Fundamentals of Bancassurance Practice [analysis]

Lagos, Apr 27, 2010 (Daily Champion/All Africa Global Media via COMTEX) -- There has been this great synergy between the Banking and Insurance subsectors of the financial services industry. A relationship that has offered both sub-sectors a win-win situation. That is the use of the banks as distribution channels for insurance products, otherwise known as Bancassurance. A relationship that started in France, and has spread to other parts of the world, including Nigeria.

The book under review is made up of two parts; with part one deliberating on topics that have to do with traditional insurance practice. Part two is on bancassurance. All the parts contain twelve chapters making up the book.

In the introduction to part one, the author noted that the import of this module is to discuss in practical and detailed terms, the insurance industry in general. Moreso, that bancassurance takes its root from insurance practice.

The author noted that, "This module will expose the reader to insurance, its meaning, risk management, various product offerings by insurance companies, compulsory insurance..."

The module has seven chapters which contains detailed industry practices in concise and clear terms, according to the author.

Chapter one looked at the meaning of insurance, starting with the poser: What is insurance? Okhakia provided the different definitions of insurance by the two great schools of insurance - the transfer school and the pooling school. He then postulated that it is clear that insurance is about security and protection. The chapter also looked at the concept of risk, elements of contract, principles of insurance, classes of insurance, etc.

Okhakia examined the classes of insurance in chapter two of the work. Insurance, he posits, could be classified in different ways - life and non-life, long term and general insurance, traditional and modern and any other form. He further added that insurance could be classified by the function it performs such as insurance of the person, insurance of property, insurance of liability and insurance of rights and financial interest. For the purpose of statutory classification of in Nigeria, the author decided to use the classification as provided in section 2 of the Insurance Act 2003.

In chapter one Okhakia examined the basic insurance terms, noting that insurance being a profession, certain terms and "connotations" are often used which might be difficult for the ordinary man to comprehend. Some of these terms discussed in the chapter are "proposal form", "material fact", "subject matter of insurance", "policy", "cover note", "certificate of insurance", "slips", "insured", "sum insured", etc.In chapter four the author reviews issues relating to policy document. With the author restating the basic insurance fact that the policy is the evidence of an insurance contract. Noting that, "it is an important document of the contract, because it states what the cover is all about including terms, conditions, specifications, exceptions and exclusions....The policy is issued based on information provided on the proposal form. As a result, claims will be paid based on the provisions of the policy document. It is important therefore that customers read the policy document properly and get themselves acquainted with it."

The parts of the policy document discussed are the preamble or recital clause, the operative clause, the exceptions, the schedule, the signature/attestation clause, etc.

Risk management and claim administration are the topics of discussion in chapter five. Okhakia noted the fact that insurance is one aspect of risk management, as there are various other means devised by man to tackle the risks facing him and his existence.

The author maintained that risk management can be described as a decision making process by which an organization or individual reduces the negative consequences of risk. Thus, he went further, risk management addresses planning and preparation for financial security. Okhakia then posits that "When we are uncertain about what will happen in the future, we need to make contingency plans. Any successful decision making procedure requires that the intended outcomes or objectives be known upfront. A risk manager, whether holding that title or not, is the person whose job involves minimizing thenegative aspects of not knowing the future." Much of a risk manager's job involves estimating future outcomes (losses) and the variability of those future outcomes".

On claims administration, the author revealed that claim is pivotal in the insurance business. Adding that, "The contract of insurance guarantees the compensation of the insured at the happening of the event insured against. To satisfy the promise, having received the premium which is the consideration, the insurer is expected to make good its promise by honouring all genuine claims made on the policy, whenever they arise."

Chapter six is on the role of insurance in an economy. The author notes that insurance as an economic reality came into being as a child of necessity, judging from its history and origin of the various classes of insurance. A notable role of insurance is that it gives confidence to business owners to further take risk in their commercial transactions, especially in the area of taking up investments.

The insurance market and regulatory authorities were the subject of discussion in chapter seven of the book. The chapter identified the various players in the insurance market in Nigeria and their respective roles in the insurance industry.

Part B is the Bancassurance module of the book. This module looked at the concept of bancassurance. In this module, the author is of the opinion that the insurance industry could be an avenue for the distribution of banking products. This module contains five chapters, with emphasis on the meaning of bancassurance, its origin, advantages and disadvantages, etc.

The first chapter in the module is chapter eight, and it is an overview of bancassurance practice. Okhakia states that bancassurane concept came into the Nigerian market as a channel for distribution of insurance products following the adoption of Universal Banking in Nigeria in the year 2000.

The author postulates that Universal Banking or multipurpose banking is a type of banking business that can run all commercial and other financial activities together. Adding that, "It combines deposit taking with the making of advances and stock exchange businesses, all under the same roof."

On bancassurance, he maintains that Bank Insurance Model (BIM) also known as bancassurance is a concept that developed in France as a channel through which insurance products are sold through a bank's established channels. Bancassurance, he added, therefore describes the partnership or relationship between a bank and an insurance company.

The chapter then went on to look at the advantages and disadvantages of the concept of bancassurance to the insurance industry as well as the benefits or otherwise to the banks.

In chapter nine, Okhakia looked at the origin of bancassurance in Nigeria. Tracing the origin to Universal Banking, he posits that in its general sense, universal banking cannot be said to be entirely alien to the Nigerian Banking system. He further stated that before the advent of merchant banks in Nigeria in the 1960s, the banks then were operating as Universal Banks. He then submitted his position on the introduction of the concept in Nigeria that bancassurance has come to stay in Nigeria. The chapter then went on to review the guideline for the practice of Universal Banking in Nigeria.

Chapter ten is on Bancassurance products. According to the author, the coming together of different financial services has provided synergies in operations and development of new concepts. This will in a long way help both insurers and banks to develop products that would be of mutual benefits to both sectors. The author later revealed ways through which these products would be of mutual benefits to the two sub-sectors.

The author then states that in Nigeria, what is obtainable is a situation that traditional insurance products are sold through the banks. The author identified the groupings of such products as:

Financial and repayment products

Depositors products

Simple standardized packaged products

Other products

Chapter eleven is on the customers of bancassurance. It started with the question: Who needs bancasurance? According to the author, bancassurance represents a strategy by which banks and insurance companies co-operate in a more or less integrated financial market. The chapter identified the customers of bancassurance and the kind of products they actually need from the Bank Insurance Model.

Chapter twelve is on setting up your systems - the system is actually the distribution channel of the financial services. It looked at the types and characterics of the distribution channels of bancassurancce products. Other issues in the chapter are the roles of the intermediaries in this type of arrangement, cultural issues in the distribution of bancassurance products, remuneration incentives issues, etc.

We cannot look at the book without knowing who the author is. Joseph E. Okhakia, holds B Sc. (Hons) in Government/Public Administration from Abia State University and an M.A. in International Law and Diplomacy from University of Jos. He also has an MBA in Human Resource Management from Lagos State University. He is an Associate of the Chartered Insurance Institute, London, Associate, Certified Pensions Institute of Nigeria and a Fellow of the Chartered Insurance Institute of Nigeria.

He is currently a Senior Manager with Union Assurance Company Limited and an Examiner of The Chartered Insurance Institute of Nigeria. He has written extensively on Insurance, Politics and Sports in both Local and National Magazines and Newspapers. He has also delivered lectures on insurance at various fora and has awards in resourcefulness and innovation.

The book is written in an easy to comprehend language, and most importantly all the operators in the financial subsector of the economy were reviewed one way or the other with the functions highlighted. Joseph Okhakia has written a fine book and I have restraint in recommending to readers, especially those in the financial services industry.