Banks, microfinance institutions and insurance companies are combining to bring a long-awaited tool to Cambodia’s burgeoning financial sector.
As Cambodia’s financial sector and economy deepens, insurance firms are increasingly using a little known tool to raise awareness of their products and grow client bases by tapping into a previously unreachable segment of the population.
Bancassurance is an arrangement in which a financial institution and an insurance company form a partnership, allowing insurance companies to sell their products to the bank’s existing client base. This partnership can be pro table for both companies in the form of referrals and consultation fees, especially when an insurance company locks down a new client.
Whether it is fire, life, auto or health insurance, both financial institutions benefit from the training and cooperation that bancassurance brings, while expanding traditional lending portfolios. First used in Europe as a way to streamline the ability of clients to access insurance products, according to Robert Elliott, CEO of Manulife Cambodia, bancassuarance in Asia has grown at an astounding pace over the past two decades as countries seek a more efficient way of reaching out to customers.
“For the last 20 or 25 years, bancassuarance has become a much more significant distribution channel in Asia where there are complementary products being sold,” Mr. Elliott says. “For example, when a client is securing a loan from a bank for a mortgage or business, life insurance can be used to cover that loan. The loan can be immediately repaid back to the bank if the client dies or becomes totally disabled.”
In Asia today, bancassuarance represents about 30% to 35% of all life insurance products being sold, he says. “Of course in Cambodia, bancassuarance is in a nascent stage, but it has taken off extremely well due to an emerging middle class and the use of financial services such as bank accounts and lending.”
Due to Manulife’s long history in Asia, and its emergence in Cambodia in 2012, Mr. Elliott says that bancassurance was a very natural way to reach the company’s target market. While it is a tool Cambodian banks were not overly familiar with, the bancassurance model is widely used in the sector. “It’s new to local banks, but once they understood the benefits, banks were keen to explore this opportunity as a partner,” he says. “While life insurance is a very old industry–in some parts of Asia like Hong Kong it has existed for over a 100 years–we knew that in Cambodia we needed to explain the role of life insurance, so we held seminars with banks to explain to their customers the benefits of financial planning.”
Bancassurance works by banks identifying potential insurance buyers from their client base and then referring them back to an insurance firm with which they have formed a partnership. “Because the banking industry is firmly established and growing in Cambodia, it was a very natural partnership to provide those services to their customers,” Mr. Elliott says. He explained that while Manulife’s partner banks do not actually sell the insurance, “Cambodia represents the general growth pattern of bancassuarance that has occurred regionally.” “This model is designed well and works extremely well in Asia, but when you are entering a new developing market like Cambodia, sound execution of the model is essential.”
Across Asia, Manulife has partnered with more than 100 banks and employs 1,500 bancassurance specialists. Since launching in Cambodia four years ago, Mr. Elliott says, Manulife has virtually doubled the number of life insured every year to 29,000 at present.
Neth Piseth, senior vice president and head of financial services at ACLEDA bank, arguably Cambodia’s largest and most successful local financial institution, says that the company first started engaging in bancassurance operations with Prudential Life Assurance back in 2013. Most recently, in May, ACLEDA partnered with Forte Insurance, and is now using its 259 branches across the country to promote the industry.
“The purpose of partnering with insurance companies was so that the bank could generate more non-interest banking revenue,” he says, adding that it has provided a capital boost. “The main benefits that bancassurance has provided us with is that we can also sell products in Laos, and the insurance companies provide us with knowledge transfer, skills training and the ability to explain what insurance products are to our existing client base.”
Mr. Piseth says that, for Cambodia, bancassaurance is a relatively alien idea, but is one that more and more local banks are starting to adopt, especially as the insurance market grows and large insurance firms from Thailand seek to tap into Cambodia’s potential. “Cambodia is very different from neighbouring countries because it is not as developed, so that makes the market very attractive,” he says, adding that competition between insurance companies was heating up.
“For both life and non-life insurance it is very important that we explain why the products are necessary because a lot of times clients didn’t trust insurance companies, especially those that were new to the market,” he says. Compared to the 1990s when the insurance market was just starting to pick up, he explained, clients lacked an understanding of what insurance even meant. Now, through intensive promotional and educational programmes led by insurance companies, clients frequently inquire about health, life and fire insurance.
Since 2013, between non-life and life insurance products, ACLEDA has helped issue 34,728 new policyholders. “It is very important for us to grow the insurance market customer base and we identify existing clients within our database that we think would qualify for insurance,” he says, adding that ACLEDA has agreed on a policy referral target with the insurance companies, and receives the payment of a referral fee if a policy is taken out. “We want to be able to be a one-stop shop for all the financial tools that are out there in the market.”
Bancassurance market growth in Europe is expected to be highest in Turkey at 14.7% and in Poland at 15.2% until 2020, and more stagnated in the largest European economies, where market penetration of insurance products are highest.
In Western Europe, insurance premiums account for 7.4% of GDP, whereas in the Philippines, insurance premiums only account for 1.7% of GDP. In recent years,
the practice of bancassurance within the insurance industry has become most prevalent in Latin America. In 2013, the share of life insurance polices sold through commercial banks was 44% in Colombia and Mexico, 50% in Chile, and 80% in Brazil. Bancassurance is widespread in China, with 54 of China’s 108 largest banks offering some form of insurance in 2014. Furthermore, 30% of all new insurance policies sold in China were sold by banking firms, as of June of 2016.
Youk Chamroeunrith, managing director at Forte, agreed that partnering with banks provides for easier access to financial tools, and that the rise of bancassurance shows mutual trust between what are traditionally seen as the main financial pillars of an economy. “The growing trend of companies engaging in bancassurance reflects the rising acceptance of how much the banks can contribute to the insurance industry, both life and non-life. Banks have also felt that by distributing the insurance products they can position themselves as a one-stop location for financial services to make it very convenient for their customers to receive that advice and those services,” he says.
While he admitted that bancassurance was a little-understood tool in Cambodia, he says that it was a required model that was gaining firm traction and predicted that Forte’s policyholder portfolio could grow by 25% to 30% in the near future. “It was very challenging in the beginning, however, as the economies become more advanced and people have higher incomes, the concept of insurance and bancassurance will be very well interlinked,” he says, adding that the “bancassurance model needs to be introduced despite low penetration of insurance.”
To a great extent, distributing insurance products through banks helps validate the products because most of the bank clients have strong trust in their banks, he added. “A good partnership means we add value to each other, that is what is important. And we believe with more than 18 years in Cambodia and being the market leader, we will be strong partners for local banks.”
Maybank Cambodia’s CEO, Cynthia Liaw, who has more than 25 years of working experience in the Malaysia and Singapore banking sectors, says that the bank decided to partner with Manulife to offer insurance products to its clients and to educate local staff and clients on the importance of financial planning.
“Working with well-established insurance companies and doing bancassurance also helps educate our staff on what life insurance products are,” she says. “It also ensures that the financial products that we cross-sell are of the highest quality.” “More Cambodians need to start to understand, and are starting to understand, the need for financial planning especially when they are starting to accumulate wealth.”
While current government regulations do not allow for banks to directly sell insurance products in Cambodia, that could change as the Kingdom’s financial institutions deepen, she says. “In places like Singapore and Malaysia, banks are allowed to directly sell insurance products as part of a bundled financial planning service. This allows for clients to get full access to the products.” Regardless, she says the emergence of the bancassurance model was a positive first step.
Meanwhile, she says, while Cambodia continues to catch up with the region, it was important that banks and insurance companies collaborate in order to define which products are best suited for a rapidly developing economy. “Cambodia reminds me of the 1980s in Singapore when insurance services were just starting to take off. Now, Cambodians are becoming more financially savvy and wealthier, and will be interested in more financial services,” she says. “We just need to define which products are right for the market and can be released at the right time.”
Words by Kali Kotoski