Cover story Bancassurance in the GCC: Clearing the hurdles to success

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Insurers and banks in the GCC are finding it lucrative to enter into bancassurance partnerships, but while promising, the channel is in need of strong regulations. By Cynthia Ang Although agents and brokers are still the main distribution channels in the Gulf, insurers and banks are increasingly finding bancassurance attractive and profitable. Mr Saurabh Saran, Chief Services Officer & Head - Alternative Distribution with Abu Dhabi National Insurance Co (ADNIC), says: More or less, every bank in the region today looks at bancassurance as an opportunity worth pursuing seriously. The growth of bancassurance was initially led by multinational banks and insurance companies. Now, local players have become formidable participants in the arena. Cost is a key factor, as bancassurance provides insurers access to a large pool of customers and is therefore relatively inexpensive. Mr Shyam Sankar, Head of Bancassurance & Retail for Allianz Takaful in Bahrain, elaborates: As the resource costs for setting up a direct distribution are comparatively high, insurers look out for less fixed-cost-driven channels, as well as strong distribution partners who know their customers well. A boost for insurance Bancassurance is likely to increase insurance penetration in the region which stands at a low 1%-2%, compared to 8%-15% in more mature markets. A large part of the market is driven by protection products sold at the time of taking a mortgage or personal loan. As customers financial needs mature, there will be growing needs for life, pensions and education products, says Mr Bharat Khosla, Regional Head of Insurance, HSBC Bank Middle East. Mr Robin Ali, Ernst & Youngs Senior Manager, MENA Insurance, says: Banks could play a more important part in increasing insurance coverage. The best-case scenario would be if banks generate sales from people who currently do not have sufficient coverage.

On the other hand, there is the danger that banks will merely take business away from existing distribution channels such as agents, brokers and the insurers themselves. Mr Saran points out that growth potential lies in integrating the product suite of insurers life, general and medical across all lines of business of the banks, including retail, SME, corporate and wealth. Mr Bernard J Camaret, MetLife Alico MEASAs Regional Vice President, Bancassurance, says: The UAE presents unique opportunities with 80% expatriates, who need to build long-term savings, secure protection for them and their families, and elect some retirement solutions, while they are actively employed in the UAE. The expatriate segment who spend an average three to four years in the UAE and require permanent and global insurance solutions, which global bancassurers in the UAE have vocation to provide. Ingredients for success Insurers should be flexible enough to support their banking partners with the required products, says Mr Sankar. A bank can sell all insurance products, but it is a matter of marrying products that suit the distribution channels within the bank. He adds that in the GCC, with its aggressive banking system and higher income levels, banks opt for those insurance providers who understand their customers and are ready to customise their product offerings. Some banks even set up their own insurance companies or enter into a JV, though capital intensive, to earn higher fee-based income as well as profit share. To capitalise on the opportunities, banks and insurance companies need to do more to improve their product offerings and supporting services. As Mr Ali of Ernst & Young points out, many banks do not have sufficiently sophisticated customer profiling capabilities, which means that customers often receive poorly targeted sales calls that tend to annoy. Mr Saran adds that intensive training should be conducted by insurance companies to address the product-related gaps and the approaches needed to sell insurance products. Know the cultural differences Cultural differences between insurance and banking industries in the GCC

are similar to other markets around the world, says Mr Camaret. But these differences disappear if there is a common focus on the customer, which should drive any successful bancassurance strategy. Insurers must also accept that bancassurance remains a subset of banks strategies. Some common cultural differences between banks and insurers stem from the nature of products, strategies and revenue recognition, says Mr Sankar. For instance, bank products are mainly short- to medium-term plans, while insurance products are more medium- to long-term in nature. This could really put off some of the banks from selling insurance products. In addition, banks and insurers have different marketing strategies. For example, insurers tend to have more aggressive sales strategies compared to banks. Both parties should identify this and be ready with solutions even before entering into the bancassurance agreement, he says. Another difference is that banks possess good information about their customers and can leverage that to cross-sell and up-sell, while comparatively, insurers have little information about their individual customers, observes Mr Saran. Also, banks have short and frequent client contacts across various touch points, while insurers have long but infrequent client contacts. Due to the nature of business, banks are perceived as problem-solvers, while insurers are seen as product sellers, he notes. Foreign influence International players have expanded their presence in the GCC during the last five to 10 years, bringing with them their knowledge about bancassurance. Foreign insurers come with expertise which enhances their bancassurance setup, especially with international banks, Mr Sankar of Allianz Takaful says. Generally, the trend in this region is that foreign insurers who have bancassurance agreements with international banks dominate the market. However, there are a few strong local insurers who also do bancassurance with leading regional and international banks. Mr Camaret says global insurers access to other markets products and best practices allow for faster implementation of proven solutions. Moreover, foreign insurers are likely to adopt more stringent regulations in term of data protection based on their experience in more mature markets.

However, foreign insurers can sometimes misunderstand the local markets or can be perceived to be doing so. Local insurers have a better understanding of local needs, but generally do not benefit from the advantages that an international presence can bring, says Mr Ali. Regulations still undeveloped Bancassurance is still not formally regulated in the GCC. Existing initiatives and guidance from the regulators in the GCC vary between countries some have been proactive in regulating the sales of insurance products through banks, while others have not. There is very little in regard to rules on market conduct and consumer protection, although some jurisdictions such as Bahrain have introduced a system of appointed representatives for distributors of insurance product s, says Mr Ali. Oman is a step ahead in regulating the bancassurance business, says Mr Saran of ADNIC. Its Capital Market Authority (CMA) issued bancassurance directives in May 2010, allowing an insurer to tie up with one or more banks licensed in Oman to market one or more insurance products. The directives also allow a number of products to be marketed, including life, endowment and medical plans, as well as personal lines including household and motor insurance. The CMA believes the rules will spread insurance awareness into Omans rural areas, enabling insurers to penetrate markets outside Muscat and other cities. It also believes that the greater sales volumes by banks will help lower the prices of insurance products. In the UAE, the way that bancassurance is regulated is under review, while in Qatar, the central bank recently announced that only Islamic financial institutions would be able to distribute takaful products. Regulators can do more to facilitate distribution and increase consumer confidence, says Mr Ali. While I am not advocating UK- or European-style regulation of the sales process, some basic steps could be taken, such as licensing salespeople and requiring a basic level of education. This does not even have to be prescribed by regulations, as long as banks can demonstrate a robust system that meets defined standards, he explains. A bankable future Despite the general lack of proper regulations for bancassurance in the

GCC, the outlook is positive. Mr Khosla of HSBC Bank says the large growth potential has yet to be realised, and there are opportunities for the market to develop more rapidly and achieve higher standards in terms of products and services. Both insurers and banks are focusing more on bancassurance, says Mr Sankar. Customer awareness is also increasing, and if banks can really provide value-add in their offerings, bancassurance is going to grow rapidly. Mr Ali adds: If more facilitative regulations are developed and the banks improve their marketing capabilities by better understanding and responding to customer needs, then bancassurance as a distribution channel will lead the growth of insurance sales in the region. To further realise the potential in bancassurance, win-win partnerships and sound regulatory guidance are key. Bancassurance partnerships in the GCC Some examples Bahrain January 2011 u Bahrain-based retail and commercial bank BBK inked an MoU with Bahrain Kuwait Insurance Co (BKIC) to expand their partnership, established in 2000 2004 u The National Bank of Bahrain signed an agreement with Bahrain National Holding. Under the agreement, both parties introduced a number of insurance products and services, starting with motor insurance. Kuwait 2010 u Gulf Bank signed a distribution agreement with American Life Insurance Co (Alico) to provide its customers with a wide range of bancassurance products. Boubyan Bank has a 56.78% stake in Boubyan Takaful Insurance Co. AIG and Al Safat Takaful are partners with Commercial Bank of Kuwait (CBK). CBK holds a 10% stake in Al Safat. Oman 2007 u BankMuscat tied up with National Life & General Insurance Co to offer a comprehensive suite of life and non-life products to its customers. 2005 u Oman International Bank, in partnership with Muscat Insurance and Muscat Life Assurance, launched products under the brand, Aman Bancassurance.

Qatar January 2011 u HSBC and Allianz Takaful partnered to promote Islamic insurance products. 2010 u Allianz Takaful announced an exclusive five-year partnership with Standard Chartered Bank to promote and sell its insurance products under Standard Chartered Banks bancassurance portfolio. 2007 u Doha Banks 100% general insurance subsidiary, Doha Bank Assurance Co, was authorised by the QFC Regulatory Authority. The Bank has also tied up with national and global insurance companies, including LIC International, Alico, Oman Insurance, Qatar Insurance, and Al Khaleej Insurance and Reinsurance. Saudi Arabia 2007 u Allianz Saudi Fransi (ASF) was founded. A joint venture between Allianz and Saudi Arabian bank Banque Saudi Fransi, ASF offers general insurance products. 2006 u SABB Takaful was formed. It is 32.5% owned by SABB, one of Saudi Arabias largest financial services groups, and 32.5% by subsidiaries of the HSBC Group. The balance is held by the public. UAE April 2011 u Watania, a takaful company, was formed through a partnership between Abu Dhabi National Islamic Finance, a subsidiary of the National Bank of Abu Dhabi; Abu Dhabi National Insurance Co (ADNIC); Abu Dhabi National Energy Co; and Aldar Properties. January 2011 u Abu Dhabi Commercial Bank partnered with ADNIC to provide their customers with banking and insurance services. 2010 u Union National Bank signed an MoU with Methaq Takaful to provide motor insurance offerings. 2003 u Abu Dhabi National Takaful was formed by shareholders Abu Dhabi Islamic Bank, Abu Dhabi Investment Co, as well as a number of private entities and individuals. Member Login Username: Password: Login Remember Login

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