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.
Banks just love to sell insurance products as an add-on to existing banking products. Examples include mortgage life protection in case you die before you pay off your loan, credit card insurance and other forms of loan insurance. But, in addition to these traditional credit life products, banks have now invaded the personal insurance space (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 seen traditional interest income shrink. 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 and consider revenue from insurance commissions, 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 claim that they have negotiated superior insurance products only accessible to the insuring public via their branches. Some banks will even tell customers that insurance companies pay claims faster when they go purchase policies through their banking network.
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 are trained to tell customers that their insurance products are superior, the truth is that any well-established insurance agent 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 than when you go through a bank. Most banks typically have rigid decision-making processes. Once policy terms have been negotiated and agreed upon with the insurance company, deviating becomes an arduous process. Furthermore, banks often demand much higher commissions than those usually paid out to other insurance intermediaries. These “extra” commisions are paid out as bonuses for achieving a premium target or as marketing allowances. Insurance companies are therefore not keen to further negotiate the 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.
Wanting 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, their technical and product knowledge on insurance matters tends to be wanting. They will typically have gone through some product training over a one or two week period which is hardly adequate when dealing with complex insurance matters. You might as well be speaking to a layperson. In fact, in some banks, the situation is so dire that some bank employees give the impression that the bank is the underwriter of the insurance products, usually with serious consequences whenever there is a claim.
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 established insurance agent 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.
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.
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