Banks are the new insurance brokers

Insurance products sold through banks are growing at almost twice the rate of direct policies as lenders seek new ways of boosting their bottom lines amid record low interest rates, said David Harris, the sales director for the UAE and Bahrain at RSA Insurance.

Insurance sold through banks, known as bancassurance, is growing at an annual rate of between 12 and 15 per cent compared to the industry-wide rate of 8 to 9 per cent, Mr Harris said. And while the revenue banks are generating from selling insurance products to their customers is not yet headline-grabbing, it has the potential to generate recurring revenue through renewals.

“In this particular market, they are on the journey,” he said. “If you get Dh10 million of revenue income from your insurance model, that’s still peanuts compared to your capital market revenue. It’s not so much the money here and now – it’s the embedded money, the share value that it creates. You have a portfolio of Dh10m that will renew itself next year, whereas when you are selling other financial products that’s not always necessarily the case.”

One obstacle to the bancassurance business is that not all banks have jumped on board yet, and the model’s biggest risk is that UAE expatriate residents are not usually here for the long haul, he said. The country’s economy rallied last year, growing more than 4 per cent as business confidence prompted an increase in demand for credit, stocks and property.

The economic renaissance coincided with a new law requiring compulsory health care for all Dubai residents.

But because interest rates are low, this has meant banks – of which there are more than 50 serving a population of 9 million in the UAE – have had to vie for clients and search for other ways to make money apart from the interest they receive on loans, such as asset management, brokerage and selling insurance.

Rakbank, the Ras Al Khaimah-based lender, has gone so far as seeking to buy out an insurer.

Emirates NBD, Dubai’s biggest bank, has been among the early adapters when it comes to selling assurance, striking partnerships with insurers including RSA and Metlife to sell policies through their branch network.

“Bancassurance provides our customers with a well-rounded investment and protection solution for themselves and their families,” said Suvo Sarkar, the general manager of retail banking at Emirates NBD.

“As one of the leading banks in the region, we are committed to offering our customers the right products to help fulfil their financial and protection needs.”

While some banks have in the past acquired an insurance company – Emirates NBD, for example, bought National General Insurance in 1996 – others such as Rakbank are following suit in buying out an existing insurer. However, some lenders, like United Arab Bank, prefer to beef up the sale of their own insurance products rather than buy a company.

“It makes sense for banks to have relationships or ties,” said Paul Trowbridge, the chief executive of UAB. “Whether they do it through corporate ownership, that’s one opportunity. Others will say, ‘I can get the best possible prices from a range of providers’.

“In an increasingly competitive environment, banks want to make sure that they increase the relationship with their customers,” he said. “So offering them valuable products is important, which we already have. We have tie-ups with a couple of insurance groups and it works well.”

Emirates NBD, Dubai’s biggest bank, has been among the early adapters when it comes to selling assurance, striking partnerships with insurers including RSA and Metlife to sell policies through their branch network.

“The penetration rates for insurance are in single digits,” said Suvo Sarkar, the general manager for retail banking and wealth management at Emirates NBD. “It’s definitely an area for future growth for us.”

“Insurance is becoming increasingly important because it is core to our strategy of building fee income from wealth management products as margins from deposits and lending get compressed.”

The accounting firm PricewaterhouseCoopers said last year that the Middle East insurance market had significant potential for growth, with an average insurance penetration of just 0.3 per cent in life insurance and 1.1 per cent in non-life insurance in 2012.

The report noted that life insurance was particularly underdeveloped in the UAE and Saudi Arabia, and predicted that the insurance business would undergo a wave of mergers and acquisitions. Still, bancassurance may take time to flourish in a region where taking out insurance has not been customary because of religious concerns and where the sales infrastructure is not in place.

“Bancassurance is still very marginal for UAE banks,” said Jaap Meijer, head of financials research at Arqaam Capital, a Dubai-based investment bank.

“It’s not easy to distribute insurance through bank channels. It’s a mixed success if you compare it to countries in Europe like Belgium, a country that’s been very successful when it comes to bancassurance.”

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