Higher-yielding investments in stocks and government securities easily trump interests gained from bank savings.
These days, more and more insurance companies are offering investment-linked insurance products to attract those who want their hard-earned money to grow even more.
Insurance firms realized they need not compete with banks for the people’s money—they can partner and both gain from bancassurance.
In the Philippines, the Amended Insurance Code under Republic Act No. 10607 signed into law in 2013 institutionalized bancassurance, which involves cross-selling insurance products within Bangko Sentral ng Pilipinas (BSP)-licensed banks.
Years before the government recognized and regulated bancassurance, French insurance giant AXA and local banking heavyweight Metropolitan Bank and Trust Co. already forayed into the business in 2005.
Metrobank/PSBank-AXA
“The partnership between AXA and Metrobank is the pioneering bancassurance operations in the Philippines, and is one that has lasted the longest. Bancassurance has been very crucial to the growth of AXA Philippines, contributing to majority of the business year in and year out,” said Marie B. Raymundo, AXA Philippines’ chief bancassurance officer.
“What has been very crucial in our bancassurance partnership is that it has been mutually beneficial for both parties, and especially to Metrobank customers. The model has proven to be very strong and effective [such] that we added a new bancassurance partner last year: PSBank,” she said.
She said the partnership with PSBank, which also belongs to the Metrobank Group, would allow the insurance firm to have access to a broader market while also providing the thrift bank’s customers with a one-stop shop for short- to long-term needs—from protection, health, retirement, and investment that have a life insurance component.
In the first quarter of the year, 68 percent of AXA Philippines’ sales came from its bancassurance channel.
PSBank president Vicente R. Cuna Jr. said “[t]his partnership allows us to advocate financial wellness to our clients as we offer them suitable alternatives to save and grow their finances.”
“We know that they work hard to earn their money and we also know that the financial security of their family is very important to them.”
Bancassurance ventures are on a roll as more and more Filipinos become more aware of the need to save and invest.
The latest Insurance Commission (IC) data showed AXA Philippines ranked second in terms of insurance premiums sold in the first half, just behind Sun Life of Canada (Philippines).
BPI-Philam Life
BPI-Philam Life Assurance Corp., the partnership of Bank of the Philippine Islands (BPI) with Philippine American Life and General Insurance Company (Philam Life), ranked third and even eclipsed the sales of its parent insurance company.
In a briefing with Filipino reporters at the Hong Kong headquarters of AIA Group Ltd. last February, Philam Life chief executive Estelito G. Madrid said the company expected to maintain its solid performance throughout the year. He said the booming economy would bolster not only its bancassurance business, but also its traditional channels offering life protection and health needs.
“Our bancassurance channel performed well in the second half of 2014. We worked closely with our joint venture partner, BPI, to focus on expanding the footprint of our in-branch insurance specialists and improving their capabilities,” AIA said in its 2014 report.
The partnership with BPI gave Philam Life access to the bank’s network of more than 800 branches. The number of active specialists in bancassurance rose by 49 percent last year, AIA added.
RCBC, SunLife Grepa
Canada’s giant insurers are also benefiting from their local bancassurance arms. SunLife Grepa Financial, the Canadian insurer’s venture with the Yuchengco group’s Rizal Commercial Banking Corp. (RCBC), was in seventh place in the IC ranking. Manulife China Bank Life Assurance Corp., a partnership between Canadian-led firm Manulife Philippines and China Bank, was 11th.
PNB Life, led by taipan Lucio Tan’s Philippine National Bank (PNB), was in ninth place.
Other banks are also boosting their bancassurance businesses.
Last June, Sy-led BDO Unibank Inc. concluded an agreement to terminate its joint bancassurance venture with Italy’s Generali Group to take full control of Generali Pilipinas Holdings Co. Inc., the parent company of life insurer Generali Pilipinas Life Assurance Co.
A statement released by BDO said it is “re-focusing its insurance strategy to align with its thrust to solidify its presence in the broad-based middle-income market.”
“BDO intends to embark on a new journey of diversifying into the life insurance sector via this new wholly owned unit to maximize cross-selling of products to its extensive retail customer base,” BDO president and chief executive Nestor V. Tan said.
The holdings firm and its insurance unit will be renamed BDO Assurance Holdings Corp. and BDO Life Assurance Co. Inc., respectively. Generali Pilipinas ranked 10th among life insurance companies in terms of premiums as of the first half.
EastWest-Ageas Insurance
In May, Gotianun-led EastWest Banking Corp. inked a joint venture agreement with Belgian insurance group Ageas Insurance International NV to put up a new life insurance firm named EastWest Ageas Life.
Of the 20-year exclusive distribution agreement with Ageas, EastWest Bank president and chief executive Tony C. Moncupa Jr. said: “We have always viewed bancassurance as an integral part of our business model. We see it as a necessary ingredient to have complete product offerings for the financial services needs of our target market segments. Specifically, the consumer and middle market corporate segments.”
Security Bank-FWD Group
Security Bank Corp. also sealed last year a bancassurance deal with FWD Group, the insurance arm of Hong Kong tycoon Richard Li’s Pacific Century Group.
“Bancassurance is a fast-growing life insurance distribution channel in the Philippines, which is an under-penetrated market compared to its Southeast Asian neighbors,” Security Bank president and chief executive Alberto S. Villarosa said last October.
Insurance Commissioner Emmanuel F. Dooc, meanwhile, told reporters last month South Korea’s Samsung Life Insurance Co. Ltd., which is said to be looking at business opportunities in the Philippines, is eyeing a bank partner.
On its website, Samsung Life claims to be South Korea’s “largest and most prominent insurer” as well as one of the oldest in the country, having been established in 1957. A part of the South Korean conglomerate Samsung Group, its principal products include life and health insurance, annuities, and other financial services.
Ample room for growth
Raymundo said AXA Philippines is not threatened by the entry of more players into the bancassurance business. She said there is still ample room for all of them to grow.
“Bancassurance continues to be a growing channel for the industry, and there are several factors why bancassurance will continue to flourish: first, the economy continues to improve and its growth is sustainable; second, the interest rate environment is low and will continue to be low and thus, life insurance products become an attractive investment alternative; third, the emergence of the affluent middle-class who is very familiar with banking; and, fourth, the continuous improvement of financial literacy and a better appreciation of financial planning,” Raymundo said.
“We were all witness to how much cash flooded the market when access to Special Deposit Accounts (SDAs) ceased in 2013. This means that there are still more and more opportunities for Filipinos to realize the potential of buying insurance and investment products through their banks,” she added.
Being one of the frontrunners and the very first in the local scene, Raymundo said AXA’s clear advantage is that it has strong bancassurance models and operations all over the world, especially in Asia.
“In China, AXA has a bancassurance partnership with ICBC, the biggest bank in the world. AXA also has bancassurance partnerships with some of the biggest banks in the region such as in Indonesia (Bank Mandiri), Thailand (Krungthai Bank), and Malaysia (Affin Bank ). This means AXA Philippines has a wealth of knowledge and expertise on bancassurance to draw from, globally and in Asia,” she added.
Moving forward, Raymundo said regulatory concerns will have to be addressed to allow the sector to flourish.
“A major step in the development of the channel was relaxing the rules on co-ownership in a bancassurance arrangement—this allows more insurance players to possibly partner with more banks. Moreover, better guidelines on the cross-selling framework issued by the BSP under Circular No. 801 issued in 2013 will protect the Filipino consumer and encourage confidence with a bancassurance setup. Perhaps better flexibility in the type of investment products to be offered to retail clients down the line would help boost the channel,” she added.
Tighter rules
The IC, for its part, has tightened the rules covering bancassurance activities to better protect costumers.
Under Circular Letter No. 2015-20 issued on April 27, the commission reiterated that the sale of insurance products within bank premises, including variable life insurance products, shall be allowed only upon the IC’s approval of the respective bancassurance agreements entered into by and between insurance companies and banks.
As for cross-selling microinsurance products by cooperatives, rural and thrift banks, such activities will continue to be covered by BSP Circular No. 683 issued in 2010.
According to the IC, it will require all bancassurance agreements to contain a provision wherein insurance firms agree to submit reportorial requirements, including annual reports, that show a list of the banks with which they have duly executed bancassurance agreements.
The new guidelines also aim to protect consumers. “In order to protect the insuring public, the [implementing rules and regulations] provide that both the banking institution and insurance company should formulate an effective consumer protection framework specifically designed to address all complaints that may arise from the conduct of bancassurance which shall include processes and procedures,” the IC said.
“[T]he rules on bancassurance provide for provisions on enhanced consumer protection requirements by providing the minimum practices to be observed in the selling of variable life insurance products,” it added.
The guidelines also limited the role of bank employees in bancassurance activities. “As a general rule, the role of the bank employees in bancassurance shall be limited to the referral of clients to the representatives of the insurance company. However, bank employees who have undergone the required training and who possess the required qualifications may make preliminary presentation of its insurance products as part of his/her task of presenting product option to bank clients,” the agency said.
The IC said it “will not require bank employees to obtain a license as an insurance agent as such task is merely incidental to their duties as bank employees.”
The IC also required banks to distinguish areas where bancassurance products are sold “to differentiate them from areas where bank products are sold.”