Prominence and effects of
SECP Guidelines on the
Development of Bancassurance
in Pakistan
February 23, 2011
Faraz Uddin Amjad
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Deputy Director – Policy Reforms
Bancassurance
- The selling of insurance products by banks as
distribution channels (on behalf of the insurance
companies).
(This term is yet to be defined in Insurance Ordinance, 2000)
- The Bank Insurance Model ('BIM'), commonly known as
'Bancassurance', is the term used to describe the partnership or
relationship between a bank and an insurance company whereby
the insurance company uses the bank sales channel in order to
sell insurance products.
- Allows insurance company to have smaller direct sales teams
- Both the bank and insurance company share the commission
- Extremely popular in European countries such as Spain, France
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and Austria.
Factors influencing the
Bancassurance
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Regulatory Environment
Organizations’ Positioning
Demographic & Economic factors
Consumer Education & Awareness
Selection of appropriate Business model
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Basis of Contract
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An insurance contract is based on offer and acceptance.
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The sale of all insurance products by any Bank (on behalf of
an Insurer) must be done in such a manner which
demonstrates that the prospective purchaser makes an offer
to enter into the insurance contract, and either the Bank
(being a corporate insurance agent) on behalf of the Insurer
signifies acceptance or the Insurer directly signifies
acceptance.
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Without the evidence of Offer and Acceptance, no
insurance sale shall be deemed to be completed and the
insurance contract shall be considered null and void.
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Bancassurance Arrangement
between the Insurer and Bank
No Bancassurance arrangement is valid unless it
incorporates the following essential elements:
(a)
Not contain any provisions which reduce, in any way, the liability or
responsibility of the Insurer towards the Policy Holder under the Ordinance
and Rules;
(b)
Specify any functions which the Insurer, as a part of such an arrangement,
intends to delegate to the Bank;
(c)
Clearly define the Certification process which shall include a definition of the
training required prior to certification; and
(d)
Contain a provision which clearly states the “termination of agreement” clause
and responsibilities of the Bank and Insurance Company subsequent to such
termination. This clause shall also state the treatment to be given to existing
policyholders and remuneration to the bank subsequent to the termination.
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Bancassurance Arrangement
between the Insurer and Bank
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Premium Collection by the Bank, subject to the possession of necessary
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The Insurer shall also ensure that the Bank’s premium collection system is
effectively working
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The premium collection function shall be deemed to be ineffective if the premium
collection ratio, i.e. the ratio of premiums collected to premiums due, is less than
85% or any figure which the Commission may subsequently prescribe.
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Every Bank shall attempt to ensure remittance of the premiums by the
policyholders within the stipulated time, by giving notice to the policyholder orally
and in writing, or through other means such as call centre, email or SMS.
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In the case of Life Insurance, the Insurer shall also ensure that notices under
Section 93 (“Non-forfeiture”) of the Insurance Ordinance,2000 are sent to the
Policy Holder.
premium collection system, such as an automated direct debit system, debit on
credit cards, or any other system, in place.
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Bancassurance Arrangement
between the Insurer and Bank
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Marketing Brochures and Sales material to solicit Bancassurance
business shall be approved both by the Bank and the Insurer;
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Clearly state: the Bank’s role and the Insurer’s responsibility; The name,
address and contact details of the Insurer shall be mentioned at a prominent place.
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The market conduct rules and guidelines issued in respect of the insurance
agent by the Commission shall be observed by the Bank.
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Illustration of Benefits: For Life Insurance, wherever applicable, based on
the prescribed format provided by the Insurer shall be signed by the Specified
Person and the intending Policyholder. Any insurance proposal, where the
Illustration of Benefits is missing, unsigned or is not based on the product
parameters mentioned in the proposal form, shall not be accepted by the Insurer.
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Bancassurance Arrangement
between the Insurer and Bank
>> Claims Handling, under the arrangement claim adjudication and
settlement, shall be the responsibility of the Insurer.
>> Facilitating role to be played by the Bank in assisting the
policyholder or nominee(s), as the case may be, in claim processing. The
Bank should also facilitate the Insurer in collecting the necessary
documents and information related to claims.
>> The contact details of the Insurer for claim settlement shall be
prominently displayed on the insurance contract and also be made
available by the Insurer to the Bank so that the information can be
cascaded to the policyholder or nominee(s) at the time of claim
intimation.
>> Claim Settlement to be done directly by the Insurer in the name of
the policyholder or his nominee, as the case may be.
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Bancassurance Arrangement
between the Insurer and Bank
Code of Conduct should abide the Bank such that:
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Training;
No misrepresentation or misleading statements;
Non-coercive attitude by the Bank;
Adequate pre-sale and post-sale advices;
Cooperation to an insured/nominee;
Publicize that the Bank does not underwrite;
The Bank Insurance Executive or a Specified Person shall:
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Identify the Bank’s role and shall always pronounce the Insurer to the prospect;
Disseminate all necessary information and analyze needs of the prospect;
Indicate the premium charged;
For a bundled product, mention the cost of the insurance and the bank product
separately;
Obtain the requisite documents; and
Render such required assistance to the policyholder or claimant or nominee;
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Remuneration of Bank
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Based on any performance criteria;
In the Bancassurance Agency Agreement;
On premiums received;
No other fees such as service fee, processing fee, etc;
Sharing of any third party costs is allowed;
Insurer to quote the gross premium rate;
Clearly specify the commission rate payable to the Bank;
Additional requirements applicable for Life Insurers such that:
(a) Remuneration payable Bank not to exceed the limits;
(b) Sharing of third party costs subject to the limits;
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Pricing/Risk Assessment/
Insurance Related Documents
>> Pricing – the sole domain of the Insurer;
>> Risk assessment and underwriting – responsibility of
the Insurer;
>> Adequate systems – the Bank, based on the guidelines
provided by the Insurer, may issue policy document;
>> Guidelines – the Bank shall abide by the guidelines
provided by the Insurer;
>> The Bank’s name – not to appear in the policy
document;
>> Bancassurance Agency Agreement – submitted to the
Commission;
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Limits on Acquisition Costs
in respect of Life insurance products for
Bancassurance business
Savings Products – refer to regular premium individual life
insurance products which have a savings or investment
portion for the policyholder including Investment Linked
Unit Linked policies, Investment Linked Account Value
policies, Universal Life policies, and With/without profits
conventional endowment and whole life plans.
Protection Products refer to regular premium individual
insurance products with no element of savings or
investments for the policyholder, such as term life policies.
Group Term Life Policies exclude Individual Life policies
which may be sold to a group of individuals.
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Limits on Acquisition Costs
in respect of Life insurance products for
Bancassurance business
Direct Sales Model – Bank uses its own sales force to market and
distribute insurance products through its own distribution channel
Sales and Marketing Incentives to Banks
To promote Bancassurance business, an insurer shall be allowed to
share with the bank in the costs of sales and marketing incentives.
The share of the insurer in such activities shall not exceed 5% of
the first policy year collected premium.
Referral Model
If an Insurer uses its own “Insurance Consultants” to market and
distribute insurance products through the Banks’ distribution
channel based on sales leads generated by the Bank, such a model
shall be referred to henceforth as the “Referral Model”.
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Applicability
The SECP Bancassurance Guidelines apply on all new
Bancassurance Agency Agreements signed on or after
February 1, 2010 and on existing Bancassurance Agency
Agreements in force as on February 1, 2010.
For ongoing Bancassurance Agency Agreements, the
Bank and the Insurer were required to make
amendments in the existing relationship, wherever
necessary, to comply with the Guidelines.
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It’s an Art
Get the best from your Partner Bank to
optimize your potential in Bancassurance
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What now?
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Finally the Benefits!
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Simplified products over the counter to customers
who make on-the-spot decisions;
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Complement existing bank products, which can in turn
lead to additional selling opportunities;
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Insurers gain a foothold in markets with low insurance
penetration;
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Integration can help to lower costs and maximize
synergies;
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Explore alternative business models, for example,
focus exclusively on distribution with multi-supplier
and multi-channels strategies.
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Finally the Benefits!
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Thank you
Q&A
faraz.amjad@secp.gov.pk
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