Bancassurance in Pakistan Prospects for life insurance

1. Mohammed Ali Ahmed General Manager, EFU Life Assurance Ltd Karachi Insurance Institute – 23 February 2011 Bancassurance in PakistanProspects for life insurance

2. Introduction Worldwide experience Evolution and current scenario in Pakistan Products Sales models Technology Challenges SECP’s role The next 3 years Definitions of bancassurance

3. Collaboration between Bank and Insurer to distribute insurer’s products • Insurer – provider of products and services – insurance risk taker • Bank – distributor • Level of collaboration can vary from “basic” level to high level “integration” Introduction

4. Benefits to all parties Banks Insurance Companies Customers • Fee based income • Low capital – high ROE • Improved customer • service – Culture shift • Market opportunity • Customer expectation • Success in markets • around the world • New distribution channel • A ‘warm’ customer base • Better persistency • Higher premiums • Profitable Growth • Competitive products • Success in markets • around the world • Changing attitudes & awareness • Want options • One stop financial service • Trust banks

5. Depth of relationship Distribution Agreement “Playing the field” This can be likened to the early days of youth when it is normal to have a number of different relationships. Loyalty is pretty low and long term commitment rarely a consideration. Temptation to switch partners for a “prettier” one Strategic Alliance “Going steady” Having played the field for a while, it is likely that one partner will demonstrate the best ‘fit” in terms of commitment, attention, behaviour and attitude. The relationship develops to a point where each understands the other a little better and both start to consider the others’ needs and aspirations. Loyalty sets in and plans for the longer term begin. Joint Venture “Moving in” Once “courting” has been going on for a while, it is natural to settle down with one partner and start enjoying an even closer relationship. Both partners get to know each other intimately and a relationship of mutual trust and respect develops. Any problems or difficulties are resolved jointly and amicably. 100% Fully Owned Financial Services Group “Go alone” Marriage brings about a whole raft of new responsibilities and a relationship that should be built on a secure foundation. Both partners look for ways to get more out of each other and to contribute to a long and prosperous relationship.

6. “One to One” – Exclusive model “One to Many” “Many to Many” – Open architecture model Depth of relationship

7. International experience Bancassurance has been well established in Europe, Far East, and growing in India and Middle East. Sales via Bank Channels

8. International experience Bancassurance share in European life insurance market

9. International experience Bancassurance share in emerging markets, 2005

10. International experience Bancassurance target markets, 2007

11. 1996 1999 2000 2003 Credit Life Mail Inserts Bancassurance Agreements Depositor’s Insurance Evolution in Pakistan 2011 16 Banks active Evolution has seen product offering move from “Simple” to “Sophisticated” products over the last 15 years Major thrust has been from 2007 onwards with business volumes increasing exponentially

12. Banks active in Bancassurance

13. Life Bancassurance in Pakistan New Business - 2010 Bancassurance Total Industry Bancassurance Sales agents Private sector only Sales agents

14. Active life companies EFU Life NJI Life ALICO State Life is exploring to enter

15. Target Market • Target Market for Bancassurance • Existing Bank customers • Potential Bank customers • Target market is spread across all lines of bank business • Key to success in bancassurance is to identify the opportunities available in the bank customer base and offer the right financial planning solution

16. Customer segmentation • Possible approaches • “Slicing” of Bank Database • Targeting Customer Life Stage • Event Trigger Approach • Which one is correct ? – depends on the bank, its target market and strategy to banking and bancassurance • All or a combination of the above can be used

17. “Slicing” of bank database “Preferred Banking” or “General Banking”  Segmentation by worth to bank Professionals Self-employed Government Employees Businessmen Students Segmentation by occupation / role in society 

18. Targeting customer life stage • Student • Young, Single • Young, married with family • Wealth Accumulation stage • Wealth Management stage • Retirement

19. Event trigger approach • Birth • Admission to University • Wedding • New Job • Purchase of House • Career Change • Business Set-up • Loss of Property • Retirement • Grandchildren • Death

20. Customer life cycle and financial needs

21. Life Products Simple Sophisticated Bundled with bank products - deposits - credit cards - mortgages - personal loans Active selling: - Personal accident - Term life Advice products: - Savings, Investments - High risk cover

22. Life Cycle  Financial Needs  Product Solution

23. Technology • Key initiatives which can assist in distribution: • Point of Sale (POS) system • Website • Mobile phone

24. Product complexity and distribution channels

25. Sales models – Branch distribution Referral model: Bank only generates leads and passes to insurer Trained insurance company’s consultants convert lead to sales Bank’s role is limited with little or no involvement in sales matters Direct Sales model: Bank generates leads and converts to sales Bank has robust sales management setup with it’s own sales team Sales numbers are driven to quite an extent by bank

26. Referral model Sales management Product management Bancassurance management Marketing Operations Involvement from bank’s side High Medium Low

27. Direct Sales model Sales management Product management Bancassurance management Marketing Operations Involvement from bank’s side High Medium Low

28. Alignment of vision Management structure in banks Banks’ expectations Product value Persistency System /Operations constraints Change of personnel Conflict with other sales channels Challenges

29. “Short term” vs “Long term” vision Executive level commitment Financial sustainability of model Acceptance of “insurance” as a product – cultural shift Alignment of vision

30. Bancassurance management structure Ownership and accountability for the business model HOCB Dedicated Bancassurance Management Team Product management Operations Branches Sales team

31. Financial • Focus mainly on first year remuneration margins • Bargaining tool • TAT and client servicing aspects • Strong ownership of client Banks’ expectations

32. Cost saving to be reflected in better product value • Banks willing to reduce policyholder value in return for higher commission??? Product value

33. Limited focus of banks on persistency Persistency is key for life insurance company Insurer has to make significant efforts to make the bank realize the importance of this KPI Good persistency can result in repeat sales and flow of renewal income Persistency

34. Direct debit systems do not always work efficiently Weaknesses in operations setup No or limited MIS setup – reliance on insurer Systems / Operations constraints

35. Conflicts with insurers’ other distribution channels Sales agency channel Banks approach an existing client of sales agency Sales agents approach an existing client of bank Insurer has to maintain delicate balance Give preference to customer choice of channel Conflicts with other sales channels

36. Business model usually driven by personnel rather than institution – not the ideal setup Only some banks have a strategic executive level focus on bancassurance Change of bancassurance team in bank can lead to disruptions in business New team may have different strategy and vision Also may have preference for another insurer! Insurer has to build relationships once again Change of personnel

37. SECP has played a very positive role in promoting bancassurance Pakistan is one of very few countries to have guidelines from regulator Guidelines will bring discipline in the market All important areas are now streamlined and under regulatory supervision Role of SECP

38. Channel will continue to grow and gain prominence For private sector will contribute major part of new business State Life will also make an entry Technology will be key – Point of Sale systems will be common New business expected to double from Rs. 2.8 billion in 2010 to Rs. 5.6 billion in 2013 from private sector companies Next 3 years

39. Thank you!