Trend of Bancassurance Distribution Channels

Along with the development of the insurance industry, business actors are required to be more creative in marketing insurance products. One of which is through banking financial institutions.
Banks play an important role in the economic life of people around the world. By absorbing and channelling these funds back into credit, the bank is closely connected with the daily life of the community. This factor is the potential for marketing penetration of insurance products through the banking industry.

The distribution of insurance products through banking channels is known as Bancassurance. Bancassurance comes from the French language, the birthplace of these products and systems. Bancassurance was first practiced in 1971, when Crédit Lyonnais acquired the Médicale de France Group, and in 1993 the company signed an agreement that gave Union des Assurances Fédérales Group the exclusive right to sell life insurance products through the Crédit Lyonnais network.

In the Bancassurance distribution channel, a relationship between consumer habits in a certain population is a success factor in that market. In general, the more the population who understands the use of internet technology, the smaller the role of Bancassurance in that population. This is because Bancassurance is very dependent on the culture and habits of consumers.

Sometimes certain populations prefer to go to the bank and discuss their financial needs face-to-face with their financial manager. However, in other populations it may be that consumers prefer to compare products on the web.

Bancassurance in Asia Pacific and Indonesia overall sales of bancassurance products are still dominated by large European banks such as BNP Paribas, ING and ABN Amro. In Asia, although it is not the largest, the growth of Bancassurance in this continent is the fastest, especially in countries such as Korea, India, Singapore, the Philippines, and Indonesia.
 
In 2014, it was recorded that 36% of the new business premiums of the Singapore insurance industry came from the Bancassurance marketing channel. Meanwhile, in the Philippines, it was recorded that in the first quarter of 2015, 32% of new business premiums came from the Bancassurance marketing channel.

In Indonesia alone, there were 1074 signed Bancassurance agreements between banks and insurance companies, in which 40 banks entered into partnerships with 26 life insurance companies and 67 banks collaborated with 23 general insurance companies.

Based on the data above, on total life insurance marketing, the agency's marketing channel in the first quarter of 2014 contributed 45.4%. Bancassurance and alternative channels contributed 36.6% and 18%, respectively. This shows that the Bancassurance distribution channel is one of the marketing channels that is the highest premium contributor to the insurance industry in Indonesia. According to data from OJK, 970 Bancassurance products are currently sold in the insurance market, of which 943 are conventional insurance products and 27 are sharia insurance products ( data of April 2014).

OJK, as the supervisory body for financial institutions in Indonesia, is currently tightening the Bancassurance sales system, for example is the discourse on prohibiting upfront-fees. The upfront fee is the banking operational cost in selling insurance products paid by the insurance company at the time of the initial cooperation. This is because there is no guarantee that the insurance company will benefit from sales through the bank.

Bancassurance Cooperation Methods
In terms of business cooperation, the Bancassurance marketing channel adopts 3 models, including:
Joint Venture
Banks work together (partnerships) with one or more insurance companies to sell insurance products. The advantage of this method is the transfer of human resources (transfer of expertise) either from the insurance company to the bank or vice versa.
Distribution Agreement/Non Strategic Partneship
Through a previously approved contract, the bank acts as an intermediary between the insurance company and the customer. The advantages of this method are that it is faster, easier and more efficient in terms of costs.
Strategic Partnership/Full Integration
The bank or insurance company establishes a subsidiary which is engaged in banking or insurance. The advantage of this method is that both banks and insurance companies have the same corporate culture. To see a clearer picture, here are the results of a survey regarding the Bancassurance cooperation system in Asia Pacific.
Bancassurance Partnerships with Banking Groups In Asia Pacific
The majority of Bancassurance cooperation systems use Non-strategic Partnership / Distribution Agreements. This is due to the nature of the agreement which is easy and practical and cost efficient. The current bancassurance cooperation system has been widely applied by insurance companies in Asia, especially in Indonesia. This is done because it is considered beneficial for many parties, including insurance companies, banks and consumers.
Benefits of Bancassurance Distribution Channels
 
Benefits for Insurance Companies:
• Insurance companies can develop faster in the market by using the existing local banking network.
• Insurance companies can significantly expand their customer base and have access to customers that were previously difficult to reach.
• Insurance companies have the opportunity to vary their distribution methods. Diversification is useful in reducing the risk of over-dependence on one network.
• Insurance companies also benefit from a reduction in distribution costs relative to traditional selling costs, because the sales network is generally the same, for both banking and insurance products.
 
Benefits for the Bank:
• Bancassurance is a new revenue stream as well as business diversification for banks.
• The Bank is a “one stop shopping” for financial services, where all customer needs can be met by the Bank. This results in increased customer satisfaction and loyalty.
Benefits for consumers:
• Consumers get greater access to all financial services from the Bank's offerings, both banking and insurance products;
• Because distribution costs are lower than traditional distribution networks, consumers can obtain cheaper insurance products.
• The premium payment method is simpler, because the premiums are collected directly from a bank account.
Bancassurance in Life Insurance
Basically, the distribution channel of bancassurance is more suitable for life insurance products than general insurance. This is due to several factors such as:
• Bank employees are familiar with insurance-based savings and pension products, so they quickly adapt in selling life insurance products.
• Loss insurance products require more in-depth knowledge of the sale of these products, this requires a significant investment in salesperson training.
• Banking financial consultants can use their knowledge of customers 'finances to provide financial advice in purchasing insurance products that are suitable for customers' financial goals.
Based on the factors above, we can conclude that the distribution channel of bancassurance is more suitable for life insurance products. However, this does not include the same treatment for all life insurance products that will be sold through the bancassurance system, especially in the insurance risk selection/ assessment.
 
Risk Assessment in Bancassurance
ADD (Accidental Death or Disability)
This product does not require medical selection, this product is usually sold to credit card customers.
Credit Life (Term & TPD)
Under this coverage, a medical assessment is required but may be limited, because of the low risk of anti-selection. Assessment can be carried out by means of a health question or a health statement. However, if the Sum Assured (borrowed money) is large, full medical evidence will also be required in the first stage. In credit life where the loan amount is not that large, a medical assessment can be made through a health statement.
Term Life, Whole Life
In this coverage, the medical assessment required by bancassurance officers is generally the same as the traditional insurance distribution channel. However, to simplify procedures, bancassurance officers offer a lower coverage value than Traditional Insurance providers. Other methods can also be used, such as adding exceptions and the waiting period.
Conclusion
Bancassurance distribution channel is a sales system that is a significant premium contributor in the life insurance industry. Bancassurance provides benefits not only to insurance companies, but also to banks and consumers. This distribution channel is more suitable for marketing life insurance products than general insurance. In some products, the Bancassurance distribution channel uses a simpler assessment than other distribution channels.