Before the introduction of Bancassurance, Uganda’s insurance sector was growing at barely less than 5%.
Industry Insights

How Bancassurance has transformed Uganda’s insurance sector

Before the introduction of Bancassurance, Uganda’s insurance sector was growing at barely less than 5%.

However, the introduction of Bancassurance has given redemption to Uganda’s insurance sector with it now growing at 18%.

Recent results released by the Insurance Regulatory Authority for 2018 indicate that Banks only collected a whopping Us$ 5.2million (Ush 19 billion) despite the arrangement being in existence for only one year.

A breakdown of the figures saw Stanbic Bank taking majority share with 50.22% of premium booked in 2018. Barclays Bank came second with 26.09%, DFCU Bank followed at 7.57%, Standard Chartered Bank at 5.29% and Diamond Trust bank who had a share of 3.14%.

Housing Finance Bank had a share of 2.14%, Orient Bank (2.21%), Bank of Africa (1.66%), NC Bank (0.61%),  Exim Bank (0.35%), Finance Trust (0.18%), Kenya Commercial Bank (0.16%) and United Bank of Africa 0.12% of the 17 banks registered to offer Bancassurance services in Uganda.

Insurance companies shared a total of US$135million (Ush500billion) in general insurance or non-life and US$59million (Ush217billion) from life insurance premiums, with major contribution attributed to bancassurance.

Since October 2017, the Insurance Regulatory Authority has licensed 17 Commercial Banks to operate as bancassurance agents and there are more partnerships that continue to be developed between insurers and banks to ensure accessibility to insurance products.

“2018 was an excellent year, due to increased awareness in the life insurance market place coupled with the entry of commercial banks into the sector which provided a solid alternative distribution channel,” says John Lintari Sanlam Life Insurance Uganda Chief Executive Officer.

Sanlam Life Insurance Uganda announced an 8% bonus payment to its policyholders after a huge growth in business at 42% all attributed to Bancassurance.
Sanlam Life Insurance Uganda announced an 8% bonus payment to its policyholders after a huge growth in business at 42% all attributed to Bancassurance.

Lintari attributes the hefty growth to increased awareness in the market for life insurance and the entry of banks as new channels of distribution mainly through bancassurance.

Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank’s client base. This partnership arrangement can be profitable for both companies.

In other words, Bancassurance refers to a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank’s customers.

In this partnership, bank staff and tellers become the point of sale and point of contact for the customer.

Bank staff are advised and supported by the insurance company through wholesale product information, marketing campaigns and sales training.

The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company.

In January 2016, Uganda’s Parliament passed into law, amendments to the Financial Institutions Act (FIA) that allowed insurance companies to use banks as a distribution channel to extend insurance policies.

In this regard, the Insurance Regulatory Authority of Uganda (IRA) circulated the draft bancassurance regulations for comments from all the concerned stakeholders that included banks, insurance companies, Insurance Agents and brokerage firms.

Faith Ekudu, the Spokesperson for the Uganda Insurers Association, the advancement of bancassurance in Asia, Europe and more recently in Africa speaks to the desirability and profitability of bank branches in ensuring insurance policy penetration.

For example, she says, “Prudential Assurance Uganda Limited, which has more 100 partnerships with banks in 13 countries worldwide, entered the Ugandan market in 2015 and has identified bancassurance as a growth area, citing the opportunity to increase access to services through the bank network, the size of the bank network.”

Ekudu notes that as early as 2013, Sanlam Emerging Markets (SEM) renewed its bancassurance partnership with Standard Chartered (StanChart), thereby allowing SEM to market and sell its life insurance products through StanChart’s wide banking network in Zambia, Botswana, Ghana, Kenya, Tanzania, and Uganda.

The Prudential Uganda Chief Executive Officer, Arjun Mallik, says understanding of the banks’ clients and their needs, the availability and ability to match products to needs, well-trained staff and the management of expectations for both the insurer and banker are critical for the success of bancassurance.

Low penetration despite Bancassurance surge

Lintari says the biggest challenge the insurance industry in Uganda is facing is still low awareness and general mistrust in relation to compensation and payment of claims.

“In order to further increase insurance penetration from the current 0.84% of the GDP, the industry as a whole must continue to educate and sensitize the market on the benefits of insurance especially when misfortunes occur.

“The industry must also honour their obligations on time so that the market can gain confidence in insurance products and services,” notes Lintari.

In 2018, the Life insurance business sector grew by 29% a clear indication that Life business is on the upsurge and may soon become the biggest contributor to growth in the entire insurance industry in Uganda.