By Ronnie Wonder
The insurance sector is a key component of the financial sector but its growth miniscule – at only 0.85% with limited market penetration. This has meant minimal revenue growth despite insurance being exposed to a huge market potential. Bancassurance which enables insurers to use commercial bank outlets to reach out to new and existing customers is one of the initiatives being sought to see to it that insurance is more appreciated and understood by the public. However, it is being hampered by the lack of a law or regulation to enable banks and insurance companies make such partnerships since hope lies in the proposed Financial Institutions Act (FIA) 2004 amendments, due to be discussed in parliament, to provide regulatory reforms. When the amendments are passed, the financial industry will be able to embrace bancassurance, Islamic banking, Islamic insurance (Takaful) and electronic banking. Although the amended Insurance Act provides for bancassurance, it is still not permitted by the Financial Institutions Act (FIA) and so banks are currently not being used as insurance distribution channels in Uganda.
In this panel discussion, Emmanuel Kikoni Executive Director, Uganda Bankers Association (UBA), and Miriam Magala, the Chief Executive Officer, Uganda Insurers Association (UIA) discuss the future of this product.
What would be the immediate and long term benefits for the insurance industry if the Financial Institutions Act, 2004 is amended to allow for bancassurance?
Emmanuel Kikoni
Insurance products will penetrate the industry and the engagement of banks will assist in its expansion to increase financial inclusion among the public.
Miriam Magala
In terms of immediate benefits, amending the Act would legalize the use of banks as a distribution channel for insurance products thereby making insurance services even more accessible than they are today. By providing a one-stop-solution for customers interested in both banking and insurance, this would be added value proposition as part of their banking experience.
Another immediate benefit is building further public confidence in the insurance industry. Banks are best placed to act as a one stop solution for financial services, as their services are better more widely appreciated than most other financial services. By establishing banks as a distribution channel, we would be better placed to increase public confidence not only in insurance but also in the financial services sector as a whole.
In the immediate, medium and long term, it will also provide the opportunity for further financial literacy and financial inclusion through financial literacy programs based on partnership between the insurers and bankers.
Tied to this would be creating the opportunity for the industry to better innovate as the products that are developed will keep in mind the particular needs of clients who we would want to reach through this distribution channel.
What is being done to prepare industry players embrace this model in a bid to grow insurance up take through banks among the public?
Emmanuel Kikoni
Bankers have been briefed and are ready to train their staff. Some have done it but all not compelled but will accelerate processes when the law is in force.
Miriam Magala
Our first course of action, through the Association, has been lobbying for the passing of the Bill and we have largely employed a two-pronged approach- one targeted towards policy makers and our partners and the other focused on the industry players.
To this end, we have engaged in a number of consultative workshops with key partners in the banking sector, the Bank of Uganda as well as the Ministries of Finance and Justice especially on how bancassurance would operate in this market.
We have also had inclusive consultations with our members and the Insurance Regulatory Authority of Uganda to gain their input and ensure ownership in preparation for the amendments to the Act.
We are confident that the resolution of the legal and operation concerns will ensure the smooth running of bancassurance once the Bill is passed with the ultimate result that improved access will increase penetration.
Will the Association create parallel structures to promote bancassurance?
Emmanuel Kikoni
Co-ordination will exist between banks and insurance companies and the relationship will have mutual benefits for both players.
Miriam Magala
At the moment, there is no need to do so. Bancassurance is one of the distribution channels we are pursuing to ensure that the public can better enjoy insurance services. In addition to the traditional distribution channels, the industry is also using channels like mobile money payment platforms to ensure premium collection and considering the use of other channels like churches/mosques, and travel agencies to make access easier for our clients.
What lessons have been drawn from countries where bancassurance has long been in operation?
Emmanuel Kikoni
Framers of the law must have consulted widely. Most banks and insurance companies have international experience that will be brought on board to enable the public appreciate the benefits of bancassurance.
Miriam Magala
As is the case with any market, there will be a number of considerations to make in terms of what will suit the market. That said, there may be no need to reinvent the wheel as there are a number of bancassurance models that have been applied the world over that we can apply in our own market.
Some of the key lessons though include:
- the need for the regulators to cooperate hence avoiding unnecessary dual regulation and the red tape of long administrative procedures in an effort to comply with each regulator’s regulations.
- the need for clear structures to avoid unnecessarily burdening either the banks or the insurance companies with responsibilities that are not ideally their own or within their mandates to perform.
- Insurance companies also need to quickly adapt to the changing needs of customers by designing appropriate products for the market.
