Banks seek a slice of insurance business

Monday February 24 2020


By Samuel Kamndaya @TindwaSamuel

Dar es Salaam. The desire to diversify their income-generating streams and seek a slice of the business that comes with their role as agents of insurance firms is pushing banks towards bancassurance, The Citizen has learnt.

Bancassurance is the selling of life assurance and other insurance products and services by banking institutions.

The Tanzania Insurance Regulatory Authority (Tira) has so far issued licences to five banks to conduct bancassurance business since regulations governing the trade were adopted in March last year.

The banks are NMB Bank Plc, Diamond Trust Bank (DTB), National Bank of Commerce (NBC), Barclays (Absa) and Maendeleo Bank, but many more are expected to join the fray.

NMB Bank and DTB have each signed agreements with six insurance firms, whose products they will be handling.

Each of them still has four more insurance companies to bring on board, according to the regulations, which require each bank to work as an agent for a maximum of ten insurance firms.


Banks are also required to sell different products for their different insurance firms.

“If you sell health insurance for company X, then you cannot sell a similar product for company Y. This is done so as to avoid them selling more of one product for one company at the expense of others,” the commissioner for insurance at Tira, Dr Mussa Juma, told The Citizen in Dar es Salaam.

It is Tira’s view that bancassurance will stimulate growth of the insurance sub-sector and raise its contribution to Tanzania’s gross domestic product from the current 0.53 per cent to three per cent by 2023 and five per cent by 2024.

But for banks, the anticipated growth means business for the sub-sector that raked in Sh691.9 billion in gross premiums in 2018, being a growth of 8.6 per cent compared to the Sh637.1 billion of 2017.

Some banks were already testing the benefits of the income that the insurance sector has to offer.

CRDB’ Bank’s insurance brokerage firm made a net profit of Sh1.3 billion in 2018. Tira has since instructed the bank to transform its brokerage firm into bancassurance.

With 224 branches countrywide, NMB Bank is optimistic that its coming into bancassurance will raise the number of distribution channels for insurance products by 30 per cent.

“We are optimistic that the coming of NMB Bank into play will grow the insurance market significantly given its foot print and customer base of over 3 million customers,” said NMB Bank head of retail banking Filbert Mponzi.

It is also an open secret that banks were not working as charity organisations for the advancement of the insurance industry.

As such, bancassurance also offers banks a new avenue for generating income through commissions earned by sale of insurance premiums.

To date interest income (the money that banks earn for charging interests on their loans and other services) remains the major source of profits for banks.

However, with competition in the banking sector sending interests on personal loans slightly down during recent years, other income streams (including earnings from foreign exchange as well as fees and commissions) have shown a lot of improvement and were increasingly raising their shares in lenders’ profit baskets.

“To banks, availability of insurance products within branches gives a one-stop-platform for product offering. Bancassurance is also seen by banks as an avenue for fee income through commissions earned though selling insurance premiums,” said DTB Tanzania head of marketing Sylvester Bahati.

It also means that bank customers are able to meet their insurance requirements (life and general) directly from the banks through credit arrangements which would not have been possible if the same insurance products were sold by brokers. In East Africa, it is estimated that the insurance sub-subsector contributes three per cent and two per cent to GDP for Kenya and Uganda, respectively.