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Bancassurance as a Catalyst for Insurance Market Growth in Gulf and Middle East Markets: A Working Paper

By Manoj Kumar,
ACII (UK), CPCU (USA), ARe (USA), ARM (USA), FIII (India). MBA

President & Managing Partner, Bancassurance Consultants Worldwide Ltd. (BCWL)
Website: www.bc-worldwide.com | Email: manoj@bc-worldwide.com

Manoj Kumar


Existing low penetration of insurance coupled with the high per capita income gives Middle East and gulf countries an unusually strong platform to launch and grow the industry into the future. Recent economic strides and infrastructural boom in the countries like UAE, Qatar and Bahrain are working as catalyst and pushing the insurance industry to new horizons. Market opportunities for banks offering Bancassurance products are endless.

Conventional Bancassurance products like deposit insurance, unit linked products and investment cum protection products are likely to continue to be sold to its customer base. However, the asset creation process in most gulf countries through equity markets and infrastructural investments have created a new generation of High Net Worth Individuals (HNWIs) and banks would do well to take note of it. In addition, non-conventional products like Takaful and commercial insurance products can also be sold to individuals and corporate houses through banks.

In order to assess the potential for the insurance market growth in the region, we need to look at the following indicators:

Per Capita Premium:

Average per capita premium in the Gulf countries is $155 compared to $3266 in US, $920 in Europe, $4343 in Switzerland and $3394 in UK. Amongst the Gulf countries, UAE’s per capita premium is $302, Bahrain-$220, Kuwait-$259, Oman-$77 and Saudi-$47. (Source: Swiss RE/Sigma)

Insurance penetration:

Another indicator is insurance penetration in terms of premium as % to GDP. Here again, most Gulf countries have insurance penetration below 1% compared to 9% in US and 14% in UK. Within the Gulf, UAE has a figure of 1.25%, Oman-0.96%, Kuwait-0.79% and Saudi-0.53%.

All this goes on to prove that this market is still undeveloped or underdeveloped as far as the realization of the full potential of insurance market is concerned. The situation is even more contrasting if we are considering the life insurance market. Here, compared to 10.5% life insurance penetration in UK, UAE has a penetration of 0.23%, Oman-0.17%, Kuwait-0.18% and Saudi-0.1%.

From Bankers point of view, the potential lies in tapping not only the existing premium turnover in the market which was around US$12,000 million in the year 2003 but also the likely increase in Turnover due to the entry of banks in the insurance market.

Identifying successful strategy for entering the market.

Collaboration with an insurance company
- This could take multiple forms as below:

  • Buying an insurance company out rightly
  • Acquiring shares in an existing insurance company
  • Cross share holding between the bank and insurance company
  • Sign exclusive agreement with one insurance company
  • Sign non-exclusive agreement with more than one insurance company


All the above have their own merits and demerits and has to be used for entering the market based on the market conditions and practicality. For example, if a bank owns an insurance company which is not an established player in the market, starting Bancassurance with them alone is not an attractive proposition. However, if the insurance company has a strong standing and a reputation in the market, it makes sense to sign an exclusive agreement with them.

Vertical integration of insurance activities

This actually means manufacturing of insurance products in-house which may involve risk taking on the part of the banks. In fact, this is not a good idea as the job should be left to be done by somebody who is best at that. In the past, many European banks had taken to this kind of strategy but most of them have discarded vertical integration of insurance after some beatings in the form of losses suffered. Banks can still get the benefit of vertical integration by properly coordinating with the insurance company and getting the products done or developed exclusively for them.

Overcoming the Regulatory challenges

Middle East and Gulf countries are more suitable to perpetuate Bancassurance from Regulatory point of view. No Regulator in any country in the Middle East prohibits the distribution of insurance products by the banks to its customers. In most of the countries in Asia and Far East like Singapore, Thailand, Hong Kong, Indonesia, Philippines, Japan, China, India, they are still struggling with the Regulation as the Regulators are opening the window very slowly. Further, there is no ban or express regulation in the Middle East regarding owning or buying shares or even cross share holding between banks and insurance companies. All these factors together make this region a perfect platform for the banks to start Bancassurance.

Effective Bancassurance model

The effective Bancassurance model is the one which helps in pushing sales as well as satisfying customer needs and helping banks to become a ‘One stop shop’. As a Bancassurance model, if the bank is using distribution agreement model, it should, go in for an exclusive agreement with an insurance company of repute. The reason being, while signing up with multiple insurers you end up looking like a broker who is not committed to a ‘brand’ or a ‘product’ or a particular level of ‘service’, which is so vital for the growth of Bancassurance. By signing an exclusive agreement with the insurer, the bank can put the stamp of its own ‘Brand’ on the product without actually taking any risk. The bank will thus be identified with the product it is selling and will be able to convince the customer in a much better way. However, if the insurance market is not mature and there is lack of creativity and innovation, even non-exclusive agreement is workable.

Bancassurance as a Diversification Strategy by Banks

Banks in GCC or Middle East have been growing at a very high rate compared to their peers in the international market. Average ROE of GCC banks in 2001 was 15.3% compared to the average ROE of 12.5% by top 10 international banks (GBC, UK report). Some of the banks like Doha Bank in Qatar have been growing consistently at a rate of 70% for the last three years.

However, maintaining such a growth for a longer period is not sustainable since market has to mature at one stage and economic conditions may also change. Bancassurance, therefore, comes as an additional source of revenue to help maintain the growth momentum. This can also be used to offset the declining deposits due to the declining interest rate.

Sale of insurance products by the banks offers the following benefits:

1) It adds to the portfolio of retail products already offered by the Banks.

2) It helps in bundling and packaging the existing core banking products like adding deposit life insurance on a pure term deposit product.

3) Balances the less performing products

4) It is a risk management device, since the fee increase earned on the sale of insurance can be used to offset the loss on account of bad loans.

5) It helps increase customer loyalty since they have more reason than just the banking to continue their relationship with the bank.

6) It helps bank to become a ‘one stop shop’ or ‘Alfinanz’ for all the financial needs of the customers while it is banking insurance investments or state planning.

It is a long journey before the Middle East insurance market reaches its mature stage in the cycle of evolution. The time now is to innovate and harness the potential of insurance that this region offers. The buffers of energy, shipping and construction industry is poised to offer more opportunities as new technology and new pool of human resources shall be looking to the insurance industry to provide protection. Banks are in a unique position to sell not only personal lines insurance products but also commercial insurance by leveraging their relationship with their loyal customer base.

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