Broader bancassurance favors all players

MANILA, Philippines -Expanding the scope of bancassurance to include the country’s thrift banking system means creating a win-win situation, according to industry players.

It is good for the thrift bank sector as it offers another income-generating business activity, while it offers the life insurance industry a dedicated and professional distribution network.

Opening the practice of bancassurance to thrift banks means more chances that the population can get a life insurance policy. And the increase in business activity means more revenues for the national government.

Based on the definition of the Bangko Sentral ng Pilipinas (BSP), cross-selling or bancassurance allows a subsidiary of a commercial bank to market or cross-sell its products within the bank’s branch network as well as tap its clientele base.

But the BSP requires that the commercial bank must own at least five-percent equity in the life insurance company before they are allowed to practice bancassurance. In more advanced countries like Singapore, life insurance companies is allowed to sell its products in any bank after entering into a business arrangement, and exclusivity is not an issue.

Recently, the thrift banks expressed their desire to practice bancassurance, and not just market low-cost, simple and limited coverage micro-insurance products.

Life insurance policies allowed under bancassurance include whole life insurance, endowment, term insurance (including mortgage redemption insurance), health and accident policies, life annuities and variable life insurance contracts.

There are 73 thrift banks operating 1,333 branches nationwide while there are 32 life insurance companies. But some of the insurers have existing relationships with several commercial banks. There are 38 licensed universal (expanded commercial) and commercial banks operating in the country.

The Philippine American Life and General Insurance Co. (Philamlife) works exclusively with the Bank of the Philippine Islands (BPI), Insular Life Assurance Co. (Insular Life) with the Union Bank of the Philippines (UBP), AXA Life Assurance Philippines (AXA Philippines) with the Metropolitan Bank & Trust Co. (Metrobank), the Manufacturers Life Insurance Co. (Manulife) with the China Banking Corp. (China Bank), the United Coconut Planters Life (Cocolife) with the United Coconut Planters Bank (UCPB), Great Pacific Life (Grepalife) with the Rizal Commercial and Banking Corp (RCBC), Generali Pilipinas Life Assurance (Generali Pilipinas) with Banco de Oro Unibank Inc. (BDO), and Beneficial PNB Life Insurance with the Philippine National Bank (PNB).

Some of these commercial banks have thrift banks as affiliates or subsidiaries, such as the Metropolitan Bank & Trust Co. (Metrobank) and the Philippine Savings Bank (PSBank). Thus, it is likely that if the BSP allows thrift banks to practice bancassurance, PSBank would most likely ally with AXA Philippines, or BPI and BPI Family Savings Bank with Philamlife.

Expanding bancassurance to include thrift banks will bring life insurance to a wider segment of the population as thrift banks are consumer or retail-oriented by nature, focused on the Class B and C segments of the population. Insurance penetration in the Philippines is one of the lowest in the region.

Commercial banks tend to belittle the average individual bank client, favoring the high-networth individual as well as corporate accounts, although they would gladly take the deposits of the individual bank client anytime.

Bancassurance offers thrift banks with another bank product to offer its clients, another source of fee-based income. Commercial banks obviously find some profit in the practice, and their bottomline can attest to it.

Chamber of Thrift Banks (CTB) executive director Suzanne Felix said that they want the same privilege as commercial banks.

“And thrift banks are fully aware that additional opportunities, and risks, does not come without the additional responsibilities,” Felix said, adding that it is similar to the privilege of opening letters of credit (L/C), derivatives and FCDU foreign currency, which come with the equivalent capital, skills and reportorial requirements.

For insurers, an alliance would mean two things. One is that having a thrift bank acquiring five-percent equity means additional capital for the insurer. And two, it will be an established and dedicated distribution channel for the insurer.

Philippine Prudential Life Insurance Co. (Philippine Prudential Life) president and chief executive officer Gregorio D. Mercado said that bancassurance means an additional source of capital and a new distribution channel.

“What we can give is another bank product and the expertise of personal client care,” Mercado said.

For insurers that may be too expensive for one thrift bank, it could consider a pool of thrift banks acquiring the minimum five-percent equity requirement.

Grepalife Financial Inc. (formerly the Great Pacific Life Assurance Corp. or Grepalife) president and chief executive officer Victor Quisumbing applauded the BSP decision to seriously look into expanding the scope of bancassurance.

Quisumbing said that it would allow smaller insurance firms an opportunity to participate in bancassurance. But regulators must put a minimum capital requirement to minimize risk for banks, insurers and maximum protection for the public.

“What’s critical is the collaboration of the bank and the insurer to make bancassurance work,” he added.