Banks and Insurance Companies- Are they a good fit?

Decision makers who fail to track developments in other parts of the world as they relate to their business do so at their own peril. It is imperative that they strategize and analyze but importantly avoid wholesale adoption since ideas that work elsewhere may not prove successful in Trinidad and Tobago unless they are significantly modified. The secret formula lies in the ability of the strategists to dissect and correctly determine what elements have the highest chance of successful implementation and to bring a comprehensive and well-thought out plan to market ahead of the competition. No plan is likely to be a winner unless it takes into account the country’s culture (its way of doing things) and the present and near-term state of its technological infrastructure.

In the decade of the 90’s, all the hype in Europe was the merging of banking and insurance groups to produce financial supermarkets in the belief that they could cross-sell products with the attendant benefits of reducing costs and boosting revenues. The major players embraced the concept and they all fell over themselves to pursue the “flavour of the month” strategy and to seal deals since it was irresistible to buck this new winning approach of synergy in financial services.

A decade on, the results have been largely disappointing. It is therefore interesting to review the Trinidad and Tobago experience. What emerged was a recognition of the pull that was taking place elsewhere but never reached a level that quite resembled the European model. No mergers of banks and insurance companies have yet taken place. There was the well known and publicized shareholding position of the CL Financial Group in Republic Bank where the Board and Management of the Bank resisted the control of the Board by CL Financial eventually leading to an accommodation where CL, although holding a major stake agreed to non-interference in the running of the Bank. There was no merger and no formal policy position with regard to the selling of each other’s products. The shareholding in Republic Bank remains merely an investment by CL Financial and there is no known move so far to translate that investment into a form of synergy for the distribution of products.

The Bank felt that the European model of “Bancassurance” was not likely to work and moreover did not want undue influence in its affairs by persons whose training was not grounded in the principles of banking. The only other instance of co-operation between an insurance group and a banking group is the Guardian Life and RBTT axis. Again this is an arrangement where each entity has a shareholding in the other and directors who sit on each other’s Board. There are joint venture arrangements in property development and where the Bank acts as a distribution channel for some of the insurance group’s life and general products. There is no merger akin to the European model (Newsday Business Day article of September 12) but there is the opportunity to co-venture or to follow in each other’s footsteps in markets perceived to abound with good business prospect for financial services.

It is true that unlike banking services that are in the main bought by consumers, insurance products have to be sold. That requires staff to be trained to sell which is not a simple task for employees who must be dedicated to such a window at each distribution center and in any event the users will be mostly the consumer and not business clients of the bank who would gravitate to the specialized licensed insurance brokers. Moreover, the current insurance legislation requires a level of insurance knowledge and training and militates against the wholesale expansion of the sale of insurance products through the banking system.

Inspite of the best intentions, insurance claims(motor and property) are usually the source of much dis-satisfaction by their very nature since claimants might have an expectation to receive payment as presented but adjustments for depreciation, fall in market value, under-insurance all contribute to delay and finally a lower payout. The European experience was one where the Bank felt the wrath of unhappy clients leading to the loss of business instead of contributing to growth in revenue. While it is reasonable to assume that the client base of the bank could be a profitable database for the purpose of selling insurance products, a financial supermarket approach as envisaged by the “bancassurance” model through mergers may have had the opposite effect. What is more likely to succeed is co-operation by banks and insurance companies and investing in the training of staff to increase their insurance knowledge concentrating on the selling of insurances to the consumer.

Trinidad and Tobago financial services industry has been spared the experience of their counterparts in other parts of the world but there are important lessons to be learnt and could surely build on what has been achieved to date through co-operation and co-venture.

Article prepared by Bernard K. Aquing, Chartered Insurer and Consultant to the Association of Trinidad and Tobago Insurance Companies (ATTIC)