Distribution of insurance through banks is a fairly new phenomenon in Kenya. Also known as Bancassurance, the distribution of insurance via banks is touted as one of the ways of increasing insurance penetration in Kenya.
For a few years now, banks have been cross-selling credit life insurance products to existing banking customers. Examples include; Mortgage Life Protection in case you die or become permanently disabled before you pay off your loan, Credit Card Insurance and, other forms of insurance linked to bank accounts such as Retrenchment Cover. But, in addition to these traditional credit life products, banks have now invaded the personal insurance space, for example, motor, health, life, accident etc and, are now even distributing commercial insurance.
This has largely been as a result of the highly competitive nature of the Kenyan banking industry which has forced them to grow their revenue base from non-traditional revenue streams. Legislation to cap interest rates has also forced banks to seek alternative non-funded income (NFI) sources such as insurance commissions to grow their revenues.
By leveraging their huge customer databases, banks don’t have to work too hard to acquire insurance leads. Revenue from insurance commissions is considered low hanging fruit.
But, what does this mean for you as an insurance consumer?
While marketing insurance products on behalf of underwriters, Kenyan banks typically make the claim that they have negotiated superior insurance products with underwriters and that these are only accessible to the insuring public via their branches. Some banks even go as far as claiming that insurance companies pay claims faster when they are dealing with the bank.
But, is this really the case? The answer is an emphatic, no.
No Price Advantage When You Buy Insurance From A Bank
While frontline staff in banks will make the claim that their insurance products are superior, the truth is that any insurance agent with a few years of experience can access a much better deal from insurers. There is usually room for negotiation on a case-by-case basis when you go through an agent or broker than when you go through a bank. Typically, most banks have rigid decision-making processes. Once policy terms have been negotiated and agreed upon with the insurance company, deviating becomes an arduous process. You have to buy the “canned” product and there is no wiggle room to add or delete product features. Furthermore, banks often demand much higher commissions than those usually paid out to other insurance intermediaries. These “extra” commissions are paid out as bonuses for achieving premium targets or as marketing allowances. Due to this added cost, Insurance companies are, therefore, not keen to further negotiate the policy terms with banks even on a case-by-case basis. On the same note, due to intense pressure to meet income targets, bancassurance managers will rarely allow their officers the latitude to venture outside the negotiated terms.
Inadequate Product Knowledge
Insurance in banks in sold by the frontline staff, the banking officers and Relationship Managers, you find at your branch. Since they are rarely fully specialized insurance professionals, they tend to be deficient in technical and product knowledge. They will typically have gone through some product training over a one or two day period. This is hardly adequate when dealing with insurance, a complex subject. You might as well be speaking to a layperson when you walk into most banking halls. In fact, in some banks, the situation is so dire that some bank employees give customers the impression that the bank is the underwriter of the insurance products by using terms such as, “we will pay” during conversations, usually with serious consequences whenever there is a claim.
Insurance agents and brokers are mandated by the Insurance Regulatory Authority to hold, as a minimum, a Certificate of Proficiency (COP) in insurance before they can engage in business. There is no such requirement for banking staff. It is assumed that once the bank is licensed, they will provide adequate training to their staff which isn’t the reality.
Some banks have tried to remedy this situation by hiring insurance specialists to assist traditional frontline staff at the branches but there is no guarantee that the person whom you speak to is a qualified insurance professional. The result of this is that customers end up not getting treated fairly in terms of ensuring they fully understand the;
- risks and,
- costs of,
the insurance products they buy. Treating customers fairly is a regulatory requirement by the Insurance Regulatory Authority (IRA).
Poor Customer Service During Claims
Whilst some banks claim that their customers’ claims are paid faster, the reality is that most bancassurance officers are clueless about the claims process. It gets worse if the claim is complex or challenging. Customers are left to chase claims on their own. On the other hand, an experienced insurance agent or broker knows all the ins and outs of the claims process and will typically be able to chase a claim on behalf of a customer until the matter is resolved, with regular updates to the customer.
When you’re looking for financial advice, your bank naturally seems like a safe bet. After all, you already trust them with your money – unless you’re one of those people who keeps all their money in a tin under the bed. But, unfortunately, as I have demonstrated, it’s never that simple with insurance. Never buy insurance from a bank, identify an experienced agent or broker and you will never go wrong.
If you’d like us to guide you safely through the minefield of Insurance in Kenya, kindly complete our contact form or call us and we will get back to you.