Banks are deepening their foray into the insurance business through bancassurance, greenfield licences, and acquisitions, riding on strong financial muscles and higher trust from customers, raising the prospects of helping insurers break into new grounds.
The lenders are seeking a pie of the insurance revenue through bancassurance (the sale of policies and other insurance products through banks), in a move that could mark a major disruption in a market dogged by low penetration, customer complaints, and shoestring budgets for many of the underwriters.
Joram Kiuna, director and head of bancassurance in Kenya and East Africa at the Standard Chartered Bank, says banks coming into the insurance space is good for the industry and particularly for customers because it offers them a one-stop-shop solution as well as accelerating innovation in the insurance industry.
“Many customers who want premium financing, for example, do not now need to go looking for an insurance product in one shop and then go looking for financing in another shop. Banks are also ahead of insurers on innovations, and their bancassurance subsidiaries are helping the sector leap in quantum in terms of how quickly adoption of technology can come to the insurance sector,” said Mr Kiuna.
The latest financial results indicate that the bancassurance business is showing promise as one of the fastest-growing businesses for banks. Bancassurance is a strategic alliance between an insurance company and a bank where the insurer rides on the bank’s infrastructure and data while banks share in the revenue.
Most listed banks posted double-digit percentage growth in pre-tax profits from their bancassurance subsidiaries in the financial year ending December 2023. Absa Bancassurance Intermediary Limited, a fully owned subsidiary of Absa Kenya, posted a 41 percent jump in pre-tax profit to Sh1.32 billion to top the bancassurance profitability chart.
Last year also saw Stanbic Bank Kenya’s bancassurance subsidiary post a 97 percent rise in gross profit to Sh308 million as I&M Group increased by 10.4 percent to Sh260 million.
KCB’s bancassurance subsidiary saw its pre-tax profit rise 16 percent to Sh737 million last year, while NCBA grew by 83 percent to Sh292 million.
NCBA’s share of the revenue from the insurance business is poised for growth after acquiring AIG Kenya Insurance, which points to a new trend in the market. More banks are now going beyond bancassurance to set up insurance companies or acquire existing ones in the race to enrich their buffet of financial products and serve customers better.
“With insurance increasingly becoming a basic financial need for the type of customers we serve, an ecosystem of NCBA’s physical and digital distribution platforms and AIG Kenya’s insurance capabilities will unlock opportunities to catalyse deeper insurance market penetration in Kenya and the East Africa region,” said John Gachora, chief executive at NCBA.
While banks will be getting a piece of insurers’ business, bancassurance is opening a new horizon for the insurance industry in Kenya as the collaborative arrangement helps insurers expand their coverage at a low cost.
This is because bancassurance agreements allow banks to sell insurance products, allowing the latter to enjoy access to the bank’s client base and increase its sales. The banks benefit by receiving additional income from the sales of the insurance products.
Insurance Regulatory Authority (IRA) data has consistently shown that Nairobi County continues to account for about 80 percent of the industry’s total premiums, leaving out most parts of the country, despite Nairobi’s share of the value of the economy being 27.5 percent.
This unequal distribution of premiums has presented an opportunity for banks to ride on their vast branch network countrywide to reach out to more customers and help drive up insurance uptake.
“In terms of being able to better understand customers, the large database that banks have and being able to ride on customer behaviour, this is good for insurance penetration. Banks are in a better position to segment customers and craft solutions that address the needs of each segment,” said Mr Kiuna.
Top banks have all now tasted the insurance market through their bancassurance businesses. IRA data shows 17 banks and six microfinance banks were licensed to offer bancassurance by February this year—a clear indication that they are betting on underwriting business to diversify their revenue streams.
Insurance penetration in Kenya remains exceedingly low, at less than three percent, as many people lack trust in the industry, especially due to the poor claim settlement ratio. The thinking behind bancassurance is that more people will be inclined to purchase insurance products backed by their trusted banks.
NCBA follows the likes of Absa Group, which in 2015 acquired a 63.3 percent stake in First Assurance Company Limited and became the majority shareholder in the insurer that has been in Kenya since the 1990s.
Equity Group, which had for years enjoyed insurance revenue through the bancassurance business and holding a stake in Britam Insurance has now made a full entry into insurance by setting up general and life insurance companies.
“We have identified insurance as a critical opportunity for the Group to contribute to business and individual resilience and protection,” says Equity.
The Co-operative Bank of Kenya has been raising its stake in CIC Insurance over time, closing last year at 74.3 percent from the lows of under 20 percent some 10 years ago.
