Reassuring partnerships

ITIJ 203, December 2017

When an insurer partners with a financial services organisation, the prospects for increased sales are usually pretty good. For travel and health insurers, teaming up with banks around the world to create ‘bancassurance’ has led to mutually beneficial relationships that also help customers seeking coverage. Of course, there is always the potential that such relationships can sour

Originating in the European marketplace in the 1980s, the concept of banks and insurers teaming up to offer combined products such as a bank account with the added benefit of life, health or travel insurance has since expanded around the world, becoming more common in the Middle East and Asia. In the US, the growth of bancassurance is somewhat constrained by regulatory hurdles (more on that later). According to a report by TechNavio, a market research agency, consolidation in the financial services marketplace is resulting in bancassurance deals becoming ever more important.
consolidation in the financial services marketplace is resulting in bancassurance deals becoming ever more important
The UK
In the UK, the Financial Conduct Authority took a dim view of the fact that packaged bank accounts, which are paid-for accounts that come with added benefits like travel insurance, mobile phone insurance and such like, were found not to be fit for purpose. For example, some customers over the policy's age limit were misinformed that they could rely on the travel insurance provided by such accounts, and found when the time came to claim that they were not in fact eligible for the product in the first place. Complaints made to the Financial Ombudsman Service brought the issue to light, and the provision of travel insurance as part of packaged bank accounts has been under scrutiny ever since, with some brands dropping the offering altogether, or suspending sales while modifying the sales process. Well-known high street brands such as HSBC, Lloyds TSB (now Lloyds Bank), Santander and Barclays all took serious stock of their packaged account offerings following the fallout and bad publicity that ensued, and while many banks have now started to offer insurance again through their added-value accounts, they are being much more cautious in their approach.
The UK, then, has something of a chequered past with bancassurance offerings. Elsewhere, however, the market is booming.
A report released a few years ago by Finaccord found that the market there was healthy, with plenty of potential for more deals. Richard Dhuny, a consultant at Finaccord, said: “Whilst the total number of partnerships is certainly a helpful measure to identify key insurance groups in the Asia-Pacific bancassurance market, it is also important to look at joint venture and strategic partnerships as these commonly have a long-term focus and often generate substantially more revenue than looser distribution agreements. As such, international insurance groups are increasingly seeking these types of deal and the multi-billion dollar agreements established … which span multiple countries of the region are apt examples in this regard. At the same time, joint ventures owned by both bank and insurer have also become an increasingly popular bancassurance model, sometimes (as in India) for regulatory reasons which require this kind of set-up.”
the UK has something of a chequered past with bancassurance offerings. Elsewhere, however, the market is booming
Finaccord’s 2015 report into bancassurance in China found that the Agricultural Bank of China, Bank of Donguan, Ping An Bank and Qingsao Bank dominated the market, with each one offering 11 different types of insurance product. Life insurance products were the most popular type of cover on sale through banks, with the potential for other kinds of products stymied by regulations. Yapei Zhang, a consultant with Finaccord, commented on the research: “It is evident that the predominant operating model used by Chinese banks to offer insurance remains that of collaborating with one or more external underwriters. However, there has also been an increase in the number of joint venture underwriters co-owned by banks and insurance companies, and a rising number of underwriters acting in a captive capacity. Overall, many of China’s retail banks are expanding their co-operation with insurance companies and this is creating opportunities for both new product initiatives and brand new partnerships.”
Ongoing growth in the financial services sector in Asia has meant that competition for bancassurance deals continues to be fierce. In February of this year, Zurich Topas Life, part of the Zurich Insurance Group, announced a deal with the Bank of China, with the insurer’s president and director Peter Huber expressing hope that the partnership would serve to boost the firm’s bancassurance efforts. Indeed, it has already seen pretty healthy growth, accounting for 37 per cent of Zurich Topas Life’s premium income for 2016. 
Ongoing growth in the financial services sector in Asia has meant that competition for bancassurance deals continues to be fierce
Allianz, meanwhile, has teamed up with Standard Chartered Bank to start a 15-year bancassurance arrangement that will see the distribution of the insurer’s products – including travel and personal accident – to retail banking clients in Hong Kong, Singapore, Malaysia, Indonesia and China.
In India, examples of bancassurance deals dominate the financial pages of newspapers, and ongoing changes to laws surrounding the ownership of insurance firms could mean that more such deals will be on the cards. Recently, Dena Bank signed an agreement with Cholamandalam General Insurance Agency (Chola MS) that will see Dena Bank customers offer travel and health insurance through their branches. Ashwani Kumar, chairman and managing director of Dena Bank, noted that its ‘wide potential customer base’ was very attractive to insurance companies.
Middle East
According to Simon Isgar, partner of Kennedy’s LLP in Dubai, and the corporate insurance team at the company, bancassurance is a popular method of improving sales of insurance to residents of the United Arab Emirates (UAE). Isgar explained: “Insurance products sold through banks are growing at almost twice the rate of direct policies as lenders seek new ways of boosting their bottom lines amid record low interest rates. In 2014, it was estimated that this area of activity contributes no less than 40 per cent of all premiums earned by UAE insurers.”
The regulatory landscape in the UAE can cause confusion for those not familiar with it, but Isgar says that changes are ultimately geared towards the implementation of a ‘Western-style’ prudential and regulatory situation. He went on to say: “Although distribution of travel insurance is popular through bancassurance arrangements, it is also distributed through online channels as it essentially does not require the same regulatory oversight as other personal lines of insurance like health and life. Travel insurance is distributed through a variety of forums such as travel agents, banks, embassies and online.”
bancassurance is a popular method of improving sales of insurance to residents of the United Arab Emirates
Staying on the issue of regulatory complications for the moment, this is one of the biggest hurdles an insurer has to overcome in any market in which they wish to sell insurance – whether Europe, where Brexit could cause passporting problems in the near future, the US, where the Limited Lines Modelling Act is trying to streamline rules across state borders, or India, where rules on foreign ownership of banks make life more difficult to form joint ventures. 
In the UAE, meanwhile, the hoops through which insurers are expected to jump are onerous indeed, and the team at Kennedy’s gave ITIJ an insight into what is expected. An insurance company may enter into a contractual agreement with the objective of marketing its insurance policies with one or more banks and must follow the procedure under Article 4 of the UAE’s Insurance Authority (IA) draft instructions on controls of marketing insurance products by banks, as follows:
The bank should obtain an initial approval of the UAE Central Bank (Central Bank) to enter into such relationship with the insurance company. The insurance company should provide the bank with evidence that they are licensed by the IA to practice the insurance type required to be marketed by the bank. 
The insurance company and the bank apply to the IA to obtain its approval to enter into such relationship, enclosing the following documents: initial approval of the Central Bank; a copy of the agreement concluded between the two parties concerning this matter and whose validity should be subject to the approval of the Central Bank and the IA; and a declaration from the insurance company and the bank that they have already reviewed these Instructions and they shall comply with its provisions. Banks must submit the IA approval to the Central Bank to obtain the final approval. 
The IA shall examine the application together with the enclosed documents, and if the application has met the legal requirements, the director general shall issue his decision approving the application. Once approved, the period shall be for a term of one year, renewable for similar terms as long as the conditions, based on which the approval was granted, continue to be satisfied. All banks shall pay a standard fee for the initial registration and the renewals.
In case the submitted documents are inadequate or if there is a violation of the provisions of all applicable laws, the director general shall request that the applicants rectify the situation within a period of 30 days from the date of serving the request. 
If the applicants fail to rectify the situation within the above mentioned period, the director general shall issue a decision rejecting the application to be served in writing to both parties via registered letter.
The parties to the agreement, or any of them, shall have the right to object to the rejection before the Board within 30 days as from the date of notification thereof. The decision of the Board shall be final.
It is important, said Kennedy’s, that the insurer either provides an employee who will work at the bank on its behalf, or if it does not, that the insurer makes sure the bank has one or more employees qualified in insurance to provide the information and technical notes to the clients and to receive their requests, as well as transfer the information and documents to the company and the client accurately. "These bancassurance arrangements tend to be very complicated,” explained Isgar, “and take time to set up due to the dual regulatory oversight by the IA and the Central Bank. There is also a number of required documents to be filed with both the IA and the Central Bank which are often rejected, and as a consequence it normally takes more than one application to procure the bancassurance arrangements with the regulators.”
For insurers like Zurich, which recently entered into a 10-year bancassurance agreement with Standard Chartered Bank in the UAE, particularly important news is that the UAE Central Bank issued a circular in May in which it warned that it will deny requests from banks and financial institutions seeking to sell insurance products if mis-selling complaints are not settled ‘amicably’ and within a deadline of 90 days. This news was issued in response to ‘an increasing number of complaints in relation to insurance products’, said the Central Bank.
Pros and cons
The main reason that insurers enter into partnership agreements with banks is to gain access to their customers, thus expanding their business effectively and usually at minimum cost. Marketing expenses are thus reduced, as is the cost of collecting premiums in the first place. Of course, weighing up the risks is important before any deal is signed.
Driving the market forward for the banks is the opportunity to enhance their offering to their customers, adding value to their portfolio of products, while the general challenge for banks and insurers is that there could be a risk of reputational damage should a product be found not to be fit for purpose, as was the case in the UK.
The main reason that insurers enter into partnership agreements with banks is to gain access to their customers, thus expanding their business effectively and usually at minimum cost
Looking at the situation in the UAE in particular, Isgar and the corporate insurance team at Kennedy’s pointed out: “The main risks are that insurance companies will initially have to spend money on training for the employees selling the insurance products in the bank before they receive any premium payments. Insurers are also prohibited from dealing with intermediaries that are not licensed in the UAE and therefore by implication are prohibited from dealing with banks that are only established in the free zones in respect of UAE business. Insurers must be careful when deciding which bank to contract with to ensure they don’t breach any applicable laws. A bancassurance agreement can only therefore permit a bank to market an insurer’s policies and a bank should not act beyond this capacity. This means that the way in which the bank can support an insurance company is limited.”
The future’s bright
Isgar concluded: “Bancassurance, while strictly speaking still unregulated in the UAE, is set to grow as a distribution channel for personal line insurance products in the next five to 10 years.”
Indeed, TechNavio’s report into bancassurance, which looks ahead to 2019, forecasts the global bancassurance market to expand at a combined annual growth rate of 6.16 per cent in the next two years. For those brave enough to enter the market, then, there is certainly opportunity for growth, if the risk is right. 

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