Bancassurance is currently the largest life insurance distribution channel in Indonesia, having contributed to 51% of premiums in 2016. Although the channel's share in general insurance premiums is significantly lower at 3.57%, bancassurance still holds great potential, said Mr Edy Setiadi, Deputy Commissioner of Non-Bank Financial Institutions, Indonesia Financial Services Authority (OJK).
Delivering the keynote address at the 18th Asia Conference on Bancassurance and Alternative Distribution Channels in Jakarta, Indonesia earlier this week, he noted that in markets like Turkey, Taiwan, South Korea, Hong Kong and Thailand, bancassurance has captured a majority of life insurance consumers, comprising more than 40% of premium income. Meanwhile, among China, Malaysia, Philippines, Singapore and Indonesia, the channel dominated more than 35% of total premium income last year.
More than just selling products
“Bancassurance is evidently still a compelling and relevant option when it comes to distribution.” He added that insurance distribution is not simply about selling product, but that it has added value in its process; it is in this distribution process that relationships and trust are built between insurers and consumers. And the regulator considers bancassurance, being a channel that allows for the provision of multiple services with one touchpoint, one of the most effective distribution channels that also helps increase insurance penetration in the market.
However, Mr Setiadi noted that while bancassurance is an appealing mode of distribution, not all insurers and banks have managed to successfully leverage this channel. He boiled it down to clear partnership strategy and careful planning, smart execution, as well as timely evaluation – three essentials to succeed in bancassurance.
During planning, banks and insurers must ensure they choose the right partners, calibrate their vision to build a win-win solution and be transparent with information exchange. At execution, each must pull their weight to prepare for operations, which include human resource development infrastructure readiness. Finally, both banks and insurers need to periodically evaluate their performances and make necessary adjustments. And throughout, good communications is also fundamental to the success of the partnership, he said.
The regulator noted that since it launched its mandate in 2013, bancassurance activities in the banking and insurance industry have undergone significant improvement in terms of efficiency. Notably, the OJK issued two circular letters on bancassurance practices in 2016 that tackled insurer conduct and risk management for banks that participate in the channel.
“Both regulations have greatly reduced the approval time of bancassurance activities and products from 119 to 19 working days. Further, the regulations have also provided enhanced protection for bancassurance customers through data privacy, information transparency and due diligence obligations on the companies’ part.”
Seek to integrate new tech
Notwithstanding the success and potential in bancassurance, Mr Setiadi noted changes that the industry continues to face. With the rapid adoption of technology by society, he recognised that the traditional insurance model is being disrupted by changes in many aspects including consumer expectations, regulations and FinTech/InsurTech, which insurers should not undermine. And while FinTech/InsurTech might be perceived to be more attractive, he said bancassurance can still benefit by integrating new tech into its business model.
“Insurance companies will have no choice but to adapt; it is not the strongest or the most intelligent that will survive, but those that can best manage the changes who will triumph,” he added.