Banks ready to ‘displace insurers’
Bank anticipates proximity to customers will give it an edge
FNB Life, the insurer that emerged as the fastest growing in the country in 2018, says banks are ready to disrupt the status quo in the insurance sector, given the captive audiences they already have in their clients.
FNB Life, the insurer that emerged as the fastest-growing in the country in 2018, says banks are ready to disrupt the status quo in the insurance sector, given the captive audiences they already have in their clients.
The insurer which was launched four years ago when its parent company, Firstrand, the biggest banking group by market capitalisation, received its own life licence, says the insurance industry is not easy for new entrants to thrive in, especially when it comes to high-income earners who tend to be attached to their brokers.
But even so, FNB Life CEO Lee Bromfield believes banks will start displacing some of the big five traditional insurers in sale of certain products.
“One of the things that the traditional adviser model doesn’t have is good data on their customers. We know what salary our customers earn, what they do with their money, their family constructs, their debts. So if you talk about a 100m sprint, we can start at metre 80,” he said on Wednesday.
This close proximity to clients and their financial data meant they could customise customers’ insurance portfolio more than some insurers, Bromfield said
While insurers reported 2%-6% normalised growth in new business volumes in the first six months of 2019, FNB reported a 34% increase in annual premium equivalent on life products in the year to June.
At Absa, the insurance cluster contributed R584m to the retail and business banking divisions’ headline earnings in the six months to end-June.
Insurance has become so strategic for Firstrand and Absa, they have even acquired their own insurance licences. Standard Bank and Nedbank offer insurance with partners Liberty and Nedgroup Life Assurance.
Traditional players such as Sanlam have reacted swiftly to this emerging threat, partnering with Capitec, with its large branch network, to sell funeral insurance under the bank’s brand. Momentum and Metropolitan Holdings also tried a partnership with African Bank but aborted it in 2017 after it failed to generate business.
Karl Gevers, head of research at Benguela Global Fund Managers, said funeral insurance was the lowest hanging fruit for banks because it was a lower cost product and easier to sell as part of banking products.
However, he said traditional underwritten life insurance products would likely remain the territory of big life insurers as they tended to require one-oneone engagements to sell.
“Where the banks do have an advantage is that they already have a banking client base to whom they can market their new products (insurance). And this is where they can make inroads into the traditional life market, but it will take some time,” Gevers said.
Banking analyst Harry Botha from Avior Capital Markets said banks were in a good position to initially capture customers that preferred buying online, most of whom would be younger people who had never had insurance before. “In the higher income market, branding and policy economics are barriers to entry for the banks to encourage existing policy holders to switch.”
Botha said while he expected banks to continue gaining life insurance market share, he did not see them dominating the market in the next 10 years.