Reforms in the insurance sector in the world led to major changes, not only in the design of the products

but also the manner in which the products are marketed. Transitions in the way business have been conducted from using the Traditional Insurance Model (TIM) where insurance companies generally worked with brokers and third party agents, there has been evolvement of the Bank Insurance Model (BIM)/ Bancassurance, which is a symbolic business alliance or partnership of a bank and an insurance company whereby the insurance company uses the banks financial retail business channel for distribution of insurance products, and yet another additional approach, Bancassurance encompasses terms such as`Allfinanz (in German), `Integrated Financial Services and `Assure banking. which is the Hybrid Insurance Model (HIM), which is a mix of the BIM and TIM. The emergence and spread of bancassurance in Zimbabwe has been one of the most significant developments in which many banking institutions and insurance companies have formed synergies, for example ZB Bank and Cell Insurance company, FBC Bank and Nicoz-Diamond and Standard Chartered with Eagle Insurance Company just to mention a few. This scenario is a noble idea that creates some opportunities to the insurance industry that is the broker and the insurer

Bancassurance and Brokers. bancassurance is an opportunity to brokers in that brokers can act as risk advisors and taking an active role in the overall risk management process rather than only partaking on the distribution of insurance products in which every broker has an active interest in because there it is directly related to the insurance policies and placement.The opportunities are as follows Specialist Knowledge.Even though bancassurance pose some threat to the insurance brokers, they are not experts in insurance since its not their core business. This implies the need for training of bank staff other wise cases of underinsurance due to lack of experts in assets valuations, risk factor calculations as well as disputes in claims settlement would act as a seatback. In Zimbabwe most of banks on bancassurance assigns the task to the personal bankers tellers, rather than an insurance salesperson, thereby showing that not most of them are

conversant with the principles thereby showing some of its weaknesses and costs in distributing insurance products on behalf of the insurer rather than using a broker.

The Banks need to safeguard corporate image.Most banks which are in the Bancassurance business in Zimbabwe does not do all the insurance processes like underwriting since Insurance policies are processed and administered by the insurance company, any claims dispute would tarnish the banks image which the banks would like to preserve. This means banks would not take all business from the insurance brokers.

Security and effectiveness in placement of cover.Brokers to a greater extent are able to secure an effective or adequate cover for the client rather than Bancassurance taking into consideration the fact that, brokers does not do business with one insurer which might be the case with bancassurance.This means most of the clients who are already using brokers might opt to continue doing business with their brokers.

Bancassurance and insurers.The benefits of bancassurance to the insurers are far more convincing. The ability to tap into bank's huge customer bases is a major incentive. The extensive customer base possessed by banks is considered to be ideal for the distribution of mass-market products. Further, insurers can make use of the wide reach of bank customers into different categories to develop products to suit their needs/aspirations. Apart from the ability to tap into new customers groups,escaping from the high cost of captive agents is another reason which should prompt the insurers to look into alternative channels. In some cases, teaming up with a strong bank can help to fund new business development and improve public confidence in the insurer. In a nutshell, insurers are attracted and gain from bancassurance on account of several reasons, and some of the important of them are: Tap into a huge customer base of banks business growth Reduce their reliance on high-cost traditional agents by making use of the various channels owned by banks

 Availability of the relatively more sophisticated technology Improved efficiency on account of reduced ratio of expenses to premium Develop new financial products more efficiently in collaboration with their bank partners Establish market presence rapidly without the need to build up a network of agents/insurance outlets Obtain additional capital from banks to improve their solvency and expand business

However ,bancassurance poses threats to the insurance

industry also.There are threats to

insurance brokers which must also be taken into considerations which are as follows: Established database and a ready market for the product.Bank Institutions stage a competitive edge against brokers since they have a strong clientele base from which they know all the details thereby making it easy for selection of potential people who would need insurance cover. This makes it even easy to market a certain product for example if someone is a farmer in their database, they would specifically select a specific insurance product earmarked for the farmer with no hustle and less cost rather than what a broker would incur. The other advantage of an established database is that of enabling fast turnaround of documentation and premium payment arrangements.

Reduced Commission .As alluded to by Mr. Gift Madhlayo in a herald article dated June 1, 2006 in defining banc assurance, Bancassurance is a symbiotic business relationship between a bank and an insurance company whereby the former sells insurance on behalf of the insurer and the bank earns commission. In this definition it can be derived that banks are in bancassurance in order to benefit from commissions, which might have been enjoyed by the insurance brokers if there was no bancassurance, however it can be argued that although the aggregate commission are reduced for the Insurance Brokers, insurance brokers have the room to negotiate for a certain commission rather than those using bancassurance.

One Stop Shop Concept -The FBC website asserts that with FBC Bank Bancassurance you can access all your financial needs under one roof by visiting any of our branches. This implies that bancassurance pose a threat to the Insurance Brokers in distributing Insurance products since the customers appreciate the provision of integrated financial services, including insurance products at the banks branches, which in turn builds better customer loyalty and retention level since people prefer doing all their financial business in a one place than moving from one place to the other to make financial transactions.

Stop Order facility A stop-order facility is a system, which allows banks to deduct any amounts due as premiums on a certain interval of time. This means there will be no more hustles in trying to get cash and rush to insurance companies to pay for insurance premiums which might be costly for brokers to implement since they also need to have an agreement with the bank to effect such deductions at a certain transactional cost. Stop Order payment method also ensures no loss of cover due to delayed premiums, faster turnaround time of documentation, very competitive pricing since the insurer is guaranteed of payment.

Specific Insurance packages-In Bancassurance, products on offer are usually specifically tailor made to suite certain classes of people or individuals, especially in terms of class, reputation, and the amount of money that one can actually pay towards a certain insurance product. An example is that of NMB bank whose policy is centered on a personal relationship/ executive banking system, if an insurance policy is to be availed, it would be easy to provide a relevant product which would deem necessary for a specific individual, rather than it would be to an insurance broker. A big Network-Most of the banks have a wide bank branch network which makes then surpass consumer outreach of brokers in insurance products distribution, for example ZB Bank has 31 branches all over the country and toll free call centre from which bankassurance transactions can be effected. This enhances faster turnaround time of documentation since correspondence between the customer and the bank can be done through the branches. In addition, a banks branch network allows the face-to-face contact that is so important in the sale of insurance

products which means, as bankassurance become known, banks will meet an important set of consumer needs than brokers

Related products- Bancassurance is a threat to the Insurance Brokers when it comes to insurance products distribution since banks offer some related products that require one to have insurance cover to be able to benefit from them. An example is that of Business credit insurance, small to Medium Enterprises Credit facilities, loans and overdraft protection, which makes them more competitive than brokers. In Zimbabwe this scenario has started to evolve for example in June 2010, FBC bank launched a Mazda3 lease facilities with Willowvale Mazda Motor Industry, were all vehicles financed under the scheme were to be insured through FBC Bancassurance, showing the competitiveness of bancassurance in influencing the sale of motor insurance cover.

Eligibility-Any one with insurable interest, banking and non-banking clients are welcome. Insurable interest is the financial relationship between the insured and insured item where the insured tends to benefit through the continued existence or suffers a financial loss through the destruction of the subject matter of insurance. This implies that bancassurance will bring with it stiff competition to the brokers since it does not only consider the existing clients only. Most large retail banks engender a great deal of trust- C.S. Rao (2009) in emergence of bancassurance in India asserts, The enormous trust that the banks command in the minds of public is an important reason why insurance companies seek to enter into wide ranging banking partnerships. In regard with this, when it comes to insurance in Zimbabwe, due to the economic trends, liquidity crisis and negative money market forces like high interest rates, most people had lost trust in banks to an extend that most clients would opt to continue dealing with their historical brokers resulting in more than of 80% of insurance business to be with brokers. However, with reference to Life Insurance contracts which are essentially long term in nature, a brand which is considered strong, long standing and trust worthy to hand over lifes savings would be considered by clients and with this in mind banks would offer a competitive edge to the brokers in the financial industry as bancassurance takes its course.

Greater convenience and financial security,Bancassurance offers insurance packages over and above the core banking products, which enables people to enjoy convenience and financial security, since banking now means a lot more than just keeping money safe, With this in mind a banker would view bancassurance a service that would have added value to his financial needs rather than just a pro-active transfer of risk as perceived in case of a broker.

Maximization of profit from this new opportunity by banks and Insurers.Edward West,(2009) in his article, Standard Chartered Bank Clinches Bancassurance Deal with Sanlam says Most players also recognize that the biggest untapped bancassurance opportunity is life insurance, because it is currently distributed through expensive agent sales forces and has yet to be purchased by many potential consumers. This implies that for both banks and life insurers to maximize profit from this new opportunity more partnerships will evolve, since Insurance companies and the banks together find that their collaboration at providing a package of financial services not only benefits customers but also maximizes their profits. In regard to this, insurance brokers would view bancassurance as a threat in the distribution of insurance policies.

Advanced technology .When it comes to investment in technology advancement banks have a competitive advantage over insurance brokers. Since a robust technology platform supports multi-channel delivery capabilities which aid service delivery and convenience to clients, banks would pose a threat in the sale of insurance product.

Also bancassurance is a threat to insurers.From bancassurance point of view, one of the key constraints that public sector insurance companies are faced with, is their overdependence on the traditional channel, viz., individual agents (anddirect sales) on the one side, and unwillingness reduce this dependence (say, closing down of branches).The threats are as follows

The top management of insurance companies, in particular public sector insurers must take bancassurance more seriously and evolve comprehensive strategies to forge alliances with banks.

It appears that the insurers are not extending wholehearted support to banks in regard to the distribution of complicated and high-value products. Insurers must pass-on to banks the complete information about products and also assist bank in distribution of complex products such as nonlife insurance products

Insurers must realize that 'putting bancassurance into operation' is a complex process as insurance selling is indeed a distinctive skill. Onus of preparing banks as also sensitization of the staff therefore lies with the insurer

Although bancassurance has seem to be an attractive and often profitable complement to banks core businesses, in Zimbabwe less than twenty per cent of total premiums are generated through this channel. There are expectations that bancassurance will grow to register a dominant share in the widening insurance market posing a significant threat to the Insurance Brokers. However while both life and non-life companies seek to engage bank branches, non-life products have featured less prominently in bancassurance distribution. The major reason is the complementary nature of life insurance and banking products. Both are in the nature of savings. Therefore although bancassurance poses a significant threat to the insurance brokers, it would only affect the distribution of insurance which is used to hedge about twenty percent of most risks.

BIBLIOGRAPHY

C.S. Rao (2009), Emergence of Bancassurance in India, The Concept Of Bancassurance And A Survey On Attitude Of Bank Sales Personnel Towards Insurance Products. Press release India

Dorlisa K. Flur, Darren H, and Lisa Y (1997), Could Banks be a new channel to sell insurance? three partnership models. Bancassurance - Mckinsey quarterly - financial services Press Release.

Edward West, 29 July 2009,Standard Chartered Bank Clinches Bancassurance Deal With Sanlam, Business day, Allafrica.com Fbc Own correspondence- Friday, 19 May 2006: Full Value to Insurers FBC Bancassurance, FBC Bank Retail Banking Bancassurance, Harare Gift Madhlayo (2006) 'Insurance Sector Should Continue to Fight Fraud, Corruption, The Herald June 1, 2006, Zimpapers Company, Harare Ozberk Uurer(09.01.2009), The Concept of Bancassurance, A Survey on attitude of Bank Sales Personnel Towards Insurance Products: Istanbul; India The Free encyclopeadia, www.wikipedia .com accessed 10 June 2010.

FACULTY OF COMMERCE
DEPARTMENT OF INSURANCE AND RISK MANAGEMENT NAME
SURNAME REG NO MODULE MODE OF ENTRY LECTURER LEVEL GETRUDE .V MVUDUDU R0723225F INSURANCE BROKING CONVENTIONAL Miss MATSIKA 4.1

QUESTION

Is Bancassurance an opportuhity or a threat within the insurance industry.Discuss (20)