In what is seen as a further step to foster the development of an inclusive insurance market in Tanzania, the national insurance regulator—the Tanzania Insurance Regulatory Authority (Tira)—is officially launching today (Thursday May 16, 2019) the Insurance (Bancassurance) Regulations that were published in the Gazette of the United Republic of Tanzania under Government Notice No. 216 of 2019 on March 15 this year.
The regulations will be launched in a special ceremony at a city hotel in order to raise awareness and inform stakeholders as well as the general public about the entry into force of the Bancassurance Regulations, 2019, says Tira’s corporate communications officer Mr. Oyuke Phostine.
This article amplifies that idea by bringing understanding to the dynamics of bancassurance. Specifically, the article discusses the mechanics of bancassurance and highlights the status of the insurance industry and selected salient aspects of the Bancassurance Regulations, 2019. In addition, article considers the most important challenges and concerns and the way forward to the success of bancassurance in Tanzania.
‘Bancassurance’, as the name suggests, is “a mechanism by which banks or financial institutions and insurers collaborate to distribute and market insurance products” (see, Regulation 2 of the Bancassurance Regulations, 2019). Through the mechanism, a licensed bank or financial institution (“bancassurance agent”) enters into a contract (“bancassurance agency contract”) with a Tira-licensed insurer to sell the insurer’s products to its customer base in return for a commission on each lead closed.
It is a win-win situation for the bank, the insurer, and the customer of the bank in the sense that the bank has a wide reach, market penetration, and established customer trust in the financial industry—of which insurers are a part. The insurer can use the customer base of the bank to strengthen the uptake of its insurance products and consequently its premium turnover. And what’s in it for the bank’s customer? Bancassurance encourages the customer to purchase insurance policies, obtain better premium rates, and enjoy much greater convenience.
The collaboration between the bank and the insurer can be deepened to a most satisfactory level in Tanzania, since the country’s overall population is about 55 million people. Thus, bancassurance, as an innovative intermediate channel of selling insurance products, is fast gaining importance among insurers in Tanzania; nevertheless, it was initially introduced in France in the 1970s before spreading to other countries in the world.
Bancassurance is taking a central role in the strategy of many banks and financial institutions in Tanzania because it enriches their customer portfolio and generates new risk-free income in the form of commissions from insurers at a minimal set-up cost which, under Regulation 4(2) and 6(1) of the Bancassurance Regulations, 2019 (read together with the First Schedule thereto), includes prescribed application fees; one-time registration fees; and annual license maintenance fees.
The Regulations come in the backdrop of the monumental opportunity for insurers to get more Tanzanians to buy life and non-life insurance. The opportunity is monumental in terms of the country’s insurance penetration rate (premiums as a percentage of GDP) which was 0.55 per cent for the year 2017, representing a decline of 0.1 percent in comparison with the penetration ratio of 0.64 per cent for the year 2016 (see, Tira’s Annual Insurance Market Performance Report for the year ended 31 December 2017). The rate is very low compared to the world’s average of 6.1 per cent and 3 per cent for Africa.
Clearly echoing the draft National Insurance Policy (NIP) statements on bancassurance, the Bancassurance Regulations, 2019, should encourage both banks and insurers in Tanzania to capitalise on the monumental opportunity exemplified by the country’s low insurance penetration and demographic profile.
Under regulations 4(3)(b) and 8 of the Bancassurance Regulations, 2019, prospective bancassurance agents are required to maintain the same capital provided for by the Bank of Tanzania (BoT) and to obtain a letter of no objection from the BoT when applying for a bancassurance license. This, I submit, sets a strong financial foundation for the steady growth of bancassurance in Tanzania.
There are different business models of bancassurance, but the choice of the specific model depends on, inter alia, the regulatory environment of the market.
In the Tanzanian market, the Bancassurance Regulations, 2019, provide for the pure distributor model whereby a bancassurance agent acts as an intermediary offering the insurance products of more than one insurer and up to a prescribed limit. Tira has, thus, left some discretion to the banks and financial institutions to make a proper decision that would best suit them given their operating environment. In the upshot, there is more choice for the customer; and for the bank, more insurance policies to understand and explain to the customer.
The interesting, but paradoxical, point to note is that the pure distributor model is the most prevalent in the Americas and Asia yet Tanzania is a member of the British-led Commonwealth of Nations, where the most prevalent model is a model that integrates the strategic alliance model (where a bancassurance agent sells the products of only a particular insurer) and the joint venture model (where the bancassurance agent and insurer form a new entity via shareholding).
Nevertheless, the pure distributor model underpinned by the Bancassurance Regulations, 2019, will serve to enhance agency force, a key driver of insurance business in Tanzania.
While naturally all the top tier banks and financial institutions will establish bancassurance business, it is advisable to do so with a concrete plan—a plan which includes sensitizing their customers on the importance of purchasing insurance policies, since Tanzania suffers from a very low level of public awareness about insurance.
Moreover, banks and financial institutions should take cognizance of the apprehension that bancassurance would likely make it tough for Tanzania’s estimated 413 insurance agents licensed by Tira. But as the Bancassurance Regulations, 2019, prohibit tied-selling (i.e. the practice of a bank agreeing to sell its customer a bank product only if the customer also buys an insurance product through the bank), the apprehension might seem inapt. In reality, though, only time will tell whether the regulatory prohibition against tied-selling will save many traditional insurance agents from losing business to banks and financial institutions and; thus, dropping out of the insurance sector.
In terms of the way forward to the success of bancassurance in Tanzania, timely satisfying claims and serving customers in a courteous and professional manner will be critical. In particular, professionalism would help stave off bancassurance lawsuits brought by customers of the bank and stop cascading effects e.g. the customer leaving the bank.
The insurance sector is closely linked with the national income of Tanzania and the attainment of the three principle objectives of the Tanzania Development Vision 2025 (achieving quality and good life for all; good governance and the rule of law; and building a strong and resilient economy that can effectively withstand global competition), as well as the international trade regime. Bancassurance, as the convergence of the banking and insurance sectors, can help increase insurance uptake and premium turnover and ultimately add value to Tanzania’s development.
The Bancassurance Regulations, 2019, being launched today by Tira have been framed with that in mind. It is critical to realise that these Regulations are not cast in stone, but could be amended by Tira in response to the actions by insurers, banks and customers. In this sense, continuous and authentic stakeholder engagement will be very important in improving the Regulations and in achieving an inclusive insurance market.