Banking on insurance


By John ORorke, (Expert Panel Avatar Global Consult)
Published FRIDAY October 18, 2013 at The Jakarta Post

“Good afternoon sir. Could I interest you in some life insurance with your new deposit account?”

Walk into any bank branch these days and you are likely to be approached by a smartly dressed individual who will ask you if you have thought about your financial future. They’ll then conduct some form of analysis which will show you how much you need to save/protect for that special occasion you’re looking forward to in 10 years’ time. And hopefully, present a compelling case for you to sign up on the spot.
Welcome to bancassurance – the rising star in
life insurance distribution for Indonesia and many other Asian countries.
Bancassurance is quite literally “insurance from, or in, your bank”. Its original roots lie in Europe with France being the first country to grant banks permission to market insurance products during the 1970s. Today, bancassurance is universally available (to varying degrees) in pretty much every country with a significant life insurance market.
Here in Indonesia, almost every bank has formed one or more partnerships or strategic alliances with insurance companies to aggressively develop this important new sales channel. In many cases, banks and insurers have even formed joint-venture bancassurance companies such as AXA Mandiri Financial Services, Bringin Life, BNI Life and CIMB Sun Life.

So what’s all the fuss about? Why is bancassurance the fastest growing sales channel for insurance?
First let’s look at some statistics. Swiss Re recently analyzed the growth of bancassurance in several Asian countries over the five years to 2012,
Bancassurance in Indonesia is running at around 51 percent of total new premiums for 2012. This is a phenomenal transformation of the landscape for a country that has traditionally relied on insurance agents as the main distributor
for savings and protection products.
So is bancassurance heralding the death of the traditional agent? Not at all! In fact the rapid growth of the Indonesian market means there is ample room for both channels (and other, new emerging channels such as direct marketing and cyber-marketing) to happily co-exist.
Swiss Re predicts that life insurance premiums will almost triple over the next 10 years – so there’s plenty of room for growth.
In fact, life insurance penetration in Indonesia is currently less than 2 percent - far below many of our neighbors such as Singapore (6 percent), Malaysia (4.5 percent) and Thailand (4 percent). That may not sound like a big deal, but given the prediction by various experts that by 2030, Indonesia will have a total population of 290 million with almost 50 percent - or some 145 million – categorized as “middle class”, this is a market that will dwarf the rest of Asia other than China and India. No wonder that Indonesia often replaces India as the “I” in BRIC.

So bancassurance is clearly here to stay and grow, but what actually makes it “tick”? Well, there are a number of factors at play here:

• One major advantage over the traditional agency channel is that it gives the insurer access to a large group of customers via the bank’s existing customer database, and branch network. Whilst data privacy regulations protects the bank customers’ information, the insurance advisors in the bank branches can work with their personal banker and relationship manager colleagues to identify who is most appropriate for this new service and how best to approach them effectively.
• The bank branch is usually seen as a more natural and logical place to discuss financial affairs.
• Customers usually have a high degree of trust in their bank and are comfortable with products and services that have been endorsed by them and are presented in a professional manner by bank staff or
• “Financial Advisors” from the insurance partner. Financial Advisors are usually paid on a mix of sales and service criteria with some form of partner or employment contract.

So there can be less pressure for them to sell compared to channels that rely purely on commission.
Of course there are benefits for the bank and the insurer as well. The bank will be paid fees and commissions on sales to its customers and in
some instances, may even benefit from profit sharing in the more exclusive partnerships, and the insurer can count on a stable business base.

So bancassurance is one of those rare win:win situations?

Yes, but of course it’s never as simple as that!
As with any major purchasing decision (arguably more so for something such as life insurance where you and your family’s future could be so drastically impacted by anything going wrong), you need to ensure you trust your advisor.

This doesn’t just apply to bancassurance but to the telemarketer who calls you about the new cancer product on offer, your agent who wants to
tell you about his company’s newest product or the insurance broker who wants you to look at this new insurance company that’s just launched.
Talk to your close friends and use the multitude of online forums, blogs and information sites to increase your knowledge and confidence in the
area of finance and insurance. Whatever the sales channel, you should always check the credentials and capability of the advisor and make sure you trust their recommendation. It’s your future.
As to the future for bancassurance in Indonesia? Well, in 5 - 10 years’ time there will surely be even more banks selling insurance, including syariah banks, rural banks, finance companies etc, plus even more joint ventures and strategic alliances – which can only lead to even greater growth in bancassurance.

However, in 10 years’ time you are unlikely to walk into a bank branch to see anyone – far more likely that your age, health or a life stage event
will trigger some form of Personal Digital Adviser hologram who greets you over breakfast and suggests that you go online to top-up your life cover or savings plan urgently!


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