BANCASSURANCE IN PAKISTANBANCASSURANCE IN PAKISTANPROSPECTS FOR LIFE INSURANCEPROSPECTS FOR LIFE INSURANCE

Mohammed Ali AhmedGeneral Manager, EFU Life Assurance LtdKarachi Insurance Institute – 23 February 2011

Introduction Worldwide experience Evolution and current scenario in Pakistan Products Sales models Technology Challenges SECP’s role The next 3 years

Definitions of bancassurance

Collaboration between Bank and Insurer to distribute insurer’s products Insurer – provider of products and services –

insurance risk taker Bank – distributor

Level of collaboration can vary from “basic” level to high level “integration”

Introduction

Benefits to all parties

•Fee based income•Low capital – high ROE• Improved customer service – Culture shift• Market opportunity• Customer expectation• Success in markets around the world

• New distribution channel• A ‘warm’ customer base• Better persistency• Higher premiums• Profitable Growth• Competitive products• Success in markets around the world

•Changing attitudes & awareness • Want options• One stop financial service• Trust banks

Banks Insurance Companies

Customers

Depth of relationshipDistribution Agreement

“Playing the field”This can be likened to the early days of youth when it is normal to have a number of different relationships.

Loyalty is pretty low and long term commitment rarely a consideration.

Temptation to switch partners for a “prettier” one

Strategic Alliance“Going steady”

Having played the field for a while, it is likely that one partner will demonstrate the best ‘fit” in terms of commitment, attention, behaviour and attitude.

The relationship develops to a point where each understands the other a little better and both start to consider the others’ needs and aspirations.

Loyalty sets in and plans for the longer term begin.

Joint Venture“Moving in”

Once “courting” has been going on for a while, it is natural to settle down with one partner and start enjoying an even closer relationship.

Both partners get to know each other intimately and a relationship of mutual trust and respect develops. Any problems or difficulties are resolved jointly and amicably.

100% Fully OwnedFinancial Services Group

“Go alone”Marriage brings about a whole raft of new responsibilities and a relationship that should be built on a secure foundation.

Both partners look for ways to get more out of each other and to contribute to a long and prosperous relationship.

“One to One” – Exclusive model

“One to Many”

“Many to Many” – Open architecture model

Depth of relationship

International experience

Sales via Bank Channels

BancassuranceBancassurance has been well established in Europe, Far East, and growing in India and Middle East.

International experience

Bancassurance share in European life insurance market

International experience

Bancassurance share in emerging markets, 2005

International experience

Bancassurance target markets, 2007

Evolution in Pakistan

Evolution has seen product offering move from “Simple” to “Sophisticated” products over the last 15 years

Major thrust has been from 2007 onwards with business volumes increasing exponentially

1996

1999

2000

2003

Depositor’s Insurance

Credit Life Mail Inserts Bancassurance Agreements

2011

16 Banks active

Banks active in Bancassurance

Life Bancassurance in Pakistan

Bancassurance

Sales agents

Bancassurance

Sales agents

New Business - 2010

Private sector only

Total Industry

Active life companies

EFU Life

NJI Life

ALICO

State Life is exploring to enter

Target Market

Target Market for Bancassurance

Existing Bank customers

Potential Bank customers

Target market is spread across all lines of bank business

Key to success in bancassurance is to identify the opportunities available in the bank customer base and offer the right financial planning solution

Customer segmentation

Possible approaches

“Slicing” of Bank Database

Targeting Customer Life Stage

Event Trigger Approach

Which one is correct ? – depends on the bank, its target market and strategy to banking and bancassurance

All or a combination of the above can be used

“Slicing” of bank database

Professionals

Self-employed

Government Employees

Businessmen

Students

Segmentation by worth to bank

Segmentation by occupation / role in society

“Preferred Banking” or “General Banking”

Targeting customer life stage

Student

Young, Single

Young, married with family

Wealth Accumulation stage

Wealth Management stage

Retirement

Event trigger approachBirth

Admission to University

Wedding

New Job

Purchase of House

Career Change

Business Set-up

Loss of Property

Retirement

Grandchildren

Death

Customer life cycle and financial needs

Life Products

Bundled with bank products

- deposits- credit cards- mortgages- personal loans

Active selling:- Personal accident- Term life

Advice products:- Savings,

Investments- High risk cover

Simple Sophisticated

Life Cycle Financial Needs Product Solution

Life cycle segment

Financial Needs Product Solutions

Young singles Discretionary Income for ConsumptionCash accessRegular savingsCar purchase

Current account / ATMDebit / credit cardSavings facilityCar insurance

Couples (no children) As above +High level savings & investmentHouse purchase

As above +Investment linked plansDeposit savings accountMortgageTravel , Mortgage Insurance

Families (young children)

Family protectionMortgage ProtectionAccess to cash

Education PlanningHealth insuranceDisability Income insurance

Families (older children)

As above +School / College expenses

As above +Investment Products

Pre-retirees (empty-nest)

Maximize savings for retirement Additional pension fundcontributionsInvestment Products

Retirees Regular income in retirement Annuities

Technology

Key initiatives which can assist in distribution:

Point of Sale (POS) system

Website

Mobile phone

Product complexity and distribution channels

Sales models – Branch distribution

Referral model:

Bank only generates leads and passes to insurer

Trained insurance company’s consultants convert lead to sales

Bank’s role is limited with little or no involvement in sales mattersDirect Sales model:

Bank generates leads and converts to sales

Bank has robust sales management setup with it’s own sales team

Sales numbers are driven to quite an extent by bank

Referral model

Product managementProduct management

Sales managementSales management

Bancassurance managementBancassurance management

OperationsOperations MarketingMarketing

High Medium

Low

Involvement from bank’s side

Direct Sales model

Product managementProduct management

Sales managementSales management

Bancassurance managementBancassurance management

OperationsOperations MarketingMarketing

High Medium

Low

Involvement from bank’s side

Alignment of vision Management structure in banks Banks’ expectations Product value Persistency System /Operations constraints Change of personnel Conflict with other sales channels

Challenges

“Short term” vs “Long term” vision Executive level commitment Financial sustainability of model Acceptance of “insurance” as a product –

cultural shift

Alignment of vision

Bancassurance management structureOwnership and accountability for the

business modelHOCBHOCB

Dedicated Dedicated Bancassurance Bancassurance

Management TeamManagement Team

BranchesBranches

Sales teamSales team

OperationsOperations Product managementProduct management

Financial Focus mainly on first year remuneration

margins Bargaining tool TAT and client servicing aspects Strong ownership of client

Banks’ expectations

Cost saving to be reflected in better product value

Banks willing to reduce policyholder value in return for higher commission???

Product value

Limited focus of banks on persistency Persistency is key for life insurance company Insurer has to make significant efforts to

make the bank realize the importance of this KPI

Good persistency can result in repeat sales and flow of renewal income

Persistency

Direct debit systems do not always work efficiently

Weaknesses in operations setup No or limited MIS setup – reliance on insurer

Systems / Operations constraints

Conflicts with insurers’ other distribution channels

Sales agency channel Banks approach an existing client of sales

agency Sales agents approach an existing client of

bank Insurer has to maintain delicate balance Give preference to customer choice of channel

Conflicts with other sales channels

Business model usually driven by personnel rather than institution – not the ideal setup

Only some banks have a strategic executive level focus on bancassurance

Change of bancassurance team in bank can lead to disruptions in business

New team may have different strategy and vision

Also may have preference for another insurer! Insurer has to build relationships once again

Change of personnel

SECP has played a very positive role in promoting bancassurance

Pakistan is one of very few countries to have guidelines from regulator

Guidelines will bring discipline in the market All important areas are now streamlined and

under regulatory supervision

Role of SECP

Channel will continue to grow and gain prominence

For private sector will contribute major part of new business

State Life will also make an entry Technology will be key – Point of Sale systems

will be common New business expected to double from Rs. 2.8

billion in 2010 to Rs. 5.6 billion in 2013 from private sector companies

Next 3 years

Thank you!