Distribution strategies in bancassurance
Standard distribution model for bancassurance proves very successful in the early stages. It enables banks to generate early profits. Much of that early success lacks durability, however, and most companies are now reassessing their entire strategies for this business.
Success springs initially from unlocking the distribution potential of bank branches. It comes from the realisation that two very distinct activities are involved in the sale of a insurance or pensions policy. One is the initial identification of potential clients. The second is actually sitting down in front of the client and completing the sale.
Typically in the insurance industry, one person is asked to do both jobs. One of the industry's axioms is that a salesman spends 80% of his time prospecting and only 20% selling.
Bancassurers' initial success rests primarily on giving branch employees of the bank responsibility for generating quality referrals. This allows the insurance and pensions consultant/agent to concentrate on selling. Bankers are not expected to understand the insurance industry: they simply have to identify customers with potential needs for the industry's products.
This separation of prospecting and sales roles leads to productivity levels for bancassurance consultants up to four or five times the norm for the insurance industry. Needless to say, the bank feels that it rather than the individual sales person is entitled to the rewards from the superior productivity. Salespersons' earnings in bancassurance are above the industry average - but not that much above it. Those additional margins to the bank can be significant.
Formula for early success
The initial success formula is almost embarrassingly simple. Bancassurers sell much the same products as everyone else. The products are primarily unit-linked under which the customer rather than the insurer bears the investment risk. The bancassurers do not try to offer better value products than others available on the market - for the simple reason that, because of the complexity of life insurance product designs, people would not recognise a better value product. So, industry-standard products, involving low risk to the insurer, combined with average prices and efficient distribution, leads inevitably to low entry costs and early profits. Simple, isn't it?
Then the problems accumulate
But behind the success stories, all is not well. Some branch staff and customers become disenchanted with the front-end charges and investment volatility of unit-linked products. It is easy to understand bank employees' disillusionment when some of them spend half of their working lives defending paltry interest rates on the grounds that "But your money is safe with us". Now, they have to face the unpalatable fact that customers' capital is not sacrosanct. Their money is not safe.
Another portend of difficult times ahead is the occasional outbreak of hostilities between salaried bankers and their insurance colleagues who depended on sales bonuses for a high proportion of their total income.
A third problem lurking beneath the seemingly smooth surface of bancassurance - and of the life assurance industry in general - is the legacy of past mis-selling. The critical illness also known as dread disease market has similar potential to explode as bancassurers write an inordinately high proportion of this business. This breeds dissatisfaction of customer in either way – feels lost if does not face the peril and feels lost if he faces the peril and his premium does not help him.
A host of bancassurers suffer the indignity of being fined and/or being publicly reprimanded by industry regulators for poor sales practices. Many were also obliged to take their sales forces off the road for retraining.
When in doubt return to classroom
It's a case of back to the drawing board as banks reassess their strategies for the insurance and pensions business. The main issues are product strategy and re-engineering of internal processes. Unfortunately, re-engineering is too often a euphemism for crude cost cutting. Independent financial advisors/agents and brokers are and will remain major distributors of insurance and pension products. Bancassurers simply cannot ignore them when planning strategy.
Brokers are a diverse group. Many senior people in business and the professions seek advice from high quality brokers in relation to their pension and insurance needs. At the other end of the spectrum, some down-market brokers do not add value to the customer relationship and are little more than providers of referrals to consultants/agents employed by the life assurance companies. The main argument in favour of bancassurers doing business is that, while the life assurance company loses the distribution margins on such business, it still captures the manufacturing margins. Half a loaf is better than no bread.
The countervailing argument is that the bank is in the retail financial services business, competing for the same currency of consumers' savings. This applies even more forcibly as the barriers between different sectors of the financial services industry start to crumble. It seems incongruous therefore for a bank-owned life assurance company to, as it were, consort with the enemy. The most coherent strategy for a bancassurer is to fight with might and main to capture both distribution and manufacturing margins.
At the same time, over-reliance on a single captive distribution channel creates certain insularity, remoteness from the real market place that is unhealthy for an organisation. Competition is the very life-blood of capitalism. Bank’s objective is to find market niches that it can dominate, where it enjoys an effective monopoly despite its size. Bancassurers need to keep their competitive skills honed.
Analysis reveals significant improvements are required in the following areas in the process of adopting bancassurance as a business line:-
- Alignment of goals, objectives and strategies
- Structural integration and simplification of reporting lines
- Cultural awareness and understanding
- Best practice managerial processes
- Best practice marketing/sales processes
- Employee motivation
- Staff education in terms of Financial Service products
- Optimize sales results
The sales results of staff stem from three factors - skill, will & opportunity. Each of these is fundamental if sales performance is to be optimized. There are proven tools and training solutions to maximize each of these key factors. Whichever factor, or combination of factors is inhibiting success, training can help to induce people to achieve peak performance quickly and effectively. So in any bancassurance partnership training the partners’ employees is a critical condition and integral business agreement. Again training can be in-house reciprocation or outsourced from a reputed training establishment for business well being not merely for statutory compliance.
Undoubtedly, customers are more sophisticated than ever before and they not only expect high standards of service and products that meet their needs, they also expect high levels of professionalism and interpersonal skill from the salesperson/telephone agent. Old style aggressive or product push approaches may still be effective, but they severely limit sales opportunities and are having an increasingly negative effect on customer relationships and company branding.
All salespersons/telephone agents are more effective when using modern day relationship selling techniques, which put the customer's best interest as the focal point of the sale, not the salespersons/company's sales targets. This may sound simple, but its execution requires a whole new set of sales practices, behaviours and skills.
There is one simple belief. The best service that you can give to a customer is to talk to them, listen to them and thereby to help them to identify genuine needs in their life, satisfying these wherever possible by the provision of your product. This articulates the belief in the success of utilizing an ethical, compliant, customer centric approach to sales. Trainers have proved this works and can show evidence of doubling sales performance within many of their clients.
A major strategic difficulty facing a life assurance company distributing through brokers is that the obligation to pay standard industry commission rates acts as a constraint on product development. Bancassurers that ignore the broker channel completely are freed from this constraint.
Insurance distribution options by branch staff
There is the vexed question of distribution of insurance products by branch banking employees, without the intervention of a specialist life and pensions consultant/agent. One bancassurer's stated objective is to use branch staff to distribute straightforward products and to confine life and pensions specialists to sales requiring high-level technical input. The attractions of this strategy are obvious: it reduces the bancassurer's distribution costs still further.
Looking at other distribution options, including all forms of direct distribution, the key strategic challenge is to convert data to information; information to knowledge; knowledge to empathy; and empathy to profit.
The quality of the initial data is of crucial importance. Obviously, it is no good having information if you do not use it to increase your knowledge and your understanding of customers' needs. Also, the faster processing power of computers is now allowing medium-sized institutions to access the technology needed to link information on savings accounts, business accounts, credit cards, loan accounts, etc. in a value-adding manner. Up to very recently, only the very largest institutions had access to that technology.
It would be wrong however to get too carried away with the belief that advances in technology will solve all bancassurers' problems. They will not. Equally though, it would be a mistake to claim - as many do - that selling life insurance and pensions is an "eyeball to eyeball" business, that sales techniques which dispense with face-to-face contact are doomed to failure. As in all such situations, no single answer will suffice in all circumstances.
The critical factors affecting a company's ability to sell its goods and services without the involvement of an intermediary are the complexity of the product and the strength and attractiveness of the customer proposition. This applies to life assurance as much as it does to washing machines or bars of soap. Product complexity in life assurance is a major obstacle to direct sales techniques. This is particularly true in India, which has traditionally been subject to a normative supervisory regime. The normative regime favours product innovation. Unfortunately, it also means that products can become ridiculously complicated.
Examples of some implementation issues are as follows:
a) Allocation of responsibility for sales management is of vital importance. In fact, the question of who manages the sales function permeates all discussions on bancassurance.
b) One problem which definitely exists but which is difficult to quantify in practice is the risk of missing value-adding sales opportunities by excluding specialist insurance consultants from apparently simple sales transactions. It is often only in the course of conversation with a customer that more in-depth needs emerge. Branch staff must be trained to identify those needs and, where appropriate, to refer customers to the life and pensions specialist.
c) Logic dictates that the branch reward almost invariably notional rather than in hard cash. Once again how to structure profit incentive schemes at branch level is devilishly difficult.
d) Compliance issues also loom large in respect of sales by branch staff. There is a higher risk that the consumer will misunderstand the product. This reinforces the need to limit sales through this channel to simple products.
e) Increasingly, regulators are demanding that consumers receive appropriate advice when buying long-term financial products. The resulting training requirements for branch staff could prove expensive. If you think knowledge is expensive, though, try finding out the cost of ignorance! The solution to the cost problem is often to nominate one or two people in each branch who receive the necessary training to enable them to deal with relatively straightforward insurance products.
f) Finally under this heading, the strategy of confining the life and pensions specialist to higher value-added sales implies fewer and more highly trained consultants. In effect, it will mean shedding a high proportion of existing sales staff, many of whom do not have the basic skills needed to progress to the new roles envisaged for them.
Training – the critical component of bancassurance
Trainers establishments have developed a whole range of sales skills courses, based upon best practices of relationship selling. These can quickly be customized to provide clients with instant upskilling of their entire sales force, or to ensure that new sales teams or telephone sales agents are equipped to optimize sales opportunities. Trainers also have a full range of courses available to take sellers through compliance procedures, technical product/industry knowledge, financial planning skills, customer prospecting and relationship building.
Many factors influence the general motivation of staff ranging from resistance to change through to reward and recognition processes. Whilst motivation is often an individual thing it is naturally incumbent upon the business to create the right environment in which personal motivation can thrive.
The key factors in creating a motivational environment can be divided into two categories: soft and hard. Soft factors are such things as feedback, managerial skills, communications, leadership, interpersonal skills, team working, and coaching. Hard factors are such things as performance management systems, appraisal systems, reward and remuneration systems, career planning, management information, and monitoring processes.
Ensuring that sales people spend a high proportion of their time selling rather than completing fulfillment processes or other administrative duties. This is a particularly prevalent issue in banks where sales people often spend as little as 20% of their time actually selling.
Trainers have developed a whole range of leadership, team building and soft skills training courses which are always focused upon how to use these generic skills in real life situations within your organization. In this way learning can be quickly applied without the need for further rationalizing by the delegates.
Trainers also are able to audit sales performance for clients, so as to identify "Will and Opportunity" issues and they will then offer global best practice solutions to both soft and hard issues.
Improving Sales Management
Just as sales skills need to be modernized for today's more sophisticated customers, sales management techniques also need to be upgraded. Wide ranges of management tools are now available, whilst technology makes different demands on traditional management practices.
Management style is also one of the most important factors in driving the behaviour of the sales force and many change initiatives fail because of lack of management commitment or skill. Modern day managers need to develop leadership qualities that challenge employees but do not stifle innovation and flair. A firm yet consultative approach is proven to be the most effective in modern financial services companies.
Trainers may be allowed to significantly review your portfolio of sales management training courses over the past few years to ensure that they fit into the demands of the modern day sales management. Modules and courses on the following subjects are suggested:
- Team Working
- Effective Performance Management
- Relationship Management
- Resource Planning
- Time Planning
- Goal Setting
- Optimizing Management Information
- Managing Service Quality
- Mastering Technology
- Coaching & Developing Staff
These courses provide ready-made solutions, which can be tailored to produce company specific training. They are proven to increase sales results through generating effective management of sales personnel.
Providing training resources
Because of the constantly changing nature of the business it is not uncommon for financial services companies to have specific, short-term training needs, which must be fulfilled on top of existing training programmes. As no business can afford to keep a pool of trainers of its own, outsourced trainers are happy to provide clients with additional skilled resource to support such initiatives.
This pool of resource can also be used to cover for operational resource shortages, or to provide a skill bank to be used when internal trainers have insufficient experience or knowledge to deliver to a specific need.
All of the trainers should have Financial Service Industry backgrounds, should be fully qualified in their field and have been through a rigorous assessment process to ensure that they are suited to the high standards that a company desires to set. A company should know that by setting such high standards it could always be sure to deliver quality service through its people to its clients. Through programme of Continuous Professional Development, you know you are working with people who are at the forefront of their market place.
Many companies see outsourcing training function as a very cost-effective way of driving up training standards, making training more responsive and accountable, and ensuring they have a training function that keeps itself at the forefront of changes in training and market developments.
Banks, bancassurers, direct sales forces and agency providers of financial and insurance products; each business type has significant challenges for the future:
- Banks must mould their traditional service cultures to become much more sales focused and results oriented.
- Bancassurers need to synergize operations between the insurance and banking arms of the business. Traditional insurance sales skills are too "hard" for bankers, whilst the bank culture can often be too passive for the insurance arm.
- Direct Sales operations need to modernize their approach to customers and become relationship focused rather than product driven.
- Agency sales forces are having to compete with rising costs and reducing margins and need to make more high value sales per customer, rather than accepting traditional low premium business.
If the sales culture of any business needs to change there are certain key factors that must be effectively managed. These include:
- Convincing people of the need to change
- Creating a motivational vision of the future
- Having a driven, combined and committed senior management team
- Considering all the components of change, and their impact
- Having a clear and tangible end product of the change
- Generating some quick wins
- Keeping staff informed of all changes, just as you would with a business partner
- Giving staff ownership of developments
Trainers should have experience of successfully defining change, project managing the change process and equipping staff to meet the new challenges created by sales culture change. Training establishments should provide skilled project managers, change agents and tactical consultants who understand grassroots change. They can ensure that company’s new strategy can be converted into an embedded 'new culture' which delivers real and lasting business results.
It is often the case that even with the best training in the world, some staff will fail to produce the results expected. This may be for a variety of reasons, which can be of a business or personal nature. Such islands of resistance can be successfully changed, but it does take the personal involvement of an experienced and wise mentor.
Whilst some staff may turn to their line manager for such support it is often the case that the line manager has to invest a disproportionate amount of time resolving the problem, often to the detriment of the relationship with his/her successful people. This can easily give the message that performance is not valued and de-motivate high performers.
Mentoring is a wonderful way of developing ownership of problems and in changing hearts and minds of staff, but it is very time consuming. Technical trainers have developed technological solution to this problem like use of e-mails and telephones to efficiently mentor staff towards achievement of desired business results. It cannot only be used as a remedial tool, but can be used to generally assist with embedding change.
Such technology provides total support for specified staff or the whole of the sales force if so desired. Each mentored staff member has a personal e-mail mentor who provides regular counselling, advice, facilitation and direction, up to the point where the mentored staff member is able to perform consistently to the required standard. This process ensures that sales managers can more effectively use their time, safe in the knowledge that their staff are being given first class support and guidance. Developing a contextual help system in the software package is another techno-advantage available to bancassurance mentors and sales force.
Elsewhere in the world there are bancassurers who have been in operation for over 30 years who have developed and harnessed best practices to become leading players in the market. It is thought that the natural development cycle of a new Bancassurer can be anything up to 20 years, so the challenge is to radically reduce these timescales and reach maturity within 5 years. This is where the partners can really help each other.
Before trainer becomes involved in any major intervention, there is need to undertake a "Situational Analysis". Using trainers’ considerable knowledge, they should conduct a number of interviews with selected staff from the branch network as well as Head Office and Regional/Area functions, and build up a rapid picture of the stage of development or maturity of the business. This process leads to understand the pitfalls and motivational issues that may be affecting the sales team, and the challenges to be faced in the future.
The information gained is then processed through generic experience that compares performance to global best practices allowing for cultural differences. Trainers then identify all the gaps and make recommendations based upon proven solutions that will rapidly bring the business up to best practice levels.
This process, including an executive presentation and comprehensive report is normally conducted over a three-week period. It is a vital piece of work that results in all the solutions, which are subsequently developed and delivered being accepted by staff who see it as a seamless development within their business.
The Situational Analysis forms the foundation for a successful intervention and a blue print from which to develop the business towards a mature and leading player. Development time is saved and the process speeds up the onset of new or additional income steams.
Case Studies based on Situation Analysis:
Bancassurance training intervention can be best understood by perusing some case studies. The author was involved as a training consultant of Scottish Development Overseas while at ASCI as chairman of finance area. The following case studies are the result of some international assignments – mostly the success part of the assignments:
Major Bank case study 1
A major retail bank with over 360 branches and 6,000 staff and with an Independent Financial Services arm wanted to improve sales performance and lead generation of both banking and insurance products through the development a proactive sales and service culture. This would create a momentum that would act as the platform for their successful conversion to a bancassurer. The training establishment was appointed to instigate this change during a time of major process re-engineering within the bank.
The Assignment - After early consultations with senior management trainers first step was to carry out an audit of the sales processes called situational analysis including recruitment, outputs, quality, process, infrastructure, sales force integration, staff attitudes and behaviours and staff skill levels.
Trainers research unearthed some major issues and as a result over forty recommendations were made, all of which were approved by the bank's Executive Committee. These impacted upon areas such as: sales strategy, communications, management information, management skills, reporting lines, roles and responsibilities, recognition/incentive schemes, sales planning and review, sales tracking, product knowledge, lead generation skills, sales skills, sales processes, technology, recruitment and compliance.
A fully integrated project plan was drawn up with completion scheduled for six months later. Trainers’ staff were resident on site to project manage the initiatives and ensure the quality and timeliness of all deliverables.
A new specialist role was designed to ensure that each branch had a highly motivated sales focused individual. All 400 of these staff were put through an intensive week of training using trainers’ dialogue skills. In addition every branch manager was trained in sales management skills. This necessitated the selection and accreditation of 9 internal trainers to deliver the new skills.
These trainers proved highly successful and the training courses were heralded as the most motivational and beneficial courses ever delivered internally or externally. In effect this moved the skill base into the business allowing it to move forward without the continual need for external involvement.
A sales and lead generation incentivisation scheme was introduced, based on a football league analogy. This scheme was inexpensive to run yet was very successful in generating interest, stimulating the sharing of best practice, building teams and creating an atmosphere of healthy competition.
Prospecting and researching sources were identified, standard letters and dialogues designed and staff skilled in their use. This created a proactive approach that replaced the older passive style.
A sales infrastructure was developed that supported the bancassurance operation and resulted in best practice being adopted throughout the organization on a daily basis.
The Results - Within a period of six months, and from a position of significant disadvantage, the bank had moved its sales culture to become the equal of its major competitors. Staff were motivated by the changes and recognized the ethical approach as a natural extension of their personal values.
The implementation of the new skills and the environmental changes made quadrupled the number of leads produced for the insurance arm, whilst the lead conversion ratio was commonly over 75%. Customer satisfaction measures showed that customers also welcomed the changes and that their relationship with the bank had strengthened as a result.
In addition, sales of core banking products soared as staff used soft, consultative skills to unearth hidden needs. During the financial year in question, profits reached an all time high.
As planned, twelve months after this intervention the bank announced plans to convert to a bancassurer safe in the knowledge that it had the right platform for growth.
Major Bank case study 2
A major bank, with over 40,000 staff, 1300 branches and a recently launched Insurance Company were happy to give responsibility for sales development to their Regional Managers.
The Assignment - One Regional Manager who was responsible for the second poorest performing region contacted a training establishment to ask for help. The brief was to skill key platform staff to sell in a way that differentiated his business from that of his internal and external competitors, but at the same time create catalysts within the branches to influence and motivate colleagues. His aim was to significantly improve the performance of the region.
After a series of meetings with senior regional management, trainers conducted a situational analysis and benchmarked activity against global best practices. trainers produced a comprehensive report and made a presentation that recommended a complete series of training programmes covering every population. This included a workshop for senior sales management, a workshop for line managers and skills training for one member of the sales team in each branch. Trainers customized existing proven material and created training base.
The training was designed in such a way as to motivate every level of staff and management. The timing of each course was carefully planned so that as each person was trained, they returned to the branch to find that their line manager had also been trained and was already planning how best to support them in their role and in using their new skills.
Senior consultants from training establishment delivered all of the training to ensure consistency. Training was delivered without the use of notes or guides, and using the considerable personal experience of the two trainers, the hearts and minds of staff were captured in a way that motivated staff to want to be successful.
The Results - Sales and lead generation levels soared. Staff in the branches were keen to undergo the same training programme as they witnessed the unprecedented success of their colleagues. A series of further courses had to be delivered to staff who had missed the training first time around.
Lead generation levels moved to an all time high with conversion rates around 75%.
The cost of the entire intervention was recouped within days rather than weeks.
Despite setting up a direct Help Line for staff to use in case of difficulty, it was found that this facility was used to report success. Sometimes it would take an hour or two, and for others it may be a day or two, but the letters of thanks received from customers matched success stories.
By the end of that year, the Region became the highest performing Region and maintained that level of performance as behaviours became engrained and results were sustained.
Major Bank Case study 3
A dynamic world player seeking to differentiate and capitalize it's excellent brand in new market places. The Bank decided to create a third arm to it's global business. It already led the way with it's highly regarded retail and corporate business, but sought to enter the market place of emerging local corporate business. This would involve capturing quality small/mid sized business in countries where there was a low branch presence and in areas of fragile or over heating economies.
The Assignment - Against competition, training establishment was asked to develop training recommendations for a brand new sales force that would be recruited from industries other than financial services within their own countries. There would be a need to give the sales force enough knowledge about banking law and practice as well as lending and security requirements without affecting their natural sales skills. The entire training solution would have to be developed by the client within 8 weeks.
Trainers undertook a considerable amount of research and used the top executives personal extensive experience in corporate banking business development. Having undertaken similar roles themselves they were able to bring a different dimension to the training solutions and a comprehensive package of 5 training courses was recommended.
It was clear that the client could not develop this level of brand new material within the tight timescales they had set themselves. Trainers guaranteed to design the training solutions within the eight weeks and based upon our ability to react and the level of understanding they had for the new roles, they were awarded the contract.
Liaising constantly with key personnel and Stakeholders, they developed the training programme meeting all of the client's requirements and within the timescales set. This included comprehensive case studies designed to suit the different countries and economies to be involved in the initial roll out programme.
they delivered the initial courses in various countries around the world, and at the same time they trained a bank trainer to complete the task as roll out eventually spreads to dozens of countries.
The Results - Immediately the initiative was launched, the financial markets in certain Asian countries where the initial implementation was based suffered a severe set back.
Despite this, every country emerged above target. The client discovered that the training was so comprehensive that quality did not have to be compromised and the approach to prospects was of such a high calibre that successful businesses, strong enough to withstand the economic problems, started to use the products and services of the client.
Subsequent to the initial training, they were awarded a contract to develop the training for a brand new package developed by the trainer. Again, within very tight timescales, and using only a prototype version of the package, they designed and delivered the training material. This was achieved at a fraction of the price quoted by other consultancy firms.
[The author is grateful to ASCI (Dr T L Sankar) and Scottish Development Overseas (Dr A B Dunn) to have given the opportunity to indulge in the case studies while on commercial assignments]
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.