Bancassurance in modern business

Bancassurance is a formal and/or informal cooperation between an insurance company and a bank.

This cooperation is necessitated by the following developments of modern business: • High levels of competition for market share necessitating that companies must be creative in reaching the customer and adding value to the customer. • The need to reduce costs, especially in the area of sales and distribution, requires modern companies to cross-sell several products to their customers. • Mutual referral of customers to each other leading to lower sales and distribution costs. • Companies need to diversify their sources of income to be able to compete better. • Information Technology has developed to enable customer databases to be mined to provide a better understanding of customer needs and how to sell better to them. • Globalisation of the economy enables local companies to learn from what strategies work in other countries and bancassurance is one such strategy. • Benefits of globalisation where organisations can participate in international agreements by parent companies. Individuals and organisations cannot succeed without banking and insurance services.

While it is easier for the customer to approach a bank for services, customers find it difficult to see the need for insurance services. For example when you need to purchase a building or a vehicle, nobody needs to tell you that you need bank finance, thus, you will approach your bank. However, many customers do not see why they must buy insurance products which cover death, disability and sickness.

Many customers do not believe they can die or be disabled in the short term and may postpone any expenditure in insurance products. For the customer, certain products tend to lie between the bank and the insurance company, particularly those investment products that cover retirement and funeral.

For various reasons, individuals generally tend to trust banks more than they trust insurance companies.

Banks and insurance companies, mindful of these differences in their businesses, cooperate to enhance their services to customers through bancassurance partnerships. Bancassurance helps customers to benefit from one-stop service.

The sales and distribution strategies for banking and insurance services differ and bancassurance provides synergies which can be beneficial to the two partners as well as the customer. The benefits to the banks and the insurance companies have been listed above in the introduction.