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AKI Chief Executive Officer Tom Gichuhi. Photo/ FILE


Bancassurance ‘running insurance agents out of town’

AKI Chief Executive Officer Tom Gichuhi. Photo/ FILE

AKI Chief Executive Officer Tom Gichuhi. Photo/ FILE

NAIROBI, Kenya, May 25 – The rise of bancassurance in Kenya has led to a stagnant growth of insurance agents raising fears that the latter may become irrelevant in the market. .

According to the Insurance Regulatory Authority, the industry has experienced an increase in dropouts of agents in the last five years whereas new registrations have been falling.

In 2013, there were 593 new registered agents down from 1,085 new agents registered in 2012. Over 1,900 agents dropped out of the industry in 2013 up from the 758 agents who dropped out in 2012.

Other factors leading to the decline in insurance agents include pressure to meet targets, financial constrains, low commissions and Job insecurity.

“We pointed out the same last year, especially with the introduction of bancassurance noting how insurance agents were losing their established business to banks, and our complaints were falling on deaf years. It’s even happening now, agents losing business to banks, and this is causing agents to leave the industry in droves. In the process it’s becoming less attractive for new agents to join the industry,” said Washington Ndegea Chairman Bima Intermediaries Association of Kenya (BIAK).

As for failure to meet targets, Ndegea said this is tied to faulty one-sided agreements that agents sign with insurance companies to the detriment of the agent who is pressured to produce at all costs.

These agreements lead to a master-slave mentality that agents are not taking lying down.

Financial constraints, he said, can be addressed by agents getting good returns for their work, and not illegally deducting their commissions in form of claw-backs, especially in the life industry.

“Low commissions issue is even being made worse by the recent government directive that intermediaries will start paying excise duty on their commissions. This is having the result of doubling the withholding tax to 20 percent. ”

“You have got to remember that the lack of a structured system to address agents’ needs is what has brought these problems to where they are, but we as the association are addressing all those needs, together with the regulator, although the process is painstakingly slow, “he added.

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On his part Association of Kenya Insurers CEO Tom Gichuhi says banks are best positioned to sell insurance and increase penetration in the country that is at 3.4 percent because of their dense networks of regional branches and their sales style highlighted by close community relationships.

He says this venture is likely to see increased competition leading to cheaper insurance products easily available to the average Kenyan.

“However, we have heard cases of Banks coercing their customers forcing them to use their agents if they are to take a loan from them, this is not good practice and should stop, “he added.

According to a new report released by Deloitte, Bancassurance partnerships are expected to increase in 2015.

The report states that the recent push by the Central Bank of Kenya to narrow the interest rate spread will push banks to seek alternative revenue sources as they try to maintain their profitability margins.

Insurance companies who fail to swiftly craft strategic bancassurance partnerships might find themselves struggling to defend their market share.

The report however says insurers will need to carefully evaluate strategic and cultural fits with their banking partners and seek companywide executive buy in.

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