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Banks, insurance companies tie-up to boost businesses

By Admin

Added 26th January 2018 12:42 PM

The tie-up between the banks and insurance companies is referred to as Bancassurance.

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The tie-up between the banks and insurance companies is referred to as Bancassurance.

By Mariam Nalunkuuma


The Ugandan insurance sector has undergone a sea of changes in the last eight years. Most recent is the allowing of banks to sell insurance product and offer insurance services. Six banks have so far been licensed by the Insurance Regulatory Authority of Uganda (IRA) to partner with insurance companies to sell and distribute insurance products and services to their clients.

The tie-up between the banks and insurance companies is referred to as Bancassurance. There are currently 29 insurance companies entering into this tie-up with commercial banks for exclusive bancassurance arrangements.

Traditionally, insurance products are sold only through individual insurance agents/salespersons and insurance brokers accounting for a major chunk of the insurance business. However, business is changing from just being a service provider or product marketer, to being innovative. This integrated approach gives an opportunity to different markets, entrepreneurs and insurers to make arrangements for their businesses to thrive. In this new round of business competition, innovation is critical for business growth.

Unlike banking, insurance in Uganda is still relatively a small part of the financial system, although it is growing steadily in size every year. Increased competition and changing customer loyalty is pushing insurance companies to change their business approaches thus becoming innovative day by day and improving their service delivery to the public.

With a lot of customer expectation as well as making products and services more accessible, the insurance companies and banks have re-assessed their business models other than focusing on profitability.

It is evident that product choices, behavioral and life-style changes are shifting many consumer mind-sets. The power shift underway, moving from agents, brokers and insurance companies to the banks as part of the distribution channels is envisioned to improve the penetration of insurance services in Uganda.

The combination of multiple platforms in addition to the existing approaches is one way to boost business ventures in the financial sector. In Kenya for example, the insurance sector is becoming successful because bancassurance has gained position in its financial market.

While licensing, the IRA requires banks to identify four or more insurance companies to partner or work with. In this win-win model, the insurance company with their relatively limited infrastructure will be able to sell its products throughout the country by using banks network, creating a platform for customers to be explained too how insurance products work.

At the same time, the banks, without investing in additional resources or infrastructure, will be able to earn a fee-based income, to supplement their core lending activities hence increasing their return on assets. One of the ways a bank can assume a constant asset base is through fee-based income covering most of the bank’s operating expenses.

Naturally, when a customer visits their bank, it becomes convenient for them to find responses to their financial needs, including savings, protection against unforeseen life events, mortgage protection, retirement, risk management and any other professional financial advice. So with this approach all will be provided at one spot.

Bancassurance rests on the relationship the customer develops over a period of time with the bank. Banks, with their existing customer base, and customer loyalty will leverage on their existing relationships, to convert them into policyholders. It is therefore assumed that insurance products will gain popularity because they will be sold at different branches which are conversant with peoples’ every day needs. Hence the banks earning commission on the premiums paid by their clients/customer.

Finally, any policyholders or bank customers prefers to have a consolidation and delivery of all financial services at a single window. Such availability of these services and products relieves them of the efforts to scout for separate providers. Under this arrangement, customers will also be entitled to getting a share in the cost saving in form of reduced premium rate and better financial counseling at a single point.

Though still a relatively new concept in Uganda’s financial system, bancassuarance is a phenomenon that has been successful in various parts of the world. The insurance sector will also leverage on the same because banks are no longer just lending institutions but are emerging as more diverse financial institutions.

The writer is the communications officer of the Insurance Regulatory Authority of Uganda

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