their related products that they offer. This phenomenon

can also be explained by a number o f mergers and restructuring theories. These theories

put forward the rationale o f banks and insurance coming together to have bancasurance.

These theories can be grouped into five categories namely efficiency explanation,

information, agency problems, market power and taxes theories (Copeland & Weston,

1992).

2.2.1 Financial intermediation theory

Many authors have observed that banks and insurance companies as businesses provide

services that are similar, which favors their joint operation. Both types o f firms as

financial intermediaries pool savings from individuals and channel these funds to capital

expenditures. Laws of large numbers, economies of scale, liquidity creation, and risk

management are common to both institutions (Lewis, 1990; Voutilainen, 2004). It is not

surprising that they offer similar products to compete for public savings funds. For

example, homeowners typically use endowment policies to repay principal in the United

Kingdom. In France, insurance companies have sold single-premium policies that are

similar to bank time deposits. Also, banks regularly offer loans and sell insurance to

protect against default and property loss. Historically, bancassurance was most developed

ln France and the Netherlands in the 1980s, due in part to tax-advantaged insurance

Products made available through banks, in addition to the distribution network and public

7

confidence advantages for banks (Hoschka, 1994; Genetay and Molyneux, 1998;

Staikouras and Nurullah, 2005).

2.2.2 Risk and related attributes

A number of studies also have attempted to characterize the risk and related attributes of

insurance and to identify the kinds of synergies that might exist between traditional

banking activities and insurance brokerage and underwriting [Brewer (1989), Saunders

(1994), Saunders and Walter (1994), Eisenbeis (1995), Gande, Puri and Saunders (1999),

Nurullah (2000), Van den Berghe and Verweire (2001), Saunders (2004)]. Agency and

brokerage is mainly a commission and/or fee-oriented business. It is not a capital

intensive activity and since the bank is merely acting as a distribution channel there are

little safety and soundness concerns. It is assumed, however, that corporations, which

provide brokerage functions, have taken into account elements of operational risk in their

overall capital requirements. The focus on risk in most prior studies seems to derive from

regulatory concern about potential failures that might result from bancassurance mergers

and the possibility o f the transmission of that risk to the entire financial system.

Few studies have examined the effects of the diversification achieved by banking and

insurance company mergers per se. As discussed by Boyd, Graham, and Hewitt (1993),

numerous studies have attempted to determine the potential effects of expansion of bank

holding companies into permissible nonbank activities and prohibited nonbank activities.

However, these studies investigate different financial services firms separate from one

another, rather than merger combinations of banks and nonbank firms.

Rumelt (1974) argues that diversification is more likely to be value enhancing when

management skills and physical resources across firm segments can be applied in related

markets. Consistent with this view, Raj an, Servaes, and Zingales (2000) propose that

diverse divisions within a firm can lead to inefficient allocation of resources and

investment and lower firm values. Also, Berger and Ofek (1995) find that diversified

firms have values that are 13-15 percent below the sum of the imputed values of their

segments, but this loss is mitigated in cases of more focused diversification within related

mdustries. Diversification can enhance value through increased cash flow and/or through

8

reduced risk. Therefore, merger studies assess the impact of mergers on stock returns of

the bidder (which could imply improved future cash flows or anticipated risk reduction or

both) or on the risk changes experienced by the bidding firm. The focus of the few

studies that do examine bancassurance (unlike in the corporate finance literature) is

principally on changes in risk. An exception is Fields, Fraser, and Kolari (2007), who

find that bidders in bancassurance mergers experience positive wealth effects and that

these wealth effects appear to be driven by enhanced economies of scale and scope and

by geographic diversification.

2.2.3 Theories for Mergers, tender offers and joint ventures

Mergers and acquisitions have long played an important role in the growth of firms.

Growth is generally viewed as vital to the well-being of a firm. Mergers and acquisitions

in the financial sector are undertaken for a wide variety of reasons. In any given case,

more than one motive may underlie the decision to merge. In the framework used in this

chapter, the motives for mergers and acquisitions are broken down into two basic

categories: value-maximising motives and non-value-maximising motives. In a world

characterised by perfect capital markets, all activities of financial institutions would be

motivated by a desire to maximise shareholder value (Copeland, 1992).

Various reasons for why firms merge have been proposed. The list includes efficiency-

related gains, disciplining target management, spreading new technology, and changes in

industry structure. Brealey, Myers and Allen (2006) go so far as to suggest that why

merger waves occur is one o f ten most important unresolved questions in corporate

finance. Several theories have been put forward to explain merger waves. Lambrecht

(2004) examines mergers motivated by operational synergies and predicts pro-cyclical

mergers. In his model, mergers are likely to happen in periods of economic expansion.

Maksimovic and Phillips (2001) show that mergers and asset sales are more likely

following positive demand shocks, causing pro-cyclical merger and acquisition waves in

Perfectly competitive industries.

TUe Phenomenon o f bancassurance can act as a hybrid corporate structure. Arguments

fiiv nng this structure include diversification benefits, scale and scope economies,

9

efficiency, strength to withstand competitive and macroeconomic shocks, managerial

discipline through takeovers, and market synergies between banks and insurers. Banks

and insurers have witnessed a considerable level o f convergence in terms of savings and

risk management products and asset liability instruments. O f more recent interest has

been the expansion of banks into non-banking activities, especially the bank-insurance

enterprise. The growth of this phenomenon in the industrialized world has fuelled an

ongoing debate in the academic literature (Akhigbe and Whyte, 2001; Yildirim et ah,

2006).

Jensen and Meckling (1976), as quoted in Copeland & Weston (1992), formulated the

implications of agency problems. An agency problem arises when managers own only a

fraction o f the ownership shares of the firm. The partial ownership may cause managers

to work less vigorously than otherwise and/ or to consume more perquisites because the

majority owners bear most of the cost. In large corporations with widely dispersed

ownership, there is not sufficient incentive for individual owners to expend the

substantial resources required to monitor the behavior of managers. A number of

compensation arrangements and the market for managers may mitigate the agency

problem (Fama, 1980), as quoted in Copeland & Weston (1992).

The agency problem theory of mergers has two aspects. One aspect is the threat of

takeover and may mitigate the agency problem by substituting for the need of individual

shareholders to monitor the managers. The agency theory extends the previous work by

Marine (1965), as quoted in Copeland & Weston (1992). Manne emphasized the markert

for corporate control and viewed managers as a threat of takeover if a firm’s management

lagged in performance either because of inefficiency or because of agency problems. On

the other hand mergers may be a manifestation of the agency problem rather than the

solution. One reason often given for a merger is that it will increase a firm’s market

share, but it is not clear how increasing the market share will achieve economies or

synergies. If increasing the firm’s market share really means that the firm will be larger,

then it is the economies of scale. Increasing market share really means increasing the size

the firm relative other firms in an industry (Copeland & Weston, 1992).

1 0

Tax considerations are also involved in mergers. One such tax consideration is to

substitute capital gains taxes for ordinary income taxes by acquiring a growth firm with a

small or no dividend payout and then selling it to realize capital gains. Another tax factor

is the sale of firms with accumulated tax losses. A firm with tax losses can shelter the

positive earnings of another firm with which it is joined (Copeland & Weston, 1992).

2.3 Bancassurance

Genetay and Molyneux (1998) provide an excellent overview of bancassurance in Europe

and document its historical roots dating back to the 1800s. As discussed by these

authors, Daniel (1995) differentiates three periods of banassurance development: (1)

prior to 1980 banks sold closely related insurance products, such as consumer credit,

home property, and currency theft insurance; (2) after 1980 banks expanded into savings

insurance products, including (for example) endowment contracts in France that paid a

lump sum at a future point in time; and (3) in the 1990s banks made major progress in

traditional insurance activities, including various annuity investment contracts and

combined savings and insurance contracts (known as whole-life insurance) in the United

Kingdom (Genetay and Molyneux, 1998, pp. 10-13).

Significant entry by banking firms in Europe during the 1990s into insurance activities

was primarily motivated by deregulation of the financial sector under the 1989 Second

Banking Coordination Directive. Effective in January 1993, this Directive allowed

financial institutions in European Union (EU) countries to operate in member countries

without obtaining a license from the regulatory authorities in a guest country. EU

competition among so-called universal banks and large retailers entering financial

services has led to cross selling of multiple services. Banks increasingly have used

relationship pricing wherein customers purchasing a number of financial services receive

better pricing than single-product customers. In this regard, bancassurance has been

growing more rapidly in Europe than banking-securities combinations (Staikouras (2005).

_ U.S. deregulation under the Gramm-Leach-Bliley (or Financial Services

°dernization) Act of 1999 legalized bancassurance, which is likely to lead to its

11

geographic spread. The new law ended 1933 Glass-Steagall prohibitions on the

separation of banks from investment banking and 1956 Bank Holding Company Act’s

prohibitions on insurance underwriting. Like Europe’s Second Banking Directive and

later amendments, it allows the formation of financial holding companies that can offer a

wide range of financial activities, including underwriting and selling insurance and

securities, commercial and merchant banking, investing in and developing real estate, and

other approved financial activities.

While bancassurance has traditionally been a European rather than U.S. phenomenon, the

1999 Gramm-Leach-Bliley Act represents a potential watershed development in this area.

Not only did the new legislation explicitly permit the melding o f commercial banking and

insurance (as well as investment banking) but many U. S. banks quickly took advantage

of these new powers. As a result, the sample that we develop below represents a mixture

of European firms that have been long-term participants in both banking and insurance,

and U. S. firms which are much more recent participants. Bancassurance has continually

spread to other countries outside Europe and the U.S. in recent years.

Bancassurance, the provision of insurance services by banks, is an established and

growing channel for insurance distribution, though its penetration varies across different

markets. The concept of bancassurance was evolved in Europe. Europe leads the world in

Bancassurance market penetration o f banks assurance in new life business in Europe

which ranges between 30% in United Kingdom to nearly 70% in France. However,

hardly 20% of all United States banks were selling insurance against 70% to 90% in

many Western European countries. In Spain, Belgium, Germany and France more than

50% of all new life premiums is generated by banks assurance. In Asia, Singapore,

Taiwan and Hong Kong have surged ahead in Bancassurance then that with India and

China taking tentative step forward towards it. In Middle East, only Saudi Arabia has

made some feeble attempts that even failed to really take off or make any change in the

system (Kasper, 2005).

^cording to a recent sigma study, bancassurance is on the rise, particularly in emerging

Markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a

12

foothold in markets with low insurance penetration and a limited variety of distribution

channels. Europe has the highest bancassurance penetration rate. In contrast, penetration

is lower in North America and Africa, partly reflecting regulatory restrictions. In Asia,

however, bancassurance is gaining in popularity, particularly in China, where restrictions

have been eased. The outlook for bancassurance remains positive. While development in

individual markets will continue to depend heavily on each country’s regulatory and

business environment, bancassurers could profit from the tendency o f governments to

privatize health care and pension liabilities. In emerging markets, new entrants have

successfully employed bancassurance to compete with incumbent companies. Given the

current relatively low bancassurance penetration in emerging markets, bancassurance will

likely see further significant development in the coming years, (Swiss re, 2005).

Depending on local regulations, there are a number of ways in which banks can sell

insurance .--Banks can sell insurance to customers who visit Bank branches. This activity

can range from responding to queries and requests for insurance to more aggressive

selling to customers not seeking insurance. Advertising can be used to stimulate customer

inquiries. Banks can review customer’s data and target those customers most likely to

need or buy life insurance. Bank employees, often offered incentives like commissions or

bonuses, contact the targeted customers and try to sell to them insurance. Instead o f using

bank employees to sell insurance, the bank can contact with an insurance company to do

the selling. In exchange for help from the bank with customer leads, the insurance

company would pay the bank a commission on sales (Heymowski, 2000).

World over, while both life and non-life companies seek to engage bank branches, non­

life products have featured less prominently in bancassurance distribution. The major

reason is the complementary nature o f life insurance and banking products. Both are in

the nature of saving accumulation, one short term and the other long term. Banks have

experienced selling savings oriented products. As a result, life insurance products that

provide tax-advantaged savings are often sold through banks (Kasper, 2005).

One explanation for the success of bancassurance is that bank-insurance combinations

316 beneficial to both entities in terms of spanning both short- and long-term

liability/asset structures in the financial intermediation process and better attracting and

13

retaining retail customers and corporate clients (Diamond, 1984). In the past, a credit

market hierarchy existed among private debt (inside bank loans), private placements

(inside insurance company bonds), and the public debt market (outside debt). Legal

barriers affecting the sources o f funds among different financial institutions logically led

to asset specialization of institutions (e.g., long-term vs. short-term lending) on the supply

side of the credit market. For example, owing to the traditional legal separation o f

banking and insurance underwriting, the majority o f bank credit is financed by short­

term, floating-rate deposits, whereas life insurance companies obtain funds to invest in

bonds from long-term, fixed-rate insurance contracts. Importantly, deregulation

eliminated these legal barriers and allowed banks and insurance companies to exploit

their joint advantages with respect to both short- and long-term funds in the financial

marketplace (Pask, 2003).

Other reasons for the dominance of life insurance products in the bancassurance channels

are that the non-life market requires special management and selling skills, which are not

necessarily prevalent in bancassurance. In addition, such competencies require significant

investment and motivation, and therefore additional costs. Life insurance products are

generally long-term products, which require customers to have complete confidence in

the institution that invest their money. And in many countries banks are usually more

trusted than insurance companies. Bank advisers can use their knowledge on their

customers’ finances to target their advice towards specific needs. This is a major

advantage in life insurance and less important in general insurance. The general claim of

general insurance could have a negative impact on brand image. This could explain why

for a long time bancassurance operators hesitated to offer general insurance products

(Kasper, 2005).

Term assurance is commonly sold through banks, most often in connection with a loan

from the bank. Because other financial products offered by banks can usually be

explained and sold in minutes, only the simplest insurance products tend to be sold by

banks. The underwriting and issue process is typically simplified and streamlined for

SUch insurance products. In some cases, banks are able to issue a policy to a customer

during visit to the bank branch, with the entire process taking less than 30 minutes. This

14

is quite different from the usual time frame for issuing a policy, which can run from

weeks to months (Venkitararamanan, 2000).

To understand and get the essence o f bancassurance, it’s important to look at the concept

of bancassurance first. According to Jamshaid (2002), the success o f bancassurance has

been limited to life insurance mostly, primarily because of the matching o f banking

products with the personal financial needs o f individuals and families. Bancassurance

works through a process system that highlights consumer lifestyle changes. Traditionally,

insurance products have been sold through a process called event-based selling. This

process serves to identify individuals or families who require life insurance coverage due

to the happening o f certain events which tend to increase future liabilities. Once a

banking customer has entered into or completed a banking transaction indicative of a

lifestyle change, he/she is referred to a Bancassurance Consultant. This person is

responsible for selling the product to the customer.

2.3.1 An Overview of Bancassurance Models

Bancassurance covers a wide range of detailed arrangement between, the banks and

insurance companies, but in all cases it includes the provision of insurance and banking

products and services from the same source or to the same customer base. Also, because

there is a wide diversity of strategies available, there is no standard model for

bancassurance. Bancassurance models vary from country to country. In many countries,

the choice of a business model is influenced by regulatory constraints, for example, the

minimum qualification required to sell insurance products, the type o f products the banks

are allowed to sell or the relationship between banks and insurance companies. However,

the models are divided into three broad categories (Bhasin, 1998).

2.3.2 Integrated Models

This model operates in the following forms:

Joint venture: The bank partners with the insurance company to create a new insurance

company which has an exclusive distribution arrangement with the bank.

15

Joint venture financial service group: The insurance company builds/buys a bank or a

bank builds/buys insurance and ventures into Bancassurance for example C.F.C group

and Citi group. Premiums are collected by the bank through direct debit from customers,

accounts. New business data entry is done in the bank branches and workflows between

banks and insurance is automated selling is done by the bank staff. The bank receives

commissions for the sale o f the insurance products. The products are designed to

specifically fit into the banks culture.

2.3.3 Non-integrated Models

Banks set up networks o f financial advisers authorized to sell regulated life insurance

products. The products offered are similar to those sold through other channels. They

usually operate as tied agents and sell exclusively the products manufactured by the

bank’s in-house life insurance company or its third party provider(s). A good example is

the relation between Equity Bank and British American Insurance Company (Daily

Nation, 2008).

2.3.4 Open Architecture Models

Banks usually have non-exclusive distribution agreements with several companies, for

example, one foreign company and several domestic firms. Non-exclusive distribution

agreements seem to be the main vehicle for bancassurance for smaller banks, savings

banks and building societies in most European countries. They choose one or several

insurance providers for different types of products. Insurance products are sold by branch

staff. The bank segments its customer base to identify possible clients. Commissions are

paid directly to the bank, which may independently develop an incentive compensation

arrangement for sales people.

2.3.5 Risk mitigations

Risk mitigation as noted by Radcliff, (1990) is as old as trade and is the foundation of

insurance industry. The author argued that in the olden days, ship merchant observed that,

SOme ° f them went home without anything after their ship sunk in high seas. They later

solved to form groups where through contribution they could afford a chain of ships.

16

This insured them against going out of business through calamities that occurred once in

a while.

According to Francis (1991), risk management is an activity directed towards the

assessing, mitigating and monitoring of risks. The investment process involves the

leadership of the firm deciding on which investment should be undertaken and how much

money would be committed to each investment. Allen (2003) noted that, a firm will seek

to avoid risks in areas o f ignorance or non-core activities while taking additional risks in

others.

A significant barrier to the implementation of the risk management concept in a large

number o f organizations was lack of technical experience and professional qualifications

among these insurance buyers who assumed the risk management title. The change in

emphasis from insurance management to risk management initially underwent a slow

transition and received a low level of acceptance by senior managers and Company

directors. The reluctance to support the concept was largely due to the fact that many of

those given the title o f risk manager continued to function solely as buyers of insurance,

or managers of insurance claims for their firms.

An important and substantive change in the direction and focus in risk management

occurred in the 1970’s, when insurance underwriting companies were unable or unwilling

to meet the high demands of insurance due to various economic developments. As a

result of the increased demand for liability and general insurance cover, large industrial

Corporations were placed in a position where they had to retain a significant portion of

the risk. At this time, it became evident to senior management that by accepting a greater

level of risk in all its business activities it would be necessary to introduce measures to

protect the firm’s assets and control these risks. Organizations quickly moved beyond

msurance buying as a single solution to their Financial and technical risk exposures,

adopting alternative methods of risk treatment such as loss prevention, loss control and

the implementation o f the risk management concept (El-Masry, 2006).

17

2.4 Empirical Review

A number o f authors have documented the roots and expansion of bancassurance at

certain parts of the world, as well as the challenges that lie ahead for the implementation

of such corporate restructuring (Morgan et al. (1994), Molyneux et al. (1997), Benoist

(2002), Dorval (2002), Falautano and Marsiglia (2003). Others have focused on new

markets such as Greece, where the phenomenon had been in effect in a de facto mode

(Kalotychou and Staikouras, 2007) for a long time; while elsewhere evidence is provided

that there are significant cross-selling opportunities that mostly arise from consumer

unawareness regarding insurance offerings by banks and their willingness to buy these

new products (Lymberopoulos et al., 2004).ne1

lResearch on the banc insurance shows that the growing interaction between the two

sectors will eventually be translated into some form of collaboration and intense

competition (Szego, 1986). Saunders (1994) discusses the benefits and costs associated

with the relaxation o f the regulatory barriers between banks and commercial firms. This

work is nicely complemented by the investigation o f the effects of universal banking on

investment efficiency, on banking risk, and on social welfare (John et al., 1994).

[Furthermore, Kist (2001) and Flur et al. (1997) study the synergies that can be achieved

fy integrating insurance, banking and asset management under one provider o f financial

Kfvices. Bergendahl (1995) analyses the dynamics o f profitability and identifies five key

ors that are crucial for its success i.e. customer base, available branches, insurance

lists per branch, staff knowledge, and the cross-selling ratio.

gh bancassurance has traditionally targeted the mass market, bancassurers have

to finely segment the market, which has resulted in tailor-made products for each

*nt. The quest for additional growth and the desire to market to specific client

hts has in turn led some bancassurers to shift away from using a standardised,

channel sales approach to adopting a multiple channel distribution strategy. Some

surers are also beginning to focus exclusively on distribution.

c markets, face-to-face contact is preferred, which tends to favour bancassurance

ftment. Nevertheless, banks are starting to embrace direct marketing and Internet

§ as tools to distribute insurance products. New and emerging channels are

18

becoming increasingly competitive, due to the tangible cost benefits embedded in product

pricing or through the appeal o f convenience and innovation (Kist, 2001).

Finally, the marketing o f more complex products has also gained ground in some

countries, alongside a more dedicated focus on niche client segments and the distribution

of non-life products. The drive for product diversification arises as bancassurers realise

that over-reliance on certain products may lead to undue volatility in business income.

Nevertheless, bancassurers have shown a willingness to expand their product range to

include products beyond those related to bank products (Korhonen & Voutilainen, 2006).

The strategic challenges expected to challenge traditional bancassurers through shifting

away from manufacturing to pure distribution requires banks to better align the incentives

of different suppliers with their own, increasing sales of non-life products, to the extent

those risks are retained by the banks, require sophisticated products and risk management

and the sale of non-life products should be weighted against the higher cost of servicing

those policies. Banks will have to be prepared for possible disruptions to client relations

arising from more frequent non-life insurance claims (Benoist, 2002).

Part of the research has concentrated on the risk-return attributes of universal banking

and financial conglomerates. One of the early studies shows that non-banking activities

are less risky and thus can be used to diversify the risk inherent in the commercial

banking firm (Heggestad, 1975). Such diversification could consist o f real estate, fund

management, insurance, and broking activities. Using accounting and stock market data

Brewer (1989) finds no evidence of bank-holding company (BHC) risk (stock return

volatility) associated with non-banking activities. When only risky firms are examined,

this relationship becomes negative and significant. Saunders and Walter (1994) conclude

that while bank expansion into the insurance business reduces risk, the latter does not

hold for expansion into the securities business. Recently, in Sigma, 2007, the Swiss Re

team cites high correlation between banking and insurance risks accompanied by strict

Capital requirements under the Basel II framework. The latter may dishearten the

development of the integrated bank-insurance models, since there are no economies of

Scale to be exploited.

19

Estrella (2001) also finds that both banks and insurers can experience diversification

benefits when convergence materializes. While Laderman (2000) suggests that life/non-

life insurance is risk reducing, he also finds (contrary to the above) that securities

underwriting reduces the probability of bankruptcy. In a similar framework, Genetay and

Molyneux (1998) obtain mixed evidence on risk. They report significantly lower failure

probabilities, but no changes in return on assets volatility for bank-insurance

combinations. Recently, Lown et al. (2000) conclude that mergers between BHC and

securities/P&C firms would modestly raise BHC risk. Mergers between BHCs and life

insurers, however, lower the risk of both firms.

Others who have employed a portfolio approach suggest that both securities and

insurance activities have no significant effect on market risk premiums of universal banks

(Allen and Jagtiani, 2000). Examining the performance o f US financial holding

companies, Stiroh (2004) finds diversification benefits when these firms expand into fee­

generating and other non-interest income activities. However, these benefits are offset by

the volatile nature o f these activities. Based on accounting figures, Vander Vennet (2000)

finds that financial conglomerates are more cost efficient than their specialized peers, and

suggests that further de-specialization could lead to a more efficient banking system.

Using European data, Nurullah and Staikouras (2008) reveal an increase in volatility and

the probability o f bankruptcy when banks merge with general and life insurance

companies, and find that the most favorable combination is banks with insurance broking

firms.

Announcement in financial markets have always been the subject of investigation, as they

sometimes prompt interesting reactions. In the US, a number of court rulings have

prohibited banks to enter into the insurance business of marketing and originating

annuities as well as other insurance products (Cowan et al, 2002). The research implies

that when annuities are seen as a general financial product, available to banks, and not as

an exclusive insurance provision, then investors interprets this as unfavorable and value-

destroying. In a somewhat similar framework, Cybo-Ottone and Murgia (2000) suggest

positive value creation for domestic banks and for a very small sample of bank-insurance

20

deals. In contrast, Delong (2001) finds that diversifying mergers - in terms of geography,

activity, or both do not create value.

The effects o f the Financial Services Modernization Act (1999) have also been examined

by Carow and Heron (2002) who find negative abnormal returns for foreign banks, and

highly positive reactions by investment banks and insurance companies. Analogous

results are also reported by Hendershott et al. (2002) and Neale and Peterson (2005).

Using stock market data, Fields et al. (2007) adeptly provide evidence of positive bidder

wealth effects that are related to economies o f scale, potential economies of scope, and

the locations of the bidders and targets. In a similar vein, Staikouras (2007) unveils

significant abnormal returns surrounding the announcement of bank-insurance ventures.

When the sample is separated on the basis o f the bidder's nature, then bank-bidders earn

significant positive returns, while the insurance-bidders experience significant losses.

Finally, the analysis unveils either significantly negative or insignificant returns for

insurance investments by banks.

It is the dominant distribution channel in countries such as Belgium, France, Italy, Spain

and Portugal. Portugal boasts the highest penetration rate in bancassurance, which has

82% market share. This success is greatly attributed by the fact that the banks own all the

top five Life insurance companies. Portugal is considered to have the most efficient and

profitable banking system in the European Union. In Italy, it is the fastest growing

distribution channel. The channel’s market has increase for 8% in the early 90’s to

current levels o f 72%. The rapid growth is attributed to a well-established bank network

and a favorable tax environment (Gupta, 2006).

Bancassurance has achieved remarkable success in some markets. In Europe, it is not

uncommon to find over half of life insurance business being transacted by banks. For

example, in France, Portugal and Spain, banks handle over 60% of life insurance

business. Banks and insurers are attracted to the idea of

bancassurance for different reasons, which also influence the way their cooperation takes

place. Retail banks earn their income from the spread between the rates they charge on

lending and those they pay for deposits. Growing market competition, however, weighing

21

down heavily on banks’ interest margins while credit risk is always a headline concern.

As a result, banks are increasingly looking to commissions and fees from selling

insurance products to supplement their core earnings. Some banks are eying

bancassurance as a step to the formation of financial supermarkets where one institution

serves all the financial needs of its customers. A potential benefit is the reduction in the

volatility of return on equity due to the lack of synchronization between insurance and

banking profitability cycles (Staikouras and Nurullah, 2005).

The benefits to the insurers are equally convincing. The ability to tap into banks’ huge

customer bases is a major incentive. The extensive customer base possessed by banks is

considered to be ideal for the distribution of mass-market products. On the other hand,

insurers can make use of the wide reach of bank customers to categorise potential clients

in detail according to their needs and values. With increasing sophistication on

bancassurance operations, some insurers can focus on the high-net-worth segment, which

offers greater potential for wealth management business. Apart from the ability to tap into

new customers groups, escaping from the high cost of captive agents is another reason

prompting insurers to look into alternative channels. In some cases, teaming up with a

strong bank can help to fund new business development and booster public confidence in

the insurer (Swiss Re, 2001).

2.5 Bancassurance in Kenya

2.5.1 Important Statistics on life insurance in Kenya

The first company to offer life insurance in Kenya was established in 1905 (Old Mutual).

In the 100 or so years since onset, the sector has been able to achieve a penetration level

of less than 1 % compared to 15% in South Africa. Business underwritten in the insurance

industry stood at Ksh 32 billion in 2004, which represented 2.5% of Gross Domestic

Product (GDP). Life Insurance premiums accounted for only a fifth of the total revenue

in the industry (Hoosen, 2008).

There are a number of reasons offered as to why a large number of Kenyans do not buy

life insurance policies. These include custom, poverty, religious beliefs, lack of

^formation and a negative perception of the industry. Yet, life insurance, besides being

22

unique as a long term savings instrument, is the most efficient vehicle for mobilizing

savings, a fact well proven in developed economies (Mwaniki, 2008).

Over the 4 year premiums stabilized around annual growth rate of 12% giving an

indication of a relatively stable industry. It is notoriously difficult for insurance

companies to achieve significant growth in stable markets such as the Kenyan insurance

market. Although trying to chip away at competitor’s market shares through such means

as advertising campaigns and lower premiums can be worthwhile if execution is

excellent, the volume and revenue growth that such initiatives can bring about are often

out-weighted by the related expenses-resulting in minimal profitability or even a net loss.

A far more efficient way for Kenyan firms to grow is to be firmly established in a

growing market or market segment. Insurers that wish to expand substantially must strive

to identify potential areas of high growth and must position themselves appropriately to

be able to grow with the flow (Wamwati, 2008).

A careful analysis o f the industry’s dynamics yields a good idea o f which factors will be

the most important ones for success. Four drivers have been identified that will likely

determine the evolution of the Kenyan insurance industry. These drivers are economic

fundamentals, demographic fundamentals, distribution developments and product

development which are adapted from Boston consulting group report “Opportunities for

action in financial services”.

The challenges facing insurance companies is to devise a cost effective distribution

channel that will minimizes their expenses but that will also allow significant growth in

the sector. In mature insurance markets, a major chunk o f life insurance growth captured

by the bank channels (Wamwati, 2008). This has proved to be the most effective way for

the insurance companies to expand their reach at minimal cost. Part of the banks channel

natural advantage is that cash flows into life insurance products often come from savings

and investment balances, so banks already have funds in-house. In addition, banks have a

wider geographical reach and therefore take only marginal distribution costs into account

when evaluating a potential bancassurance strategy. Moreover, life insurance product can

logically be bundled with banking products. Is Kenya ready to embrace this emerging

^ode of distribution?

23

2.5.2 The Bancassurance opportunity in Kenya

In Kenya there are 43 banks which use the existing branch network across the country.

The banking sector has achieved a deeper penetration especially within the rural areas,

where the insurance companies do not have branches. With increased integration of

financial services and banks seeking to expand the range o f services offered to clients, a

perfect opportunity exists for the two sectors to enter into a bancassurance partnership.

The market has witnessed the acquisition of insurance companies by banks. In 2005,

ALICO Kenya (American Life Insurance Company) was acquired by CFC group and

subsequently changed its name to CFC Life. A recent move saw Commercial Bank of

Africa acquire a third of AIG insurance company’s total interest. The consolidated

financial services industry will see the convergence o f banking and insurance business.

There is also an agreement between British American Insurance of Kenya (BRITAK)

with Equity bank and commercial bank of Africa. There is great potential for

development and growth of bancassurance in Kenya. However, the market is yet to

experience bancassurance in its truest form.

2.6 Challenges facing the establishment of bancassurance

2.6.1 Legal Framework

The greatest impediment to bancassurance lies in the Insurance and Banking Acts. Under

section 150 o f the Insurance Act, only persons registered as agents or brokers can transact

or carry on insurance business. Section 2 of the insurance act restricts a non-insurer, for

example banks, from underwriting. Section 5 of the Banking Act defines banking

business very restrictively; this has been held by the central bank of Kenya to exclude the

sale of insurance products. A few years ago, a deal between Alico Kenya and Barclays

Bank of Kenya to sell life cover through the bank was rejected by the Commissioner of

insurance on the strength of this act.

Historically, there has been a fear that allowing banks and insurance companies to mix

ownership could lead to financial instability. For example, a bank in financial trouble

c°uld cause the collapse o f an affiliated insurance company. In addition, there has been a

24

fear that a bank in the insurance business would require a borrower to buy insurance at a

high price in order to receive a loan from the bank. Adequate regulations of the financial

services sector would prevent this.

The association of Kenya insurers in their budget proposal for 2006 proposed that the

Insurance and Banking acts be reviewed to allow for bancassurance. A parliamentary

committee set up to review the Insurance Act and promote bancassurance has drawn

criticism from players in the industry. According to some executive officers in the

insurance sector, the team had not contacted the key market players.

2.6.2 Inadequate Regulations

Currently the insurance sector is regulated by the office o f the commissioner o f insurance

that is under the umbrella of the Ministry o f Finance. The office is perceived to lack

power to adequately regulate the insurance industry. The lack of autonomy from the

government may compromise its role as the regulator o f the sector. It may be subject to

the whims and manipulations of political agenda.

There have been calls for the establishment o f an insurance authority, in the mould of the

Retirement Benefit Authority (RBA). These calls are based on observations that RBA

would be more adaptive and responsive to the needs o f the industry and protect

policyholders adequately. This will therefore assist in the development of industry.

The presence of different independent regulatory bodies (Retirement Benefit Authority

for Pension, Central Bank of Kenya for banking and Capital Market Authority) in the

financial services sector has created barriers and divergence between the financial

services institutions. With increased integration of financial services, there may arise a

need for a single independent financial services regulatory body to adequately regulate

the sector.

2-7 Conclusion

The challenge for bankers and insurers is to identify future high growth markets for

financial products, assess whether the necessary regulatory condition are in place for

Reassurance to thrive, and develop a strategy to exploit whatever opportunity may

25

exist. Developing the right strategy is critical from a profitability point of view, since the

position o f the insurer in relation to the bank is generally not very strong.

Kenya has been experiencing a steady economic growth which peaked in 2006. With

rapid economic growth, the level o f disposable income has improved in the last few

years. That means that more Kenyans can afford insurance products than ten years ago.

Despite this favorable circumstance for growth in insurance, an emerging scenario in

Kenya is where individuals are buying minimal insurance or none at all devoting the

remaining investible surplus on unit linked products and mutual hinds. Insurance

companies need to look further into reasons for this dismal situation despite a favorable

economic climate.

Insurers should be aware o f the importance o f studying demographic patterns.

Demographic movements being witnessed in many regions collectively have large

implications for the bancassurance. For instance people are living longer, having fewer

children, and working fewer years. These trends mean that the percentage of people

above retirement age is steadily increasing. The key insight for insurers is that high

growth in insurance and pension products can be expected. Combining the effects of

economic fundamentals and demographic fundamentals indicates that there exist future

growth opportunities in both life and pension products for Kenya as a country. Despite

the best efforts of Kenyan insurers to keep up with the demographic changes, a

substantial increase in the number of policies sold has not been witnessed. There may be

a need to improve on the methods o f collecting and analyzing demographic information

in order to ensure its accuracy for the sake o f growth of the sector. Bancassurance can

provide this opportunity.

Innovation in product development is vital in achieving growth o f the company and

differentiation of its products. This will enable the company to anticipate and satisfy the

need of its varying clients and thus gain deep penetration in the different regions.

Bancassurance experts argue that we as a nation are probably 30 years behind the

developed countries in local offering of life insurance products because they moved away

from endowment- type product way back in the 1970’s. Until about 2001, universal type

26

products (including the popular unit linked policies) which give a lot of flexibility to both

underwriters and policy holders were unknown in Kenya. The fact that such products are

now offered in the market is a positive development and good prospects for

bancassurance growth. The mode of distribution of both banks and insurance products is

vital in determining the level of penetration of the life insurance sector. Ideally a

company should make the most of the available channel mix- brokers, tied agents and

banks-for optimum results.

27

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter presents the research methodology and covers research design, population,

sampling strategy, data collection tools and data analysis techniques. All these were

employed in efforts to realise the research objectives. They are carefully chosen to ensure

accuracy, reliability and get the desire results.

3.2 Research Design

The design for this study was a survey design. A survey is an attempt to collect data from

members of a population in order to determine the current status of that population with

respect to one or more variables (Mugenda and Mugenda, 2003). Mugenda and Mugenda

(2003) give the purpose of a survey research as seeking to obtain information that

describes existing phenomena by asking individuals about their perceptions, attitudes,

behaviour or values. Survey method which involves, asking respondents questions on how

they feel, what their views are, and what they have experienced (Babbie, 2002). Survey

method is useful when a researcher wants to collect data on phenomena that cannot be

observed directly. Its advantage is that, it allows the collection of large amounts of data

from a sizeable population in a highly effective, easily and in an economical way, often

using questionnaires.

3.3 Target Population

The target population was all commercial banks in Kenya. A sample of one bank manager

was picked randomly from banks. Out of 43 commercial banks in Kenya only 11 have got

bancassurance. The sample size of this study was 11 respondents.

28

3.4 Data Collection

Both primary and secondary data was used here. The data was collected using

questionnaires. The questionnaires have both closed and open ended questions. These were

administered personally by the researcher. The respondents were managers of the various

departments in the bank as well as top level management.

3.5 Data Analysis and Presentation

Completed questionnaires were edited for completeness and consistency. The data was

then be coded and checked for coding errors and omissions. The coded data was analyzed

with the help of SPSS version 17, using percentages and mean scores. The mean scores

were used where a likert scale was given. Percentages were used for the other questions.

Factor analysis and measures of central tendency were be used in this study. The results

was then be presented in tables and charts.

3.6 Data validity and reliability

Mugenda and Mugenda (2003) asserted that, the accuracy o f data to be collected largely

depend on the data collection instruments in terms of validity and reliability. Validity as

noted by Robinson (2002) is the degree to which result obtained from the analysis of the

data actually represents the phenomenon under study. Validity was ensured by having

objective questions included in the questionnaire. This was achieved by pre-testing the

instrument to be used to identify and change any ambiguous, awkward, or offensive

questions and technique as emphasized by Cooper and Schindler (2003).

Reliability on the other hand refers to a measure of the degree to which research

instalments yield consistent results (Mugenda & Mugenda, 2003). In this study, reliability

Was ensured by pre-testing the questionnaire with a selected sample from one of the banks

which offer insurance products.

29

CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION OF FINDINGS

4.1 Introduction

The chapter presents the findings o f the study and their interpretation, the objectives of

this study were to assess the extent o f growth of bancassurance in Kenya and to establish

determinants o f growth of bancassurance in Kenya. The researcher made use of

frequency tables, charts and percentages to present data.

Response rate

The researcher targeted a sample o f 11 senior managers from 11 banks out of which 10

responses were obtained. This represented a 90.9% response rate. According to Babbie

(2002) any response of 50% and above is adequate for analysis thus 90.9% is even better.

4.2 General information

Gender of the respondents

Table 4. 1: Gender of the respondents

Frequency PercentFemale 7 70.0Total 3 30.0Male 10 100.0

Source: Author

Figure 4.1 above shows the gender o f the respondents. 70% of the respondents were

female while 30% were males. Majority o f the respondents were female.

30

Age of the respondents

Figure 4. 1: Age of the respondents

Age of the respondents

60

g 40

« 20 Q.10

0

30

10

18 - 27 years 28 - 37 years 38 - 47 years 49 - 57 years

years

Source: Author

On the age o f the respondents as shown in figure 4.2, 10% of the respondents indicated

that they were aged between 18 to 27 years, 50% indicated that they were aged between

28 and 37 years, 30% were aged between 38 and 47 years while 10% were aged between

49 and 57 years. Majority of the respondents were aged between 28 and 37 years.

Education level

Table 4. 2: Education level

Frequency PercentPost-graduate 5 50.0Graduate 5 50.0Total 10 100.0

Source: Author

As shown by table 4.2 above 50% of the respondents were post graduates while 50%

were graduates. None of the respondents indicated that they were undergraduates,

diploma holders, college certificate and ordinary level. This shows that the positions in

these banks were accorded according to the level of education attained.

31

Duration in the organization

Table 4. 3: Duration in the organization

Frequency Percent1-10 yrs 8 80.011-20 yrs 2 20.0Total 10 100.0

Source: Author

On the number of years the respondents had spent in their organizations, 80% of the

respondents indicated that they had spent 1 to 10 years while 20% indicated that they had

spent 11 to 20 years. From these findings we can deduce that majority of the respondents

had spent between 1 to 10 years.

Position held in the organization

Figure 4. 2: Position held in the organization

others

bank assurance manager

human resource manager

finance manager

general manager

Respondents position

Source: Author

As indicated by the findings of this study, 10% of the respondents were working as

banking managers, 10% were working as finance managers, 10% were working as human

resource managers, 50% were working as bank assurance managers and 20% were

Working in other departments. Those working in other departments were working as bank

durance administrator and principle officer.

32

Factors influencing the introduction of bank assurance

4.3 Extent of growth of bancassurance

Table 4. 4: Factors influencing the introduction of bank assuranceFactor Mean Std devIncrease in market share (bank accounts) 3.5 1.08To supplement core business 3.4 1.07Customers to get related services under one roof 4.1 1.29Effectiveness and efficiency in operations 4.22 0.667

Source: Author

Table 4.4. Shows the findings on the extent to which the respondents agreed with the

factors influencing the introduction o f bancassurance. A five point Likert scale was used

to interpret the respondent’s responses. According to the scale, those factors which were

not considered at all were awarded 1 while those which were considered to a very great

extent were awarded 5. Within the continuum are 2 for low extent, 3 for moderate extent

and 4 for great extent. Mean (weighted average) and standard deviation were used to

analyze the data.

According to the researcher those factors with a mean close to 4.0 were rated as to a very

great extent while those with a mean close to 3.0 were rated to a low extent or even not

considered at all. On the same note the higher the standard deviation the higher the level

of dispersion among the respondents. Increase in market share was agreed to a great

extent with a mean of 3.5 and a standard deviation of 1.08, supplementing core business

was agreed with a mean of 3.4 and a standard deviation 1.07, customers getting related

services under one roof was agreed with a mean of 4.1 and a standard deviation of 1.29

and effectiveness and efficiency in operations was agreed with a mean of 4.22 and a

standard deviation o f 0.667.

33

Factor analysis

It is a statistical approach that can be used to analyze interrelationships among a large

number o f variables and to explain these variables in terms of their common underlying

dimensions (factors). The statistical approach involving finding a way of condensing the

information contained in a number of original variables into a smaller set of dimensions

(factors) with a minimum loss of information (Hair et al., 1992).

Communalities of factor variance

Table 4. 5: communalities of factor varianceInitial Extraction

Increase in market share influences introduction o f bank assurance 1.000 .329

To supplement core business influences introduction o f bank assurance 1.000 .852

Customers to get related services under one roof influences introduction of bank assurance 1.000 .904

Effectiveness and efficiency in operations influences introduction of bank assurance 1.000 .988

Extraction Method: Principal Component Analysis. Source: Author

The initial component matrix was rotated using Varimax (Variance Maximization) with

Kaiser Normalization. The above results allowed the researcher to identify what variables

fall under the extracted factor. Each of the 4 variables was looked at and placed to the

factor depending on the percentage of variability. A variable is said to belong to a factor

to which it explains more variation than any other factor.

Each number represents the correlation between the item and the un rotated factor, from

the findings as shown by table 4.5, the correlation between increase in market share

influences introduction of bank assurance and factor 1 was 0.329, the correlation between

To supplement core business influences introduction of bank assurance and a factor 1 is

0-852, the correlation between Customers to get related services under one roof

mfluences introduction of bank assurance and factor lis 0.904 and the correlation

between Effectiveness and efficiency in operations influences introduction of bank

durance and factor 1 is 0.988. These findings show that all the four factors were

34

strongly correlated to factor 1 and a change any of them would subsequently lead to a

change in factor 1.

Table 4. 6: Total Variance

Component

Initial Eigen valuesExtraction Sums of Squared

Loadings

Total% of

VarianceCumulative

% Total% o f

VarianceCumulative

%1 1.899 47.483 47.483 1.899 47.483 47.4832 1.174 29.354 76.837 1.174 29.354 76.8373 .900 22.488 99.3254 .027 .675 100.000Extraction Method: Principal Component Analysis.Source: Author

In table 4.6 above, the researcher used Kaiser Normalization Criterion, which allows for

the extraction o f components that have an Eigen value greater than 1. In the second

column (Eigen value) above, we find the variance on the new factors that were

successively extracted. The principal component analysis was used and two factors were

extracted. In the third column, Eigen values are expressed as a percent o f the total

variance. As shown above, factor 1 account for 47.483 percent of the variance, factor 2

for 29.354 and factor 3 for 22.488 and factor 4 for 0.675. As expected, the sum of the

Eigen values is equal to the number of variables. The third column contains the

cumulative variance extracted. The principal component analysis was used and two

factors were extracted. As the table shows, factor one explain 47.483% of the total

variation while factor two 76.837% of the total variation.

Table 4. 7: Total VarianceComponent

increase in market share influences introduction o f bank assurance

To supplement core business influences introduction o f bank assurance.C om ers to get related services under one roof influences Reduction of bank assurance

ectiveness and efficiency in operations influences introduction of ■^assurance

ction Method: Principal Component Analysis. H^rce: Author

1

-.317

.015

.942

.955

.479

.923

132

.275

gSMVeKSITY OF HA!;t4 K A t i H Tr'C I ion

a 2 components extracted.

The initial component matrix was rotated using Varimax (Variance Maximization) with

Kaiser Normalization. The above results allowed the researcher to identify what variables

fall under the extracted factors. Each of the 4 variables was looked at and placed to the

extracted factor depending on the percentage of variability; it explained the total

variability of the factor. A variable is said to belong to a factor to which it explains more

variation than any other factor.

Each number represents the correlation between the item and the un rotated factor, from

the findings in table 4.7 above, the correlation between Increase in market share

influences introduction of bank assurance and factor 1 is - 0.317, the correlation between

To supplement core business influences introduction of bank assurance and a factor 1 is

0.015, the correlation between Customers to get related services under one roof

influences introduction of bank assurance and factor lis 0.942 and the correlation

between Effectiveness and efficiency in operations influences introduction of bank

assurance and factor 1 is 0.955. These findings show that all the four factors were

strongly correlated to factor 1 and a change any of them would influence a change in

factor 1.

The findings also show that the correlation between increase in market share influences

introduction o f bank assurance and factor 2 is 0.479, the correlation between to

supplement core business influences introduction o f bank assurance and a factor 2 is

0.923, the correlation between Customers to get related services under one roof

mfluences introduction of bank assurance and factor 2 is -0.132 and the correlation

between Effectiveness and efficiency in operations influences introduction of bank

^surance and factor 2 is 0.275. These findings show that all the four factors were

Str°ngly correlated to factor 2 and a change any of them would influence a change infactor 2 .

Benefits of bancassurance

Table 4. 8: Benefits of bancassuranceBenefit mean Std devIncreased sales 3.4 0.966Increased market share (bank accounts) 4.3 0.48Outreach to strategic customers 4.3 0.82Improves operations 4.1 0.737

Source: Author

The researcher requested the respondents to indicate the extent to which they agreed on

the benefits o f associated with bank assurance. Increased sales was agreed with a mean of

3.4 and a standard deviation of 0.966, increased market share was a agreed with a mean

of 4.3 and a standard deviation of 0.48, outreach to strategic customers was agreed with a

mean of 4.3 and a standard deviation of 0.82 and improvement of operations was agreed

with a mean of 4.1 and a standard deviation of 0.737.

Factor analysis

Table 4. 9: Communalities of factor varianceInitial Extraction

Increased sales as a benefit of bank assurance 1.000 .835Increased market share as a benefit o f bank assurance 1.000 .675Outreach for strategic customers as a benefit o f bank assurance 1.000 .554Improved operation as a benefit of bank assurance 1.000 .416Extraction Method: Principal Component Analysis. Source: Author

from the findings as shown by table 4.9, the correlation between increased sales as a

benefit o f bank assurance and factor 1 was 0.835, the correlation between increased

market share as a benefit of bank assurance and a factor 1 is 0.675, the correlation

between outreach for strategic customers as a benefit o f bank assurance and factor 1 is

0-554 and the correlation between Effectiveness and efficiency in operations influences

Production of bank assurance and between improved operation as a benefit o f bank

France factor 1 is 0.416. These findings show that all the four factors were strongly

f ^ f e t e d to factor 1.

37

Table 4. 10: Total Variance

Component

Initial Eigen valuesExtraction Sums of Squared

Loadings

Total% o f

VarianceCumulative

% Total% o f

VarianceCumulative

%1 2.480 61.993 61.993 2.480 61.993 61.9932 .747 18.681 80.6743 .634 15.843 96.5174 .139 3.483 100.000Extraction Method: Principal Component Analysis. Source: Author

As shown above, factor 1 account for 61.993 percent o f the variance, factor 2 for 18.681

and factor 3 for 15.843 and factor 4 for 3.483. As expected, the sum of the Eigen values

is equal to the number o f variables. The principal component analysis was used and one

factor was extracted. As the table shows the factor explain 61.993% of the total variation.

Table 4. 11: Component Matrix

Component1

Increased sales as a benefit o f bank assurance .914Increased market share as a benefit o f bank assurance .822Outreach for strategic customers as a benefit of bank assurance .745Improved operation as a benefit of bank assurance .645Extraction Method: Principal Component Analysis. Source: Author

a 1 components extracted.

The above results allowed the researcher to identify what variables fall under the

extracted factors. Each of the 4 variables was looked at and placed to the extracted factor

depending on the percentage of variability; it explained the total variability of the factor.

A variable is said to belong to a factor to which it explains more variation than any otherfactor.

ach number represents the correlation between the item and the un rotated factor, from

e Endings in table 4.11 above, the correlation between Increased sales as a benefit of

[ assurance and factor 1 is 0.914, the correlation between increased market share as abenefit f l

JT 1 ot bank assurance and a factor 1 is 0.822, the correlation between outreach for stratemp

s c customers as a benefit of bank assurance and factor lis 0.745 and the correlation

between Improved operation as a benefit o f bank assurance and factor 1 is 0.645. These

findings show that all the four factors were strongly correlated to factor 1 and a change

any of them would influence a change in factor 1.

Risks associated with bancassurance

Table 4. 12: Risks associated with bancassuranceRisks Mean Std devOperational inefficiency 3.0 1.05Resistance from customers 3.2 0.919Incurring loss 2.44 0.88Deviation from core business 2.9 1.1

Source: Author

In an effort to establish the risk associated with bancassurance the researcher requested

the respondents to indicate the extent to which they agreed with the stated risks.

Operational inefficiency was agreed to a moderate extent with a mean of 3.0 and a

standard deviation of 1.05, resistance from customers was agreed to a moderate extent

with a mean of 3.2 and a standard deviation of 0.919, incurring loss was agreed low

extent with a mean of 2.44 and a standard deviation of 0.88 and deviation from core

business was agreed with a mean of 2.9 and a standard deviation of 1.1.

Table 4. 13: Communalities of factorsInitial Extraction

Operational inefficiency as a risk associated with business 1.000 .830Resistance from customers as a risk associated with business 1JD00 .915Incurring losses as a risk associated with business 1.000 .878Deviation from core business as a risk associated with business 1.000 .839Extraction Method: Principal Component Analysis.

from the findings as shown by table 4.13, the correlation between Operational

^efficiency as a risk associated with business and factor 1 was 0.83, the correlation

tWeen resistance from customers as a risk associated with business and a factor 1 is

the correlation between incurring losses as a risk associated with business and

P r * is 0.878 and the correlation between deviation from core business as a risk

P la te d with business factor 1 is 0.839. These findings show that all the four factors

e strongly correlated to factor 1.

39

Table 4. 14: Total Variance

Component

Initial Eigen valuesExtraction Sums of Squared

Loadings

Total% o f

VarianceCumulative

% Total% of

VarianceCumulative

%1 1.835 45.880 45.880 1.835 45.880 45.8802 1.628 40.690 86.569 1.628 40.690 86.5693 .509 12.733 99.3024 .028 .698 100.000Extraction Method: Principal Component Analysis.Source: Author

As shown above, factor 1 account for 45.88 percent o f the variance, factor 2 for 40.69

and factor 3 for 12.733 and factor 4 for 0.698. As expected, the sum of the Eigen values

is equal to the number of variables. The principal component analysis was used and one

factor was extracted. As the table shows factor one explain 45.88% of the total variation

while factor 2 explains 86.569% of the total variance.

Table 4. 15: Component MatrixComponent

1 2Operational inefficiency as a risk associated with business .607 .680Resistance from customers as a risk associated with business .789 -.542

Incurring losses as a risk associated with business .411 .842Deviation from core business as a risk associated with business -.823 .403

Extraction Method: Principal Component Analysis. Source: Author

a 2 components extracted.

From the findings in table 4.15 above, the correlation between operational inefficiency as

a risk associated with business and factor 1 is 0.607, the correlation between Resistance

from customers as a risk associated with business and a factor 1 is 0.789, the correlation

between Incurring losses as a risk associated with business and factor lis 0.411 and the

correlation between deviation from core business as a risk associated with business and

factor 1 is 0.823. These findings show that all the four factors were strongly correlated to

tor 1 and a change any of them would influence a change in factor 1.

40

The findings also show that the correlation between operational inefficiency as a risk

associated with business and factor 2 is 0.68, the correlation between resistance from

customers as a risk associated with business and a factor 2 is -0.542, the correlation

between Incurring losses as a risk associated with business and factor 2 is 0.842 and the

correlation between deviation from core business as a risk associated with business and

factor 2 is 0.403. These findings show that all the four factors were strongly correlated to

factor 2 and a change any of them would influence a change in factor 2.

Importance of bancassurance in the organization

Figure 4. 3: Importance of bancassurance in the organization

moderately important very importantimportant

Source: Author

On the importance o f bancassurance in the respondents’ organization, 10% indicated that

it was moderately important, 50% indicated that it was important while 40% indicated

that it was very important. Majority of the respondents indicated that bancassurance was

important.

41

4.4 Determinants of growth of bancassurance

Reception of bancassurance by the customers

Figure 4. 4; Reception of bancassurance by the customers

no reaction liked it liked very much

Source: Author

On the reception of the bancassurance by the customers, 10% of the respondents

indicated that there was no reaction, 70% said that they liked it while 20% indicated that

they liked it so much. Majority of the respondent’s indicated that the customers liked it so

much and hence its adoption.

Prospects of bancassurance

Table 4. 16: Prospects of bancassuranceRisks Yes NoThere is potential for growth 50 50Much need to be done to get it working 60 40Bancassurance remains a side business for banks 20 80Many banks will avoid bancassurance as it leads to losses 30 70Bancassurance is critical for insurance penetration 50 50

Source: Author

50% the respondents agreed that potential growth was a prospect of bancassurance. 60%

°f the respondents also said that much need to be done to get the bancassurance working,

°0/o of the respondents disagreed that bancassurance remains a side business for banks,

7°% disagreed that many banks will avoid bancassurance as it leads to losses and

Reassurance is critical for insurance penetration was agreed by 50%.Regulatory hurdles affect implementation of bancassurance

42

Table 4. 17: Regulatory hurdles affect implementation of bancassuranceMean Std dev

Different regulation agencies making it complex 3.3 1.567No clear regulations 3.1 1.287Not well received by authorities 3.2 1.229Source: Author

Table 4.8 shows the extent to which regulatory hurdles affect implementation of

bancassurance. Different regulation agencies make the implementation of bancassurance

complex was agreed to a moderate extent with a mean of 3.3 and a standard deviation of

1.567, no clear regulations was agreed to a moderate extent with a mean o f 3.1 and a

standard deviation o f 1.287 while not well received by authorities was agreed with a

mean of 3.2 and a standard deviation of 1.229.

Table 4. 18: Communalities of factorsInitial Extraction

Different regulation agencies affect bank assurance implementation complex

1.000 .951

No clear regulations affect bank assurance implementation 1.000 .896

Not being well received by authorities affects bank assurance implementation 1.000 .856

Extraction Method: Principal Component Analysis.

From the findings as shown by table 4.18, the correlation between different regulation

agencies affect bank assurance implementation complex and factor 1 was 0.951, the

correlation between no clear regulations affect bank assurance implementation and a

factor 1 is 0.896, the correlation between not being well received by authorities affects

bank assurance implementation and factor 1 is 0.856. These findings show that all the

three factors were strongly correlated to factor 1.

-Table 4. 19: Total Variance

-S^ponent

Initial Eigen values

Total1.665

% of Variance

55.485

Cumulative%55.485

Extraction Sums of Squared Loadings

Total1.665

% of Variance

55.485

Cumulative%55.485

1.038 34.607 90.092 1.038 34.607 90.092.297 9.908 100.000

^ ‘action Method: Principal Component Analysis. Urce; Author

43

As shown above, factor 1 account for 55.485 percent of the variance, factor 2 for 34.607

and factor 3 for 9.908. The principal component analysis was used and two factors were

extracted. As the table shows factor one explain 55.485% of the total variation while

factor 2 explains 34.607% of the total variance.

Table 4. 20: Component MatrixComponent

1 2Different regulation agencies affect bank assurance implementation complex .472 .853

No clear regulations affect bank assurance implementation -.766 .556Not being well received by authorities affects bank assurance implementation .925 .025

Extraction Method: Principal Component Analysis. Source: Author

a 2 components extracted.

The findings show that the correlation between different regulation agencies affect bank

assurance implementation complex and factor 1 is 0.472, the correlation between no clear

regulations affect bank assurance implementation and a factor 1 is -0.766 and the

correlation between not being well received by authorities affects bank assurance

implementation and factor 1 is 0.925. These findings show that all the four factors were

strongly correlated to factor 1 and a change any o f them would influence a change in

factor 1.

The findings also show that the correlation between different regulation agencies affect

bank assurance implementation complex and factor 2 is 0.853, the correlation between no

clear regulations affect bank assurance implementation and a factor 2 is 0.556 and the

correlation between not being well received by authorities affects bank assurance

lmPlementation and factor 1 is 0.025. These findings show that all the four factors were

srongly correlated to factor 2 and a change any o f them would influence a change in

factor 2.

44

Operational hindrances affect bancassurance

Table 4. 21: Operational hindrances affect bancassuranceMean Std dev

Overlap and confusion 3.9 1.287Cost sharing difficult 3.0 1.41Bancassurance affecting the core business 2.45 1.667Source: Author

Table 4.21 above shows the extent to which the respondents agreed that the operational

hindrances affect bancassurance. Overlap and confusion was agreed to a great extent with

a mean of 3.9 and a standard deviation of 1.287, difficult cost sharing was agreed to a

moderate extent with a mean of 3.0 and a standard deviation of 1.41 and bancassurance

affect the core business was agreed to a low extent with a mean of 2.45 and a standard

deviation of 1.667.

Table 4. 22: Communalities of factorsInitial Extraction

Overlap and confusion 1.000 .823

Cost sharing difficulty 1.000 .377

Bank assurance affecting the core business 1.000 .459

Extraction Method: Principal Component Analysis. Source: Author

From the findings as shown by table 4.22, the correlation between overlap and confusion

and factor 1 was 0.823, the correlation between cost sharing difficulty and a factor 1 is

0.377, the correlation between bank assurance affecting the core business and factor 1 is

0-459. These findings show that all the three factors were strongly correlated to factor 1.

Initial Eigen valuesExtraction Sums of Squared

Loadings

£°2iPonent Total% o f

VarianceCumulative

% Total% o f

VarianceCumulative

%

2

E x t r a c t ; ^ x ,

1.659 55.307 55.307 1.659 55.307 55.307.990.351

33.00111.691

88.309100.000

>Urce Author

As shown above, factor 1 account for 55.307 percent of the variance, factor 2 for 33.001

and factor 3 for 11.691. As expected, the sum of the Eigen values is equal to the number

of variables. The principal component analysis was used and one factor was extracted. As

the table shows factor one explain 55.307% of the total variation.

Table 4. 24: Component Matrix

Component

1Overlap and confusion .907Cost sharing difficulty .614Bank assurance affecting the core business -.678

Extraction Method: Principal Component Analysis. Source: Author

a 1 components extracted.

The findings show that the correlation between overlap and confusion and factor 1 is

0.907, the correlation between Cost sharing difficulty and a factor 1 is 0.614 and the

correlation between bank assurance affecting the core business and factor 1 is -0.678.

These findings show that all the four factors were strongly correlated to factor 1 and a

change any of them would influence a change in factor 1.

Factors contributing to the development of bancassurance

able 4. 25: Factors contributing to the development of bancassuranceFactor Mean Std dev

Economic fundamentals 3.3 0.822Demographic fundamentals 2.7 1.06Product development 3.4 1.17Distribution development 3.8 1.03

Source: Author

In an effort to know the extent to which the factors were contributing to the development

of bancassurance the researcher requested the respondents to rate the factors from very

great extent to no extent at all. The respondents agreed with a mean of 3.3 and a standard

deviation of 0.822 that an economic fundamental was one of the factors contributing to

development of bancassurance. Demographic fundamentals was agreed with a mean of

2.7 and a standard deviation of 1.0601, product development was agreed with a mean of

3.4 and a standard deviation of 1.17 while distribution development was agreed with a

mean of 3.8 and a standard deviation 1.03.

Table 4. 26: Communalities of factorsInitial Extraction

Economic fundamentals contribute to bank assurance development 1.000 .858

Demographic fundamentals contribute to bank assurance development

1.000 .798

Product development contributes to bank assurance development 1.000 .739

Distribution development contributes to bank assurance development

1.000 .831

Extraction Method: Principal Component Analysis. Source: Author

From the findings as shown by table 4.26, the correlation between economic

fundamentals contribute to bank assurance development and factor 1 was 0.858, the

correlation between demographic fundamentals contribute to bank assurance

development and a factor 1 is 0.798, the correlation between product development

contributes to bank assurance development and factor 1 is 0.739 and the correlation

between distribution development contributes to bank assurance development factor 1 is

0.831. These findings show that all the four factors were strongly correlated to factor 1.

Table 4. 27: Total Variance

Component

Initial Eigen valuesExtraction Sums of Squared

Loadings

Total% of

VarianceCumulative

% Total% o f

VarianceCumulative

%1 1.945 48.624 48.624 1.945 48.624 48.6242 1.282 32.051 80.676 1.282 32.051 80.6763 .529 13.225 93.9014 .244 6.099 100.000Extraction Method: Principal Component Analysis.Source: Author

As shown above, factor 1 account for 48.624 percent of the variance, factor 2 for 32.051

and factor 3 for 13.225 and factor 4 for 6.099. As expected, the sum of the Eigen values

is equal to the number of variables. The principal component analysis was used and one

47

factor was extracted. As the table shows factor one explain 48.624% of the total variation

while factor 2 explains 32.051% of the total variance.

Table 4. 28: Component MatrixComponent1 2

Economic fundamentals contribute to bank assurance development -.883 .281

Demographic fundamentals contribute to bank assurance development .853 .265

Product development contributes to bank assurance development .520 .685

Distribution development contributes to bank assurance development .410 -.814

Extraction Method: Principal Component Analysis. Source: Author

a 2 components extracted.

The above results allowed the researcher to identify what variables fall under the

extracted factors. Each o f the 4 variables was looked at and placed to the extracted factor

depending on the percentage of variability; it explained the total variability of the factor.

A variable is said to belong to a factor to which it explains more variation than any other

factor.

From the findings in table 4.28 above, the correlation between Economic fundamentals

contribute to bank assurance development and factor 1 is -0.883, the correlation between

demographic fundamentals contribute to bank assurance development and a factor 1 is

0.853, the correlation between product development contributes to bank assurance

development and factor lis 0.52 and the correlation between distribution development

contributes to bank assurance development and factor 1 is 0.41. These findings show that

all the four factors were strongly correlated to factor 1 and a change any of them would

influence a change in factor 1.

The findings also show that the correlation between Economic fundamentals contribute to

bank assurance development and factor 2 is 0.281, the correlation between demographic

fundamentals contribute to bank assurance development and a factor 2 is 0.265, the

correlation between product development contributes to bank assurance development and

factor 2 is 0.685 and the correlation between distribution development contributes to

48

bank assurance development and factor 2 is -0.814. These findings show that all the four

factors were strongly correlated to factor 1 and a change any of them would influence a

change in factor 1.

Factors affecting market penetration of products

Table 4. 29: Factors affecting market penetration oir productsMean Std dev

Income 3.1 0.994Banking sector development 3.2 1.229Social security system 3.1 1.287Income distribution 2.9 1.197Inflation 3.3 0.948Source: Author

Table 4.29 above shows the factors affect market penetration of the bank products.

Income as a factor affecting market penetration of products was agreed with a mean of

3.1 and a standard deviation of 0.994, banking sector development was agreed with a

mean of 3.2 and a standard deviation of 1.229, social security system was agreed with a

mean of 3.1 and a standard deviation of 3.1 and a standard deviation of 1.297, income

distribution was agreed with a mean of 2.9 and a standard deviation of 1.197 while

inflation was agreed with a mean of 3.3 and a standard deviation of 0.948.

Factor analysis

Table 4. 30: Communalities of factorsInitial Extraction

Income affects market penetration of products 1.000 .787Social security system affects penetration of products 1.000 .840

income distribution affects penetration of products. 1.000 .791inflation affects distribution of products 1.000 .721Extraction Method: Principal Component Analysis. Source: Author

From the findings as shown by table 4.30, the correlation between income affects market

Penetration o f products and factor 1 was 0.787, the correlation between Social security

system affects penetration of products and a factor 1 is 0.84, the correlation between

Income distribution affects penetration o f products and factor 1 is 0.791 and the

correlation between inflation affects distribution of products factor 1 is 0.721. These

findings show that all the four factors were strongly correlated to factor 1.

Table 4. 31: Total Variance

Component

Initial Eigen valuesExtraction Sums of Squared

Loadings

Total% o f

VarianceCumulative

% Total% o f

VarianceCumulative

%1 1.705 42.626 42.626 1.705 42.626 42.6262 1.433 35.833 78.459 1.433 35.833 78.4593 .499 12.484 90.9434 .362 9.057 100.000Extraction Method: Principal Component Analysis. Source: Author

As shown above, factor 1 account for 42.626 percent of the variance, factor 2 for 35.833

and factor 3 for 12.484 and factor 4 for 9.057. As expected, the sum of the Eigen values

is equal to the number of variables. The principal component analysis was used and one

factor was extracted. As the table shows factor one explain 42.626% of the total variation

while factor 2 explains 35.833% of the total variance.

Table 4. 32: Component MatrixComponent

1 2Income affects market penetration of products -.643 .611Social security system affects penetration of products -.105 .910

Income distribution affects penetration of products. .768 .449Inflation affects distribution of products .831 .173Extraction Method: Principal Component Analysis. Source: Author

a 2 components extracted.

From the findings in table 4.32 above, the correlation between Income affects market

penetration of products and factor 1 is -0.643, the correlation between Social security

system affects penetration o f products and a factor 1 is -0.105, the correlation between

Income distribution affects penetration of products and factor lis 0.768 and the

correlation between inflation affects distribution of products and factor 1 is 0.831. These

Findings show that all the four factors were strongly correlated to factor 1 and a change

^ 7 of them would influence a change in factor 1.

50

The findings also show that the correlation between Income affects market penetration of

products and factor 2 is 0.611, the correlation between Social security system affects

penetration of products and a factor 1 is 0.91, the correlation between Income distribution

affects penetration of products and factor lis 0.449 and the correlation between inflation

affects distribution of products and factor 1 is 0.173. These findings show that all the four

factors were strongly correlated to factor 2 and a change any of them would influence a

change in factor 2.

Average number of policies

■ less than 1000

M 1000 to 3000

Source: Author

The response on the average number of policies sold per year was as follows; 10% of the

respondents indicated less than 1000 while 90% indicated 1000 to 3000. Majority of the

respondents indicated that they sold 1000 to 3000 policies per year. The respondents also

indicated that the business should be embraced fully to realize long term benefits of

increased penetration levels.

51

CHAPTER FIVE

DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter presented the discussion of key data findings, conclusion drawn from the

findings highlighted and recommendation made there-to. The conclusions and

recommendations drawn were focused on addressing the objectives which were to assess

the extent of growth of bancassurance in Kenya and to establish determinants of growth

of bancassurance in Kenya.

5.2 Discussions of Key Findings

From the findings o f this study majority of the respondents were aged between 28 and 37

years and their level o f education were graduates and postgraduate. None of the

respondents indicated that they were undergraduates, diploma holders, college certificate

and ordinary level. This shows that the positions in these banks were accorded according

to the level of education attained. The study also realized that majority of the respondents

had a working experience of between 1 and 10 years. This shows that the respondents had

the required information about bancassurance.

The factors influencing the introduction of bancassurance include; increase in market

share, supplementing core business, customers getting related services under one roof and

effectiveness and efficiency in operations.

The benefits of bancassurance were found to be; increased sales, increased market share,

outreach to strategic customers and improvement of operations. The risks associated with

bancassurance are; operational inefficiency, resistance from customers, incurring loss and

core business. The study also revealed that bancassurance was important in the banks

growth.

From the findings o f the study bank customers had liked bancassurance and majority of

them liked it so much. The study realized that potential growth was a prospect of

52

bancassurance and that much need to be done to get the bancassurance working.

Bancassurance remains a side business for banks and its critical for insurance penetration.

On the extent to which regulatory hurdles affect implementation of bancassurance,

different regulation agencies make the implementation of bancassurance complex was

agreed to a moderate extent with a mean of 3.3 and a standard deviation of 1.567, no

clear regulations was agreed to a moderate extent with a mean of 3.1 and a standard

deviation of 1.287 while not well received by authorities was agreed with a mean of 3.2

and a standard deviation o f 1.229.

On the extent to which the respondents agreed that the operational hindrances affect

bancassurance, overlap and confusion was agreed to a great extent with a mean o f 3.9 and

a standard deviation o f 1.287, difficult cost sharing was agreed to a moderate extent with

a mean of 3.0 and a standard deviation of 1.41 and bancassurance affect the core business

was agreed to a low extent with a mean of 2.45 and a standard deviation of 1.667.

In an effort to know the extent to which the factors were contributing to the development

of bancassurance the researcher requested the respondents to rate the factors from very

great extent to no extent at all. The respondents agreed with a mean of 3.3 and a standard

deviation of 0.822 that an economic fundamental was one o f the factors contributing to

development of bancassurance. Demographic fundamentals was agreed with a mean of

2.7 and a standard deviation o f 1.0601, product development was agreed with a mean of

3.4 and a standard deviation o f 1.17 while distribution development was agreed with a

mean of 3.8 and a standard deviation 1.03.

On the factors that affect market penetration of the bank products, income as a factor

affecting market penetration of products was agreed with a mean of 3.1 and a standard

deviation of 0.994, banking sector development was agreed with a mean of 3.2 and a

standard deviation o f 1.229, social security system was agreed with a mean of 3.1 and a

standard deviation of 3.1 and a standard deviation of 1.297, income distribution was

agreed with a mean o f 2.9 and a standard deviation of 1.197 while inflation was agreed

wdh a mean of 3.3 and a standard deviation o f 0.948.

Majority of the respondents indicated that they sold 1000 to 3000 policies per year. The

respondents also indicated that the business should be embraced fully to realize long term

benefits of increased penetration levels.

5.3 Conclusion

The study revealed that bancassurance was a core product in the growth o f banks. 11

banks out of 45 commercial banks in Kenya had embraced bancassurance. This study

therefore concludes that banks in Kenya were still in the process of embracing

bancassurance. The growth of bancassurance had been influenced by increasing market

share, supplementing core business of the banks, customers getting related services under

one roof and effectiveness and efficiency in operations. Banks have been benefiting from

bancassurance by getting increased sales, increased market share, outreach to strategic

customers and improvement of operations. Though banks have been embracing

bancassurance there are risks involved which hinder its growth. These risks include;

operational inefficiency, resistance from customers, incurring loss and enhancement of

the core business o f the bank.

Customers in most o f the banks had embraced bancassurance and they liked it. This study

revealed that that potential growth was a prospect of bancassurance and that much need

to be done to get the bancassurance working. Bancassurance remains a side business for

banks and it’s critical for insurance penetration. A major determinant of growth of

bancassurance was that regulatory hurdles affect implementation of bancassurance,

different regulation agencies make the implementation of bancassurance complex, there

were no clear regulations and bancassurance was not well received by authorities.

This study also concludes that the factors affecting bancassurance include; operational

hindrances, overlap and confusion and difficult cost sharing. This study also realized that

the factors contributing to the development of bancassurance included; economic

fundamental, demographic fundamentals, product development and distribution

development. The study revealed that the factors that affect market penetration of the

bank products are; income, banking sector development, social security system, income

distribution and inflation. Majority of the banks were selling 1000 to 3000 policies per

year.

5.4 Recommendation

This researcher study recommends that;

Commercial banks in Kenya should embrace bancassurance as one of the products in the

banks. Due to the increased competition in commercial banks should embrace

bancassurance as a competitive strategy. The banks will benefit from bancassurance by

increasing sales, increasing market share and improving operations.

To improve the development of bancassurance in banks should emphasize on economic

fundamental, product development and distribution development.

Commercial banks should embrace bancassurance as a tool to increase market

penetration of their products

The government should form clear regulations for bancassurance. This is because

regulatory hurdles affect implementation of bancassurance.

5.5 Recommendations for further research studies

From the study and related conclusions, the researcher recommends further research in

the area o f growth o f bancassurance in Kenya. Further researcher studies should be done

on the relationship between bancassurance and the financial performance of the banks.

55

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APPENDICIES

Appendix I: Existing Commercial Banks

1. ABC Bank

2. Bank of Africa Kenya

3. BankofBaroda

\. Bank of India

5. Barclays Bank of Kenya

5. Chase Bank

1. Citibank N.A.

3. City Finance Bank

). CFC-Stanbic Bank

.0. Co-operative Bank o f Kenya

1. Commercial Bank O f Africa

2. Consolidated Bank o f Kenya

3. Credit Bank

4. Development Bank o f Kenya

5. Diamond Trust Bank o f Kenya

6. Dubai Bank Kenya

7. Equatorial Commercial Bank

8. Equity Bank

9. Ecobank

:0. Family Bank

1. Fidelity comm. Bank

■2. First Community Bank

;3. Fina Bank

'4. Guardian Bank

■5. Giro Commercial Bank

•6- Gulf African bank

■2. Habib A.G. Zurich

Habib Bank Kenya

63

29. Imperial Bank

3 0 .1 & M. Bank

31. K-Rep Bank

32. Kenya Commercial Bank

33. Middle East Bank

34. National Bank o f Kenya

35. N.I.C. Bank

36. Oriental Commercial Bank

37. Paramount Universal bank

38. Prime Bank

39. Southern Credit bank

40. Standard Chartered Bank

41. Trans-National Bank

42. UBA bank

43. Victoria Commercial Bank

Appendix II: Questionnaire for Manager

PART A: Biodata

1. Gender

Male ( )

Female ( )

2. Age

18-27 ( )

28-37 ( )

38-47 ( )

48-57 ( )

Above 58 ( )

3. Education level

Post -graduate ( >

Graduate ( )

Under-graduate ( )

Diploma /college certificate ( )

Ordinary level ( )

Other (specify)..........................

4. Number of years in the organization

1-10 ( )

11-20 ( )

21-30 ( )

65

31-40

Above 40 years ( )

PART B: Questions related to objective one

5. What is the position held in the organization?

( )

General Manager

Finance manager’ [ ]

Marketing manager [ ]

Human resource manager [ ]

Bancassurance manager [ ]

Any other (kindly specify)...........................................................................

6. To what extent did the following factors influence the introduction of bancassurance?

Rank them in the range 1-5 where 1 is least preferred while 5 is most preferred.

Factor 1 2 3 4 5

Increase in market share (bank accounts)

To supplement core business

Customers to get related services under

one roof

Effectiveness and efficiency in operations

Any other factor (specify)...........................................................................................

7. To what extent would you rank the following benefits associated with bancassurance?

Rank them in the range 1-5 where 1 is least preferred while 5 is most preferred.

6 6

Benefit 1 2 3 4 5

Increased sales

Increased market share (bank accounts)

Outreach to strategic customers

Improves operations

Any other benefit (specify)

8. What are the risks associated with this business?

Risks 1 2 3 4 5

Operational inefficiency

Resistance from customers

Incurring loss

Deviation from core business

Any other (specify)............................................................................................................

9. In your own opinion, kindly rate in a scale of 1-5 the importance that your

organization attaches to bancassurance?

1. Not important at all ( )

2. Less important ( )

3. Moderately important ( )

4. Important ( )

5. Very important ( )

67

10. What kind of reception did bancassurance get from your customers?

Did not like it at all ( )

No reaction ( )

Liked it ( )

Liked very much ( )

11. In your own opinion, what are the prospects for bancassurance?

There is potential for growth ( )

Much need to be done to get it working ( )

Bancassurance remains a side business for banks ( )

Many banks will avoid bancassurance as it leads to losses ( )

Bancassurance is critical for insurance penetration ( )

12. To what extent do the following regulatory hurdles affect implementation of

bancassuarance? Rank them in the range 1 to 5 where 1 is least preferred while 5 is

most preferred.

1 2 3 4 5

Different regulation agencies

making it complex

No clear regulations

Not well received by

authorities

Any other (specify)

6 8

13. To what degree do the following operational hindrances affect bancassurance? Rank

them in the range 1 - 5 where 1 is least preferred while 5 is most preferred.

1 2 3 4 5

Overlap and confusion

Cost sharing difficult

Bancassurance affecting the core

business

14. To what extent do the following factors contribute to the development of

bancassrance in your company? Rank them in the range 1 - 5 where 1 is least

preferred while 5 is most preferred.

Factor 1 2 3 4 5

Economic fundamentals

Demographic fundamentals

Product development

Distribution development

15. To what extent do you think the following factors affect market penetration of your

product?

69

1 2 3 4 5

Income

Banking sector development

Social security system

Income distribution

inflation

16. Average number o f policies sold every year?

less than 1000 ( )

1000-3000 ( )

3001-5000 ( )

Over 5000 ( )

17. Any other comments

Thank you fo r your time

70

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Appendix iv

question6

Communalities

Initial ExtractionIncrease inmarket share influences introduction of bank assurance

1.000 .329

To supplement core business influences introduction of bank assurance

1.000 .852

Customers to get related services under one roof influences introduction of bank assurance

1.000 .904

Effectiveness and efficiency in operations influences introduction of bank assurance

1.000 .988

Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings

Component Total % of Variance Cumulative % Total % of Variance Cumulative %1 1.899 47.483 47.483 1.899 47.483 47.4832 1.174 29.354 76.837 1.174 29.354 76.8373 .900 22.488 99.3254 .027 .675 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

— >-------Component

1 2Increase inmarket share influences introduction of bank assurance

-.317 .479

To supplement core business influences introduction of bank assurance

.015 .923

Customers to get related services under one roof influences introduction of bank assurance

.942 -.132

Effectiveness and efficiency in operations influences introduction of bank assurance

.955 .275

Extraction Method: Principal Component Analysis, a 2 components extracted.

question 7Communalities

Initial ExtractionIncreased sales as a benefit of bank assurance 1.000 .835

Increased market share as a benefit of bank assurance 1.000 .675

Outreach for strategic customers as a benefit of bank assurance

1.000 .554

Improved operation as a benefit of bank assurance 1.000 .416

Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared LoadingsComponent Total % of Variance Cumulative % Total % of Variance Cumulative %1 2.480 61.993 61.993 2.480 61.993 61.9932 .747 18.681 80.6743 .634 15.843 96.5174 .139 3.483 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

* Component

1Increased sales as a benefit of bank assurance .914

Increased market share as a benefit of bank assurance .822

Outreach for strategic customers as a benefit of bank assurance

.745

Improved operation as a benefit of bank assurance .645

Extraction Method: Principal Component Analysis, a 1 components extracted.

question 8

Communalities

Initial ExtractionOperational inefficiency as a risk associated with business

1.000 .830

Resistance from customers as a risk associated with business

1.000 .915

Incurring losses as a risk associated with business 1.000 .878

Deviation from core business as a risk associated with business

1.000 .839

Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings

Component Total % of Variance Cumulative % Total % of Variance Cumulative %1 1.835 45.880 45.880 1.835 45.880 45.8802 1.628 40.690 86.569 1.628 40.690 86.5693 .509 12.733 99.3024 .028 .698 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

Component

1 2Operational inefficiency as a risk associated with business

.607 .680

Resistance from customers as a risk associated with business

.789 -.542

Incurring losses as a risk associated with business .411 .842

Deviation from core business as a risk associated with business

-.823 .403

Extraction Method: Principal Component Analysis, a 2 components extracted.

question 11Communalities

Initial ExtractionThere is a potential for growth with implementation of bank assurance 1.000 .883

There is much need to get bank assurance working 1.000 .917

Bank assurance remains a side business for banks 1.000 .844

Many banks wiil avoid bank assurance as it leads to losses

1.000 .818

Bank assurance is critical for insurance penetration 1.000 .174

Extraction Method: Principal Component Analysis.

Total Variance Explained

Component

Initial Eigenvalues Extraction Sums of Squared LoadingsTotal % of Variance Cumulative % Total % of Variance Cumulative %

1 2.477 49.534 49.534 2.477 49.534 49.5342 1.160 23.208 72.742 1.160 23.208 72.7423 .992 19.831 92.572 s

4 .245 4.903 97.4755 .126 2.525 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

Component

1 2There is a potential for growth with implementation of bank assurance -.243 .908

There is much need to get bank assurance working .956 .046

Bank assurance remains a side business for banks -.901 .181

Many banks wiil avoid bank assurance as it leads to losses

.730 .534

Bank assurance is critical for insurance penetration -.398 .128

Extraction Method: Principal Component Analysis, a 2 components extracted.

question 12

Communalities

Initial ExtractionDifferent regulation agencies affect bank assurance implementation complex

1.000 .951

No clear regulations affect bank assurance implementation

1.000 .896

Not being well received by authorities affects bankassurance implementation 1.000 .856

Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings

Component Total % of Variance Cumulative % Total % of Variance Cumulative %1 1.665 55.485 55.485 1.665 55.485 55.4852 1.038 34.607 90.092 1.038 34.607 90.0923 .297 9.908 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

Component

1 2Different regulation agencies affect bank assurance implementation complex

.472 .853

No clear regulations affect bank assurance implementation

-.766 .556

Not being well received by authorities affects bank assurance implementation .925 .025

Extraction Method: Principal Component Analysis, a 2 components extracted.

question 13Communalities

Initial ExtractionOverlap and confusion as an operational hinderance to bank assurance 1.000 .823

Cost sharing difficulty as an operational hinderance to bank assurance 1.000 .377

Bank assurance affecting the core business as an operational hinderance to bank assurance

1.000 .459

Extraction Method: Principal Component Analysis.

Total Variance Explained

Component

Initial Eigenvalues Extraction Sums of Squared Loadings

Total % of Variance Cumulative % Total % of Variance Cumulative %1 1.659 55.307 55.307 1.659 55.307 55.3072 .990 33.001 88.3093 .351 11.691 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

Component

1Overlap and confusion as an operational hinderance to bank assurance .907

Cost sharing difficulty as an operational hinderance to bank assurance .614

Bank assurance affecting the core business as an operational hinderance to bank assurance

-.678

Extraction Method: Principal Component Analysis, a 1 components extracted.

question 14

Communalities

Initial ExtractionEconomic fundamentals contribute to bank assurance development

1.000 .858

Demographic fundamentals contribute to bank assurance development

1.000 .798

Product development contributes to bank assurance development

1.000 .739

Distribution development contributes to bank assurance development

1.000 .831

Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings

Component Total % of Variance Cumulative % Total % of Variance Cumulative %1 1.945 48.624 48.624 1.945 48.624 48.6242 1.282 32.051 80.676 1.282 32.051 80.6763 .529 13.225 93.9014 .244 6.099 100.000

Extraction Method: Principal Component Analysis.

Component Matrix(a)

Component

1 2Economic fundamentals contribute to bank assurance development

-.883 .281

Demographic fundamentals contribute to bank assurance development

.853 .265

Product development contributes to bank assurance development

.520 .685

Distribution development contributes to bank assurance development

.410 -.814

Extraction Method: Principal Component Analysis, a 2 components extracted.

question 15Communalities

Initial ExtractionIncome affects market

1.000 .787penetration of products

Social security systemaffects penetration of products

1.000 .840

Income distributionaffects pentration of products.

1.000 .791

Inflation affrects1.000 .721distributon of products

Extraction Method: Principal Component Analysis.

Total Variance Explained

Component

Initial Eigenvalues Extraction Sums of Squared Loartm~_

Total % of Variance Cumulative % Total % of Variance Cumulatjvr o/01 1.705 42.626 42.626 1.705 42.626 42.6262 1.433 35.833 78.459 1.433 35.833 78.4593 .499 12.484 90.9434 .362 9.057

'.n m n n n o n t A riolw

100.000

Component Matrix(a)

Component

1 2Income affects market penetration of products -.643 .611

Social security system affects penetration of products

-.105 .910

Income distribution affects pentration of products.

.768 .449

Inflation affrects distributon of products .831 .173

Extraction Method: Principal Component Analysis, a 2 components extracted.