One of the most momentous changes in financial services over the past few decades has been the growth and adoption of Bancassurance. While it may sound like a complex word, it is a simple term coined by combining two words — bank and insurance.
The sale and distribution of insurance products through banks is becoming more popular and prevalent across the world. Commercial banks are adopting it because selling insurance products gives them a new and lucrative revenue stream without high new setup costs. Besides, this fee-based income is essentially risk-free since the bank simply plays the role of intermediary.
Insurance firms, on the other hand, see Bancassurance as a way for increasing their market penetration and premium turnover at near zero cost. While a customer enjoys the benefits of reduced prices, there is a wider range of products and much greater convenience.
In short, Bancassurance is a win-win situation for all concerned. Or Bancassurance refers to a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank’s customers.
The Financial Institutions Amendment Act, 2016 provides for the introduction of Bancassurance in Tanzania. Bank of Tanzania (BoT) was charged with the formulation of the enabling regulations to guide the smooth operationalisation of the law.
These regulations have since been approved by the Finance and Planning Ministry gazetted, meaning Tanzanian commercial banks are now in a position to offer Bancassurance to complement their existing bouquets of products.
It is critical to note, however, that Bancassurance is not a one size fits all models that will be rolled out the same way by all financial institutions. The choice of business model for the bank is dependent on a number of factors including the nature of the bank, size of the market, regulatory environment as well as customer preferences.
Some of these models include the pure distributor; here the bank acts as an intermediary offering products of more than one insurance company. The insurance company usually pays distribution commissions to the bank, which are in turn offset by entry and management fees charged to policy holders. The relationship between the bank and insurer will also be complemented by a more or less significant cross-shareholding.
Strategic alliance; in this case, the bank sells the products of only this particular insurance company. The main advantage for the bank being that it is able to select the best provider in terms of its customer profile, quality of products and brand image. At the same time, the insurance company gains access to the bank’s customer base without having to make a major financial investment.