Mi Casa es Su Casa A Call for “Bancassurance” in Ethiopia.

Banks and insurance companies operating in Ethiopia came in a sister ship , creating a range of possible areas of blending, which include, among other s, dual investment through share purchase(a lucrative source of investment income for insurers), business reciprocity ( as banks entail tied insurance products to guarantee assets at risk), the sharing of headquarters between sister companies, sharing promotional marketing materials, employees, information technology, ATM machines, and of course bancassurance, to mention a few.One intersection point which has received widespread publicity in recent years is bancassurance. Bancassurance, a French term, in its simplest form, is “banks hawking insurance services” (the sale of insurance and other similar products through a bank). This process can take various forms ranging from banks owning insurance companies to banks distributing insurance services; even though this is commonly understood as banks being selling points of insurance services. These partnerships often display innovative characteristics that can open doors and access untapped opportunities. Through the scheme, insurance products are made accessible via bank networks, directly and through mail, ATMS, tele banking and the World Wide Web.

Although not yet explored throughout all of Africa, bancassurance has been gaining popularity in the distribution of insurance products and services for the life insurance, non-life insurance, and pensions industry. In contrast, bancassurance world-wide is the most significant distribution channel for the life and pensions industry and is increasingly being used for non-life insurance, especially in Europe. Nowadays, banks and insurers have recognized the system of bancassurance as being a distribution channel which can help them achieve economies of scale and boost revenues. Its popularity remains strong in other markets, whilst it is nonexistent in Ethiopia.

In Ethiopia, insurance products are sold either directly or via individual agents/broker firms. However, bancassurance, using its various models, can be a potential channel for insurers to avail their products to new markets. Experts also advise banks to work with insurers not only from the simplistic logic that what is good for the goose is good for the gander, but rather from the objective realities in Ethiopia. For instance, the banking sector with its far and wide reach, is thought of as a potential distribution channel, capable of wide-range delivery of insurance services. This idea is strengthened by the fact that during the last fiscal year, there was a major jump in the number of bank and insurance branch offices in Ethiopia.

Currently, there are 1,532 branch outlets rendering bank and insurance services in Ethiopia. This provides a favorable atmosphere for the merging of common services which in turn, enables insurance companies to cross-sell products to customers at five times their current accessibility rate.

Studies show that the bancassurance arrangement benefits firms, customers, and the country at large. If integration can be done successfully, the value of bancassurance for banks will mean larger income from leveraging existing distribution channels and customer access, greater loyalty from customers who would appreciate the increased number of services offered in one location, and faster breakeven for new branches.

Moreover, the insurance firm will increase its market reach and customers, especially for bank services that oblige insurance protection, since most customers trust banks and and visit them frequently. In addition to these benefits, there will also be more business from leveraging banks’ existing distribution channels and usually more profits and distribution economies of scale. The insurance companies can also gain a competitive edge by tapping into existing banks’ customer database in various branches, as well as using the well trained staff and innovative marketing channels such as online marketing and sales.

As far as human resource development is concerned, both sectors can share generalists; capable of cross-selling both bank and insurance services. Customers would also benefit as they can save time, money and comparison efforts, provided that both services are availed at one window. For the financial sector and the country at large, it will mean wider access of financial services and greater inclusion. Especially for the expansion of least accessible services like life insurance, collateral-requiring bank services, and micro insurance, bancassurance could yield a better result and bring about efficiency and effectiveness.

Bancassurance takes different shapes depending upon demographic, economic, and legislative prescriptions in that country. Hence, the structure bancassurance might take in Ethiopia is expected to be shaped and reshaped by the regulatory organ, the National Bank of Ethiopia (NBE), since the entire operation of financial service rendering companies in Ethiopia, (including the products and auxiliary services they offer) are subject to regulatory laws and directives issued by the NBE.

The current insurance business proclamation No.746/2012, Article 50 as well as banking business proclamation No. 592/2008 article 54 state the manner of relation between insurers and banks and sub article one of both articles state transactions, including the provision of insurance coverage, loans and advances, the acceptance of deposits and the provision of insurance and banking services, between insurers and banks shall be undertaken on the same terms and conditions as provided to any other person. However, sub article two further states conditions that govern the relationship between insurers and banks, which may be determined by a directive. In this regard, fragmented efforts are at the embryonic stage and a lot is left to be desired.

In the midst of the dialogue, it must be noted that the regulatory challenges need to be assessed in depth to explore the boundaries of alternative insurance distributions. This can be done through the alignment of the operation to the regulatory environment, coupled with the establishment of an appropriate bancassurance model for the Ethiopian market.

To level the playing field in the immediate run–subject to specific approval from the regulator–all scheduled commercial banks in Ethiopia can get permission to undertake insurance businesses as agents. Moreover, in the long run, specific rules can be framed for setting up various models in which banks act as intermediaries to set up insurance brokerage entities as a re-hash of the institutional agent model while offering products of more than one insurance company,. This would create jointly-owned insurance distributors whereby the bank owns the insurer; or the insurer owns the bank.

Such methods will pave the way for creating an efficient and profitable relationship between the insurance companies and banks, and creating a customer-centric approach and tailor-made products for Ethiopian society at large. However bancassurance as an alternative financial service distribution must take off first. We hope to see such changes in the near future.

2nd Year . November 2013 . No9