Thanks to impressive growth rates, high value of services increased economic benefits and low operating costs, many banks have signed and deployed bancassurance channel since 2018.
Accordingly, the banks enjoy large benefits from service fees, profit sharing, and portfolio diversification for existing customers and asset management from insurance companies. In turn, insurance companies have access to customer databases and sell more insurance products to maximise their revenue and profits. With rich benefits, bancasurances have exploded in many countries around the world, and Vietnam will be no exception.
In Vietnam, several banks started for the race from 2014. As a result, the revenue from insurance cooperation services has grown dramatically. For example, three listed banks including Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Vietnam Prosperity Joint Stock Commercial Bank (VPbank), Tien Phong Joint Stock Commercial Bank (TPbank) have the growth rate of over 50 percent, especially TPbank’s 2018 growth rate was up to 1342 percent compared to 2017.
This may be a sign of an explosion for a race so called bancassurance to exploit banking customer data and increase profits through both life and non-life insurance products.
However, that boom will come with significant challenges. Therefore, the banks also need to build some strategies to deal with these challenges and move towards sustainable development.
Firstly, the race on bancassurance will increase rapidly the rate of customers of banks using insurance productsin many countries, up to 51 percent. It results in high profitability but will come with neglect in customer care activities. Unsatisfied customers about insurance services may lead to bad attitude for other financial products of the bank. Therefore, the balance between sales and customer services should be considered. Specifically, the bank must: (i) improve the quality of service provision of insurance products; (ii) provide standards for exploiting customer data for true needs; (iii) increase the understanding of insurance staff about customers, as well as regular training on customer care and customer behaviour and (iv) build a real-time customer relationship management programme to quickly answer insurance requirements, as well as customer complaints.
Secondly, banks need to resolve conflicts between governance and mutual benefits. All links are inconsistent, because banks own their customer data, and insurance companies own insurance products. The blending into bancassurance requires consistency in the governance model to minimise conflict. Specifically, banks recruit insurance sales staff of insurance companies and maintain the cohesion; or banks and insurance companies develop a shared data analysis model to maximise mutual benefits; or banks set up a private insurance company.
Thirdly, future generations of customers will use more digital channels to buy insurance products than going to branch offices. One study showed that 60 percent of customers were willing to buy insurance through digital channels, although the purchase rate at physical channels at branches and through sales staff was 80 percent. Therefore, banks need to consider long term development by: (i) establishing the linkage between insurance products with mobile banking and internet banking; (ii) building an automatic and real-time customer care system such as chatbot application, comprehensive CRM; (iii) deploying technology application into insurance activities, also called InsurTech.
Fourthly, bancassurance will well exploit the bank’s current mass customer base with the available insurance products. But when the level of exploitation is high, the banks will reach saturation in revenues from insurance services. Therefore, banks and insurance companies need to build customer segmentation strategies with a set of specialised insurance productsfor example, towards a rich customer segment with premium insurance products; or towards low-income customers with simple insurance products.
In short, bancassurance will bring great benefits to banks and associated insurance companies in the future. However, every growth comes with challenges. Instead of being passive, banks should sit back and think strategically for the sustainable development of bancassurance channel.
