THE INSTITUTE OF FINANCE MANAGMET

(IFM)

FACULTY OF ACCOUNTING, BANKING AND FINANCE

DEPARTMENT OF BANKING AND FINANCE
BACHELOR IN BANKING AND FINANCE
BANCASSURANCE

IRU_08506

YEAR III

2019/2020

INDIVIDUAL ASSIGNMENT

NAME OF STUDENT REGISTRATION NUMBER

1. IDRISA T HUSSEIN IMC/BBF/17/95151

1. Bancassurance or Bank Insurance Model refers to the distribution of the insurance and
related financial products by the Banks whose main business is NOT insurance. So, simply
Bancassurance, i.e., banc + assurance, refers to banks selling the insurance products.
Bancassurance term first appeared in France in 1980, to define the sale of insurance products
through banks’ distribution channels.

Historical development along the performance of bancassurance worldwide is as follow;

The first recorded settlement of bancassurance was in 1860, when the CGER savings bank from

Belgium started to sell mortgage-linked insurances. Bancassurance as a term first appeared in

France in 1980, to define the sale of insurance products through banks “distribution channels.

Bancassurance, a concept first introduced from Germany, was devised as a way for major
insurance companies to enhance their efficiency and convenience in selling their products by
securing bank sales channels. It was then spread throughout Europe and the United States and it
has been a successful model especially in the European countries contributing 35% of premium
income in the European life insurance market.

On the other hand, Korea first introduced bancassurance in August 2003 only in the form of
saving insurance.

In Tanzania was adopted in 2009, there were no regulation so banks were registered as Agents,
in 2019 Bancasssurance was formalized due to friction between BOT and TIRA.

Performance of the Bancassurance worldwide is as follows;

• Improvement to the channels through which insurance policies are sold/marketed so as to make
them reach the hands of common man.

• Widen the area of working of banking sector having a network that is spread widely in every
part of the nation.

• Improvement to the services of insurance by creating a competitive atmosphere among private

insurance companies in the market.
2. Under the Insurance Act 2009 insurance business is defined as the business of
assuming the obligation of an insurer in any class of insurance whether defined in the
Act or not, which is not declared to be exempt from the provisions of the Act in terms of
Section 2 and includes assurance, reinsurance and reassurance.

Insurance business is divided into two main classes, namely:

(i) General Insurance Business

(ii) Life Assurance Business

General Insurance business comprises the following classes: accident, sickness, land vehicles,
railway rolling, aircraft, ships, goods in transit, fire and natural forces, damage of property,
motor vehicle liability, aircraft liability, liability for ships, general liability, credit, surety ship,
miscellaneous, legal expenses, and assistance (as per Part B of the Second Schedule of the
Insurance Act, 2009).

Life Assurance business includes life and annuity business, marriage and birth business, linked

long term business, and permanent health insurance business (as per Part A of the
Second Schedule of the Insurance Act, 2009).

HIGHLIGHTS ON THE ECONOMIC PERFORMANCE

Tanzania’s economy during the year under review was characterized by a number of factors,
including changes in GDP growth, per capita income, money supply, interest rates trends,
financial markets performance, commercial banks lending, and government finance. These
factors affected all sectors of the economy, insurance inclusive.

National GDP Growth

According to the National Bureau of Statistics, the national GDP in real terms grew at a rate of
7.0 percent to TZS 115,140 billion in 2018 from TZS 107,657 billion in 2017. The GDP
at current prices (nominal GDP) grew by 8.9 percent to TZS 129,364 billion in 2018
compared to TZS 118,744 billion in 2017.
National GDP Per Capita

The national GDP per capita in real terms increased by 0.6 percent to TZS 2,124.4 billion in
2018 from TZS 2,110.91in 2017. The nominal GDP per capita increased by 2.5 percent to TZS
2,386.8 billion in 2018 from TZS 2,328.32billion in 2017.

Economic Performance of the Financial and Insurance Activities

The contribution of financial and insurance activities in the National GDP on nominal terms
stood at TZS 4,824 billion representing 0.7 percent decrease of the country’s GDP
compared to TZS 4,7903billion in year 2017. In real terms, financial and insurance activities
decreased by 0.5 percent to TZS 4,094 billion in 2018 from TZS 4,1154billion in 2017.

Commercial Insurance Market Growth

The insurance industry total gross premium written was TZS 691.9 billion in 2018
compared to TZS 637.1 billion in the year 2017, indicating an increase by 8.6 percent (TZS 54.8
billion). The reason for the increase in business was mainly due to improved public
awareness and increased uptake for both life and general insurance businesses.

Contribution of Insurance to National Gross Domestic Product

The country’s insurance penetration (premiums as a percentage of GDP) for the year 2018 was
0.53 percent (GDP;TZS 129,364 billion and GPW;TZS 691.9 billion). The ratio largely
remained constant in comparison with the penetration ratio for the year 2017 which stood at
0.54 percent (GDP;TZS 118,7445 billion and GPW;TZS 637.1 billion). The penetration
ratio is expected to improve following the operationalisation of the bancassurance
regulations and other regulatory measures.

Contribution of Insurance to the Financial and Insurance Sector Gross Domestic

Product

Financial Sector GDP amounted to TZS 4,095 billion for the year 2018. With the gross premium

written of TZS 691.9 billion, the contribution of the insurance companies to the wider
Financial Sector GDP (premiums as a percentage of the Financial and Insurance Sector
GDP) was 14.3 percent in 2018 compared to 13.3 percent recorded in 2017.
Insurance as a Source of Government Income and Employment

The insurance companies contributed to the Government through payment of corporate

taxes amounting to TZS 5.2 billion in year 2018 compared to TZS 8.6 billion in year 2017. The
fall in contribution of corporate taxes was due to a decrease in profits realized by insurance
companies. Other sources include Value Added Tax, Withholding Tax and Levies to the
Government. Moreover, insurance industry in 2018 created direct jobs for more than 4,080
individuals.

Insurance Premium per Capita (Insurance Density)

Insurance Premium per Capita is the ratio of Insurance Premium to Country population. The
Tanzania insurance premium per capita for the year 2018 was TZS 12,765.7 compared to
TZS 12,493.0 recorded during the previous year. The increase of the premium per capita
was due to increase in insurance premium.

3.

FULL JOINT VENTURE DISTRTBUTION

INTEGRATION ALLIANCE
DEFINITION Bank operates entirely Bank joins forces with Bank is just an
as insurance an insurance intermediary/middle
company. company. man between
customer and
insurance company.
FUNCTIONS OF Developing of Sells insurance Bank sell and markets
BANK insurance products, products to the bank insurance products
selling, paying claims, customers.
marketing etc.
RISK TO THE Bank assumes all the Bank and Insurance Bank does not face
BANK risk associated with company shares equal insurance risk.
the business of risks associated with
insurance. the business.
  Through the above descriptions Distribution Alliance is a suitable arrangement to our
Tanzanian market, this is due to the less risk associated and return achieved.

4. As the appointed spearhead leader to proposed arrangement of bancassurance to the bank,

I will explain the advantages of bancassurance to the particular bank which are as follows;

Diversification of Customer Portfolio

Banks already have a relationship with their customers selling them an amalgamation of
financial products. With Bancassurance, insurance is added to the mix, diversifying the customer
portfolio.

Improved Profitability & Non-interest Fee Income

In Bancassurance modal, banks can easily generate risk-free income in the form of the
commissions from insurance carriers. Multiple studies have been done in Indian bancassurance
context to prove its positive impact on the bank’s profitability.

Customer Loyalty and Retention

Banks enjoy the benefit of being able to provide yet another product to their customers.
Providing integrated financial services strengthens customer relationships and builds better
customer loyalty and retention levels.

Cost-effective Use of Existing Resources

Banks use their existing premises and employees (tellers and branch staff) for the sale of the new
insurance products. This means that there’s no additional cost of operation in selling insurance.
They also utilize the insurance company’s expertise in training bank employees and packaging
insurance products. This reduces the cost of distribution for both insurers and the banks,
increasing the channel’s profitability. Banks also get an increased Return on their Assets though
this (ROA).
Specialized Training for Tellers and Branch Staff

Bank staff is often reluctant to take on the responsibility of selling insurance, in addition to their
regular tasks. This is a major challenge in bancassurance implementation. Banks address this by
taking the insurance carrier’s help to devise attractive incentive plans & providing them
specialized training. So, banks would be able to keep their employees motivated, while helping
them build on their skills.

5. Reasons for difficult emerging in the market of Bancassurance globally is as follows;

Significant differences in tax systems and the structure of pension systems: in some
countries, such as France, life insurance products are very similar to banking products and also
qualify for tax incentives. This makes them easy to sell by banking networks;

The first and most important reason is the difference in legislative and regulatory standards
from one country to another. This hinders the development of bancassurance.

Differences in the role of banks in the financial system: bancassurance has made the biggest
inroads into the market in countries where the banks play a significant role in the financial
system. This is the case, for example, in Belgium, France and the Netherlands. Bancassureurs
have a smaller market share in those countries where everything revolves around the stock
market, such as the United Kingdom and the United States;

A clear segregation between the various distribution channels hampers the development of
bancassurance: this is the case in Germany and Japan. Similarly, in Italy, insurance products are
traditionally sold by independent insurance advisors, making it difficult for bancassureurs to gain
a foothold in the market;

Lastly, in countries with an underdeveloped insurance market, foreign insurers generally try to
join forces with a local banking network, because this represents a cheaper way of entering the
market than by setting up a Greenfield operation or acquiring a local insurance company. This
model explains the development of bancassurance in Latin America and Spain.
REFERENCE;

Aggarwal, V. (2004) .Bancassurance Concept, Framework & Implementation. The IRDA

Journal, June - December, 34-51

Baruya, A. (2004). Bancassurance New Concept Catching up fast in India. The Chartered

Accountant, June, 1348-1351

Carow K. A. (2001). The Wealth effects of Allowing Bank Entry into the Insurance

Industry. The Journal of Risk and Insurance, 68(1), 129-150

Cheng. R. W., Chin, T. L. and Yu F. L. (2008). What Forms of Bancassurance Alliance

Model is Customers’ Preference .Journal of Modeling in Management, 3(3), 207-219

Tanzania Insurance Regulatory Authority (TIRA), 2012. Annual Insurance Market Performance
Report – For the year ended 31st December 2012.

(Online).Available.http://www.tira.go.tz/sites/default/files/TiraAnnualReport2012.pdf. Accessed
June 2020.