New competitors are pushing bancassurance to innovate
Absa Bank’s Vimal Kumar discussed the challenges in the bancassurance industry and where he sees the industry going in the coming years. An interview with René van der Poele, Efma senior advisor in insurance.
What are the main challenges in Bancassurance for the coming 3-5 years?
The bancassurance business has challenges in the following areas:
Analyzing customer data: the ability to properly collect, treat, and store customer data. While banks and insurers collect their customers’ personal data, they often face hurdles that make it difficult for them to analyze this data to both offer the kind of personalized service that customers want and to operate more intelligently. One of the reasons for this is that complex artificial intelligence (AI) systems are needed to efficiently and effectively process the customer data. Banks as well as Insurance Service Providers (ISPs) will have to carry out heavy-duty automation of their back-end processes that would allow AI systems to analyze valuable data. Additionally, many countries are revising their legislations regarding how personal data can be collected and treated.
The rise of new competition: the rise of new competition in the form of new online banks and insurers. Today, a significant percentage of people are willing to bank with or purchase insurance from these neo-banks and neo-insurers. The ability to access a full range of services, products, and information online 24/7 makes these neo-banks and neo-insurers attractive, especially for younger consumers like Millennials and others that are highly comfortable using digital services. Despite this new phenomenon, the catch-22 position is exhibited by the fact that a significant number of customers would still require banks and insurers to provide them with additional services and play an advisory role in their lives to differentiate themselves from neo-banks and neo-insurers.
Improving the customer experience: implementing or adopting innovative technology that can continuously improve the customer experience is not going to be a walk in the park. For instance, in the banking set up customers now have a number of ways to make purchases or transfer money that do not require them to swipe their debit or credit card. Mobile payment platforms such as Mpesa, Apple Pay, etc. provide customers with an easy way to make in-store or online purchases. These services also make it easier for banking customers to send and receive money from friends or family. They can now circumnavigate the bank. Banks that are banking on walk-in customers to make insurance sales will be sorry. Incorporating AI systems like chatbots or virtual assistants will be key in meeting the needs of customers 24/7. Furthermore, banks and insurance companies can automate processes to improve their efficiency and maximize profitability. Despite the benefits, implemented AI tools like chatbots or automating processes is a current challenge that the industries must overcome.
Enhancing cybersecurity: Due to the type of data and the sheer amount of data being collected, banks and insurance companies must remain extremely vigilant against threats to be able to properly and responsibly safeguard customers’ data and their online platforms.
What are the major shifts/developments in sales volumes in the core product lines Life/Non-Life/Health?
A significant portion of Bancassurance revenue has come from the credit/lending business. Since the lending business is susceptible to macro-economic factors outside our control, any slowdown in lending has an automatic negative impact on the Bancassurance revenues. With this view, we made a decision to focus on the stand-alone (non-embedded) lines. This focus has enabled us to grow our non-embedded business volumes by about 25% in 2019 with some markets experiencing triple digit growth.
Do you see new areas of product development, based on the digital connection with banking clients? Examples?
Certainly yes! As you are aware digital connectivity is disrupting the way banks deal with customers who seem to constantly shift goal posts and demand simplified, integrated and unified experiences across all interactions and touch points.
Since this digital connectivity is presenting several opportunities such as the ability to generate more leads, improvement in customer experience, etc, we see clear opportunities for tailor-made customer solutions (not products). Solutions because their intention is to SOLVE a particular customer need.
Product and process simplicity is another area of improvement. We have no choice but to strip out complex language from policies to achieve greater transparency and comprehension by our customers. However, this needs to be done carefully to avoid creating coverage gaps for our customers and enhanced risks for our insurance partners. The best option remains simplifying the buying and renewal process by tapping into alternative data sources. This would help insurers prefill, validate, or gather client information in an automated way and perhaps eliminate the current practice of quizzing customers with an endless stream of underwriting questions. These simplifications could potentially improve the customer’s buying experience and add further precision to underwriting and pricing risk.
Increase customer touchpoints. Bancassurers can potentially use growth in digital connectivity as a gateway to becoming more relevant in the everyday lives of their policyholders. The Internet of Things (IoT) will potentially shift products from focusing on cleaning up after disruptions to forestalling those disruptions before they happen. Adopting telematics will be a suitable addition to motor insurance underwriting. When underwriters are able to determine “how” and “when” customers drive, it will enable them to appropriately price the risk in auto insurance.
Technology and innovation in Bancassurance create a high impact. Where do you see the improvement in the Bancassurance distribution model (for instance lower costs, higher efficiency, higher quality, or better customer satisfaction)? Do you see measurable results?
Technology and innovation continue to enhance our operational efficiencies with the key benefits being
• Simplified customer acquisition and onboarding
• More efficient premium payment / collection modes hence reduction in commission leakages as well as policy attrition.
• Business retention. Automated system reminders are increasingly enhancing policy renewal rates.
• Customer experience. Reduced TAT in policy activation, easier and real time claims lodgments, premium payment notices, regular policy statements are some of the activities that are enhancing the level of service to our customers.
• Business management: We haven’t achieved the level of efficiency that we desire but we are seeing significant progress. The MI that we are now able to generate is enabling us distribute leads to our sales teams. The automated reports that we are now able to churn out are assisting our sales managers carry out efficient business reviews, monitor sales on a real-time basis. Our branch managers are able to see their revenue contributions – the revenues they generate from every sale.
Do you have innovative examples of a streamlined cooperation between banks and insurers?
Yes, Absa Group has dedicated insurance product manufacturers in four African markets: Kenya, Zambia, Botswana and Mozambique. These entities are the first pure Bancassurance organizations in these markets – with no branch offices of their own. They fully depend on the Absa bank entities for distribution. The bank branch is their agency branch as well. We have adopted the “Support Model” of distribution where the insurance entities do not have sales agents of their own. The bank’s sales teams are the “agents” with the entities only hiring a few Insurance Sales Specialists to handhold the bank teams.
Is the Bancassurance model different for a traditional bank (with a digital approach) compared to neobanks (mobile-only banks like N26, Revolut, bunq, WeBank)? And, if yes, what are the main differences?
The Bancassurance architecture in the traditional bank (with a digital approach) is quite different from the new world order as exhibited by neobanks in various ways ranging from partnership models, products, sales models, distribution platforms, and client servicing, to name a few.
Bancassurance in the legacy bank is characterized by tie ups or partnership models cemented either by insurers or banks belonging to the same parent –where the product manufacturer distributes products through their “sister bank” or where the underwriter pays huge sums of up-front money to secure exclusive, long-term agreements with bank partners. Key consideration points in these partnerships are mainly the variety and quality of insurance products, service levels, the ability to train a bank sales force to sell the products, and call center capability for outbound campaigns to sell holders of the bank’s core products. The most important aspect is the money.
I find neobanks more customer centric in their product approach. They are putting more emphasis on the customer rather than the distributor. They seem to be focusing more not just on customer needs but, on their tastes and preferences as well. They are able to quickly launch products. They are all-digital – from APIs/web services, quoting, policy issuing, and premium collection to a 100% digital claims process. They also seem to have taken the digital integration with their insurance partners to a higher level – especially in their critical processes indicated above (quotations, policy issuing, service, etc).
Their marketplace strategy is also different as they find it easier to partner with multiple insurance service providers (ISPs) for every product. This gives their customers a great ability to make various choices. This marketplace is delivering good deals for customers especially on price comparison. The disadvantages are evident, however, and especially in the Africa set up where Bancassurance in most countries is still in the nascent stages of development.
They range from the fact that insurance sales is largely (circa 80%) emotional and about 20% rational. Customers still require that “personal touch”. Totally eradicating the F2F channel will be difficult especially for “complex” products such as tailor-made endowment plans. The other disadvantage is that for the model to be efficient, you have to standardize the product to make the price comparable—thereby saying goodbye to product innovation. You have to “standardize down” to the lowest common denominator.