BANCASSURANCE IN PAKISTAN

PROSPECTS FOR LIFE INSURANCE

Mohammed Ali Ahmed General Manager, EFU Life Assurance Ltd Karachi Insurance Institute 23 February 2011

Definitions of bancassurance

Introduction Worldwide experience Evolution and current scenario in Pakistan Products Sales models Technology Challenges SECPs role The next 3 years

Introduction

Collaboration between Bank and Insurer to distribute insurers products

Insurer provider of products and services insurance risk taker Bank distributor

Level of collaboration can vary from basic level to high level integration

Benefits to all parties

Banks Fee based income Low capital high ROE Improved customer service Culture shift Market opportunity Customer expectation Success in markets around the world Insurance Companies New distribution channel A warm customer base Better persistency Higher premiums Profitable Growth Competitive products Success in markets around the world Customers
Changing attitudes & awareness Want options One stop financial service Trust banks

Depth of relationship
Distribution Agreement Playing the field
This can be likened to the early days of youth when it is normal to have a number of different relationships. Loyalty is pretty low and long term commitment rarely a consideration. Temptation to switch partners for a prettier one

Strategic Alliance Going steady

Having played the field for a while, it is likely that one partner will demonstrate the best fit in terms of commitment, attention, behaviour and attitude. The relationship develops to a point where each understands the other a little better and both start to consider the others needs and aspirations. Loyalty sets in and plans for the longer term begin.

Joint Venture Moving in

Once courting has been going on for a while, it is natural to settle down with one partner and start enjoying an even closer relationship. Both partners get to know each other intimately and a relationship of mutual trust and respect develops. Any problems or difficulties are resolved jointly and amicably.

100% Fully Owned Financial Services Group Go alone

Marriage brings about a whole raft of new responsibilities and a relationship that should be built on a secure foundation. Both partners look for ways to get more out of each other and to contribute to a long and prosperous relationship.

Depth of relationship

One to One Exclusive model One to Many

Many to Many Open architecture model

International experience
Bancassurance has been well established in Europe, Far East, and growing in India and Middle East.
Sales via Bank Channels

International experience
Bancassurance share in European life insurance market

International experience
Bancassurance share in emerging markets, 2005

International experience
Bancassurance target markets, 2007

Evolution in Pakistan
1996 1999 Credit Life 2000 Mail Inserts 2003 Bancassurance Agreements 2011 16 Banks active

Depositors Insurance

Evolution has seen product offering move from Simple to Sophisticated products over the last 15 years Major thrust has been from 2007 onwards with business volumes increasing exponentially

Banks active in Bancassurance

Life Bancassurance in Pakistan

New Business - 2010 Bancassuranc e Total Industry

Sales agents Private sector only

Bancassuranc e

Sales agents

Active life companies

EFU Life

NJI Life
ALICO

State Life is exploring to enter

Target Market
Target Market for Bancassurance

Existing Bank customers

Potential Bank customers

Target market is spread across all lines of bank business

Key to success in bancassurance is to identify the opportunities available in the bank customer base and offer the right financial planning solution

Customer segmentation
Possible approaches

Slicing of Bank Database

Targeting Customer Life Stage Event Trigger Approach Which one is correct ? depends on the bank, its target market and strategy to banking and bancassurance

All or a combination of the above can be used

Slicing of bank database

Preferred Banking or General Banking

Segmentation by worth to bank

Professionals Self-employed

Segmentation by occupation / role in society

Government Employees Businessmen Students

Targeting customer life stage

Student
Young, Single Young, married with family Wealth Accumulation stage Wealth Management stage Retirement

Event trigger approach

Birth Admission to University

Wedding
New Job Purchase of House

Career Change
Business Set-up Loss of Property Retirement Grandchildren Death

Customer life cycle and financial needs

Life Products
Simple Bundled with bank products - deposits - credit cards - mortgages - personal loans Sophisticated

Active selling: - Personal accident - Term life

Advice products: - Savings, Investments - High risk cover

Life Cycle Financial Needs Product Solution

Life cycle segment
Young singles

Financial Needs
Discretionary Income for Consumption Cash access Regular savings Car purchase As above + High level savings & investment House purchase

Product Solutions
Current account / ATM Debit / credit card Savings facility Car insurance As above + Investment linked plans Deposit savings account Mortgage Travel , Mortgage Insurance Education Planning Health insurance Disability Income insurance As above + Investment Products Additional pension fund contributions Investment Products Annuities

Couples (no children)

Families (young children)

Family protection Mortgage Protection Access to cash As above + School / College expenses Maximize savings for retirement

Families (older children) Pre-retirees (empty-nest)

Retirees

Regular income in retirement

Technology
Key initiatives which can assist in distribution: Point of Sale (POS) system Website Mobile phone

Product complexity and distribution channels

Sales models Branch distribution

Referral model:

Bank only generates leads and passes to insurer

Trained insurance companys consultants convert lead to sales Banks role is limited with little or no involvement in sales matters Direct Sales model: Bank generates leads and converts to sales Bank has robust sales management setup with its own sales team

Sales numbers are driven to quite an extent by bank

Referral model
Product management Sales management

Bancassurance management

Operations

Marketing

Involvement from banks side

High

Medium

Low

Direct Sales model

Product management Sales management

Bancassurance management

Operations

Marketing

Involvement from banks side

High

Medium

Low

Challenges

Alignment of vision Management structure in banks Banks expectations Product value Persistency System /Operations constraints Change of personnel Conflict with other sales channels

Alignment of vision

Short term vs Long term vision Executive level commitment Financial sustainability of model Acceptance of insurance as a product cultural shift

Bancassurance management structure

Ownership and accountability for the business model
HOCB

Dedicated Bancassurance Management Team

Operations Product management

Branches

Sales team

Banks expectations

Financial Focus mainly on first year remuneration margins Bargaining tool TAT and client servicing aspects Strong ownership of client

Product value

Cost saving to be reflected in better product value Banks willing to reduce policyholder value in return for higher commission???

Persistency

Limited focus of banks on persistency Persistency is key for life insurance company Insurer has to make significant efforts to make the bank realize the importance of this KPI Good persistency can result in repeat sales and flow of renewal income

Systems / Operations constraints

Direct debit systems do not always work efficiently Weaknesses in operations setup No or limited MIS setup reliance on insurer

Conflicts with other sales channels

Conflicts with insurers other distribution channels Sales agency channel Banks approach an existing client of sales agency Sales agents approach an existing client of bank Insurer has to maintain delicate balance Give preference to customer choice of channel

Change of personnel

Business model usually driven by personnel rather than institution not the ideal setup Only some banks have a strategic executive level focus on bancassurance Change of bancassurance team in bank can lead to disruptions in business New team may have different strategy and vision Also may have preference for another insurer! Insurer has to build relationships once again

Role of SECP

SECP has played a very positive role in promoting bancassurance Pakistan is one of very few countries to have guidelines from regulator Guidelines will bring discipline in the market All important areas are now streamlined and under regulatory supervision

Next 3 years

Channel will continue to grow and gain prominence For private sector will contribute major part of new business State Life will also make an entry Technology will be key Point of Sale systems will be common New business expected to double from Rs. 2.8 billion in 2010 to Rs. 5.6 billion in 2013 from private sector companies

Thank you!