Bancassurance report 2015

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TRENDS IN MENA Bancassurance 2015

PERSPECTIVES FROM THE REGION’S LEADING ORGANISATIONS

Introduction

A reliable insurance market is critical for maintaining sustainable economic development. In the GCC, governments have recently sought to develop their insurance markets in order to both stabilise and diversify their predominantly oil-based economy. There is significant potential for maintained growth in the regional insurance market, due to several factors including the young population, high disposable incomes as well as low penetration levels, as indicated by a 2010 World Bank report.

According to recent research done by the Middle East Insurance Review, the development of a more robust bancassurance framework is one solution that can contribute significantly to the steady growth of the regional insurance market. Not only will the banks’ established relations with customers facilitate the even distribution of the different insurance products available, they will also be able to leverage their customers’ loyalty by developing and offering a wider range of services.

Bancassurance penetration in the region is currently as low as 1-2%, compared to 8-15% in more mature markets, according to research cited by Aarti Mohan, VP Bancassurance & Strategic

Initiatives at Union Insurance. However, relative to other emerging markets, the GCC insurance sector is generating good profits, albeit on a small scale. Historically, the major profit sources have been from non-life insurance products. Particularly, the GCC markets have been lagging in terms of life insurance profit. Relative to other emerging markets, the GCC insurance sector is generating good profits, albeit on a small scale. The major drivers of profitability in the region have historically been investment in non-life insurance. This lag in the regional insurance sector provides significant potential for growth. The arrival of global insurance companies who are using their international experience to develop sophisticated and customised distribution agreements for banks is also creating competition for local providers; putting increasing pressure on them to improve both their products as well as their strategies.

In light of these changes, regional governments have made significant investments and regulatory moves to ensure stable and secure growth of the bancassurance market. This qualitative study, conducted by Informa Middle East, will convey how the region’s leading players view the industry, their changing strategies in light of recent regulatory changes, and their predictions for the GCC bancassurance market moving forwards.

A STUDY BY

FuTuRE OuTLOOk OF BANCASSuRANCE IN THE GCC


Developing regulatory frameworks in the Middle East

How will changing regulations impact the industry in 2015?

While changing regulations are considered to pose several operational challenges in the short term, experts believe that the positive impact will only be seen in the long term.

Hasheer Kottal from Mashreq Bank points out that the “regulations will only help to stabilise the industry in the long-run. The recently proposed regulations are the first step in the right direction, and whilst there will be a bit of a dip in the initial period, I feel this is a very good step towards a sustainable business.”

Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN), believes that some of the positive effects of these changes in regulations include “raising the bar for operational processes, risk management, risk compliance as well as enhancing professional and customer care standards.”

Furthermore, Amol Shah from First Gulf Bank believes that the recent regulatory changes are expected to strengthen the fundamentals of the industry as its size has nearly tripled through 2006-13.

David Harris from RSA Insurance emphasises the importance of these regulatory changes. “A key driver for bancassurance development is regulatory support and guidance. However, not many countries in the region have formally regulated bancassurance even though this is increasingly becoming a priority in the region. While Bahrain is the only country in the GCC to have a structured regulation for bancassurance, other GCC countries like the UAE, Oman, Saudi Arabia and Qatar have introduced bancassurance regulations to varying degrees only. The need for better regulations in 2015, given the growth potential in premiums from this channel and the sheer number of retail banks and insurance companies in the market would definitely benefit the bancassurance model. A more systematic approach by regulators from both the banking and insurance sectors to come together and develop a region wide set of consistent regulations to support the development of bancassurance would go a long way is assisting operational efficiency and improved sales, “ he told us.

Successful bancassurance strategies need strong regulatory frameworks in place. In the GCC, these frameworks need to accommodate both local companies as well as multinationals that play a crucial role in shaping the regional market. According to a report published by the Middle East Insurance Review, the purpose of reviewing the current regulations in countries like the UAE is to build a strong foundation for strategic regulatory objectives that can encompass local companies as well as international newcomers. While the UAE still maintains the largest insurance market in the GCC, a strong regulatory framework is needed to help boost the lag that is resulted from the somewhat fragmented and highly competitive, overcrowded market.

Saudi Arabia’s insurance sector is one of the fastest growing markets in the world. The introduction of compulsory insurance schemes contributed significantly to this growth. Unlike the rest of the region, the Saudi insurance market is stable and well regulated, which can be seen from the consistency of the regulatory framework over the past several years. This growth and stability is expected to further develop, with expanding medical cover to foreign and domestic staff as well as the passing of new mortgage regulations which will expand the home loan market and increase the need for credit life insurance.

Closely connected to Saudi Arabia, Bahrain continues to thrive through its alliances with the Saudi market, despite previous setbacks caused by the Arab Spring. While the growth of its insurance sector went up to 33% in 2008, the political and social unrest seen in 2011 slowed it down to 2.4%.

Qatar on the other hand is taking positive steps in order to catch up with international bancassurance standards. By the end of 2015, the entire population of Qatar, including visitors, is expected to be covered by the mandatory national health insurance scheme. With all insurers, banks and financial institutions being regulated by the Qatar Central Bank since last year, a more coordinated and strategic approach to regulatory implementation is now guaranteed.

With the lowest insurance penetration in the region, Kuwait is yet to prove itself in the regional market. For now, it is believed that bancassurance will continue to be banned indefinitely, hindering the growth of insurance penetration in the Kuwaiti market.

The Bancassurance MENA Summit is an opportunity for market leaders from both Banks and Insurers to get together and share best practice ideas, help develop the industry and network. A mixture of panel discussions, presentations, round tables and briefings all supplemented with a great venue, perfect timing and an array of personnel from the organisers… an exceptional and valuable experience!

David HarrisDirector - Direct & AffinityUAE & BahrainRSA Insurance


A review of 2014’s trends

As we embark on 2015, changes that occurred during the previous year continue to shape the future of the market. Recent reports estimate that the insurance industry across the GCC will reach USD 37.5 billion by 2017. Alpen Capital reports that the regional insurance sector will continue to expand at an annual compound growth rate of 18.7% until 2017, and overall insurance penetration in the region is expected to improve from 1.1% in 2012 to 2.0% by 2017.

Aman Insurance’s Faitrouni summarises 2014 for us, "The GCC bancassurance markets continue to seek customer-focused solutions for defined customer segments, rationalise the number of insurance providers and opt for preferred relationships/strategic tie ups. The market also looks to enhance productivity of sales professionals employed and are increasingly using digital applications and social media for customer engagement, claims management and overall customer service.”

Shah from First Gulf Bank believes that the “GCC insurance markets mirror the region’s macroeconomic fundamentals and have grown quickly with varying degrees of sophistication and fierce competition. The insurance industry in the countries comprising the GCC has almost tripled through 2006-13, with insurance premiums increasing to $18.4 billion from $6.4 billion … With global and regional regulations curbing the propensity of credit offerings; many banks see a considerable opportunity in the GCC for revenue diversification through the use of bancassurance products.”

Harris, from RSA Insurance mentions that, “over the last few years, the bancassurance landscape has made great strides and is changing fast across the Middle East region. Changing regulations and a customer centric focus are helping banks to develop a more sophisticated bancassurance strategy and ensuring a mutually beneficial relationship with insurance companies to deliver smart and integrated solutions. In addition to this, growing regulatory demands, particularly around capitalisation and customers are requiring banks to adopt a more long-term view in terms of maximising value from a bancassurance agreement.”

Emad Louise, Vice President and Head of Barclay Direct Business, said that, “bancassurance is almost the fastest growing segment within the insurance sectors nowadays, which is not a coincidence. It has to do with both the market evolvement and the increasing trends in the level of sophistication of the customers, as well as the big focus from both the insurance companies and the banks, who realised the big opportunity in this comprehensive proposition. I would say that almost all banks are either already in a relation or in negotiations with insurers, same goes for the insurance companies. This is good news for customers, who definitely shall expect an overall better value proposition.”

Critical projections for 2015

With these rapid changes, particularly with many GCC governments already implementing mandatory health insurance, the general consensus is that bancassurance will continue to grow, but within limits.

Faitrouni believes that “the demand for personal lines is poised to grow, including long term savings and retirement plans, especially corporate/group schemes. However, given the low market penetration of insurance and the homogenous nature of the products, I expect growth to stay in double digits.”

Highlighting the changing customers’ needs that he expects to see in 2015, Shah says that “consumers have become accustomed to the ease, intuition and elegance of digital interaction and want the same experience from banks and insurers. As smartphones, iPads and other such versatile mobile devices proliferate, customers also want to be able to conduct business when they want, where they want and on the channel of their choice.”

Looking also at customers’ needs, Harris said that “the Middle East region currently has a large population comprising of a young workforce in middle to high income groups. The changing priorities and lifestyles of this new generation, along with growing wealth and the increasing population of the middle to high income segment will drive the demand for investment linked and wealth management products in 2015. As a result, we may see the bancassurance industry in the Middle East expand its role beyond merely providing protection products.”

Great opportunity to learn more about other countries’ bancassurance developments.

Ahmed HassanHead of InsuranceAlex BankEgypt

Regional Insurance Trends

The quest for additional growth and the desire to market to specific client segments has led some bancassurers to shift away from using a standarised, single channel sales approach towards adopting a multiple channel distribution strategy. Some bancassurers are also beginning to focus exclusively on distribution.

In some regional markets, face-to-face contact is preferred, which tends to favour bancassurance development. Nevertheless, banks are starting to embrace Direct Marketing, Internet Banking and Digital Platforms as tools to distribute insurance products. New and emerging channels are becoming increasingly competitive, due to the tangible cost benefits embedded in product pricing or through the appeal of convenience and innovation.

The marketing of more complex products has also gained ground in some countries, alongside a more dedicated focus on niche client segments and the distribution of non-life products also gaining popularity. The drive for product diversification arises as bancassurers realise that over-

reliance on certain products may lead to undue volatility in business income.

These developments are expected to challenge traditional bancassurers in the following ways:

• Theshiftawayfrommanufacturingtopuredistributionrequires banks to better align the incentives of different suppliers with their own.

• Thesaleofnon-lifeproductsshouldbeweighedagainstthe higher cost of servicing those policies.

• Bankswillhavetobepreparedforpossibledisruptionsto client relations arising from more frequent non-life insurance claims

Amol Shah, Head of Bancassurance Products at First Gulf Bank


Risk Management Trends

As the region’s insurance sector is expected to structurally mature, developing strong risk management strategies is becoming critical for the sustainable development of the market.

Shah believes that these three key risks, once addressed, will deliver better value for customers.

• Riskofproductsuitability:Insurersdonotdesignproductsand services that respond to real consumer needs or are in consumers’ long term interests.

• Riskofmiss-selling:Distributionchannelsdonotpromotetransparency for consumers on financial products and services.

• Lackofconsumerawarenessanddisclosures:Poorunderstanding of risk and return, combined with the search for yield or income, leads consumers to take on more risk than is appropriate.

Harris believes that “the slow pace of development in the bancassurance industry is definitely a matter of concern since insurance is a crucial aspect of the financial services industry in any economy and contributes positively to growth in the long term. Furthermore, it encourages investment and competition by reducing the impact of large losses through risk pooling and raises the efficiency of the other segments of the financial system through contributing to effective risk management.”

Because he believes that attrition is a key point which is affecting the overall business, Kottal suggests some tips including “strong sales training and checks, constant communication with the customers post sales, showing them the value of the dollar spent on a monthly basis.”

Enterprise Risk Management (ERM) is still in the development phase in the region. However, insurance companies are increasingly sensing the need of having more robust and systematic risk management processes for the future.

Adoption of unified insurance system: The proposed unified insurance scheme for automobiles may bring about some standardisation in insurance rates across the region. It may also pave the way for more unification measures within the insurance sector.

New distribution channels: Modern distribution channels like bancassurance and online policy approvals are increasingly becoming popular. Islamic banks are likely to emerge as an important medium in the marketing and sales of family Takaful products.

Channel Investment Mix: In efforts to generate assured returns and mitigate volatility in investment income, the regional insurance companies have increased their investments in relatively low-risk instruments while reducing their exposure to equities.

Aarti Mohan, VP Bancassurance & Strategic Initiatives at Union Insurance


Customer Centricity

Bancassurance as a distribution channel is gaining popularity as both banks and insurers look to capture larger share of the market and promote customer loyalty looking to reduce costs and offer customers more in terms of value through good services and products.

Mohan believes that bancassurance in the region can move towards a more customer centric approach by tapping into the real needs of the customer through customisation, innovation and flexibility in product offerings that exhibit the brand promise. “Customer Centric Solutions to provide a real value by offering group benefits to Individual customers is highly important and the pulse of the economy,” he says.

Shah agrees by saying that "the customer experience is the new battleground for companies that can no longer win customer loyalty based exclusively on product features (too easy to copy), selection (‘I can always find an alternative product or service online’), or price (‘at any given moment, I can almost certainly find a lower price’). In the coming year, companies will focus on customer emotion, and extending the customer experience ecosystem to move ahead of the competition.”

Meanwhile, Kottal believes that customer centricity can be achieved through post sales communication such as “reminding the customers about the reason why they had availed a plan in the first instance, proper updates on the portfolio and claims process.”

Top tips for banks/insurers developing a Bancassurance agreement:

1. “Align the interests of providers with distribution partners; develop customised solutions for the different customer segments and deliver on customer expectations.” -- Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN)

2. “Evaluate joint commitment; allocate resources; and establish suitable infrastructure and incentives for the sales team.” -- Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN)

3. “Deploy digital applications for increased customer engagement; enhance sales productivity; improve transparency and overall customer service standards.” -- Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN)

4. “Adequate support and investment where necessary by the insurer, to develop the required insurance products across all channels and segments.” -- David Harris from RSA Insurance

5. “Having a global perspective of regulatory, economic, customer and product trends that can be used to optimise the bancassurance agreement.” -- David Harris from RSA Insurance

Rolling out successful bancassurance partnerships:

1. “The products suite offered should be non-cumbersome and underwriting parameters should be simplified for ease of administration and customer experience.” -- Aarti Mohan, VP Bancassurance & Strategic Initiatives at Union Insurance

2. “Adequate hand holding and training should be provided to the bank staff which should be reflected by leveraging distribution channels of banks, complementing the training and service channels of the insurer. “ -- -- Aarti Mohan, VP Bancassurance & Strategic Initiatives at Union Insurance

3. 3“Customers want greater transparency (allowing them to compare products), flexibility (products that adapt to their changing needs), and control (the comfort of being able to change their mind if not satisfied).” -- Amol Shah from First Gulf Bank

Developing and scaling a robust distribution network for life and general insurance:

1. “Determining suitable distribution models (agency, referral, direct sales, implant etc).” -- Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN)

2. “Deploying a call center, implementing customer fact find/risk profiling, customer call back procedures, training sales team and regular portfolio analytics.” -- Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN)

3. Leveraging all sales distribution channels and touch points including online, social media, mobile solutions

4. Technology to provide and facilitate end to end servicing

5. “Insurers need to be flexible enough to support their banking partners with the required products. While banks can sell insurance products, it is more a matter of marrying the two products to suit the distribution channels within the bank.” -- David Harris from RSA Insurance

Informa Middle East asked leading bancassurance providers what advice they would give to banks/insurers looking to enter or grow in the bancassurance market. This is what they had to say -


CONCLuSIONWhile bancassurance provides attractive opportunities that can help the entire region develop and diversify the oil-based economy, a strong regulatory framework, transparency and customer centricity are vital for the success and sustainability of the insurance sector. For now, the expectations for 2015 are relatively positive given that insurers and bankers form more efficient partnership models.

THANkSInforma Middle East would like to thank all the Bancassurance MENA speakers for their contributionstothisreport,withspecialthanksto:

RESPONDENTSAarti Mohan, VP Bancassurance & Strategic Initiatives, union Insurance

Amol Shah, Head of Bancassurance Products, First Gulf Bank

Damian Hitchen, Chief Executive Officer, Middle East & Asia, Swissquote Bank

David Harris, Director - Direct & Affinity, UAE & Bahrain, RSA Insurance

Emad Louise, Vice President and Head of Barclay Direct Business, Barclays

Francois Aubert, Independent Consultant

Hasheer kottal, Vice President & Business Manager Bancassurance, Mashreq Bank

Jihad Faitrouni, General Manager, Dubai Islamic Insurance & Reinsurance Company PSC (AMAN)

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Transcript of Bancassurance report 2015