Simone Cooper
Standard Bank
Head Business Clients
Foreword
There is no doubt that a vibrant SME sector is the beating heart of any economy, but it is also a sector that faces several challenges. Insurance cover is often complicated, expensive and difficult for SMEs to obtain. However, it is critical given that SMEs face significant risks.
In the wake of the pandemic, many SMEs are reviewing their insurance coverage, and this presents banks with an opportunity to disrupt the market – and increase their income. By providing insurance products that are tailored to suit the specific business needs of SMEs, banks can support and empower the sector by helping them to mitigate risk.
While the needs of SMEs can be complicated, the solutions banks offer should be simple. By staying focused, banks can benefit from integrating insurance products into their offering, and this, in turn, will enable SMEs to thrive.
Introduction
We know that SMEs represent 99% of all businesses in the EU. But, as the European Economic and Social Committee explains, they also present a ‘liability of smallness’ and are limited in terms of resources and capabilities, which makes them particularly sensitive to economic and market disruptions.
And what a disruptive few years we’ve had. The Covid-19 pandemic and the subsequent global and political crises have led to inflation, severe supply chain issues, and labor shortages – challenges that not only present a complex operating environment for SMEs, but also put them at increased risk of being underinsured.
In fact:
• According to a report by The Times, globally, 80% of high-growth SMEs are underinsured or have the wrong cover.
• Over half (58%) of SMEs are not insured against their top three risks, according to research by pwc.
• A study by Aviva found that one in three SMEs don’t consider inflation or supply chain issues when reviewing how much to insure their business for. Almost a fifth (19%) of businesses have yet to review how long it would take to reinstate their business within the last two years. Moreover, one in ten SMEs wouldn’t survive if they had to pay up to £10,000 towards a claim that wasn’t fully covered by insurance.
What’s clear is that SMEs need more help and support when it comes to insurance, and they also need access to more tailored products. Unfortunately, these needs are not normally being met by traditional insurance brokers who, with little insight into the bespoke requirements of their SME clients, are often missing the mark with a one-size-fits-all approach.
Banks now have an opportunity to help. Already having a relationship with SMEs, they can use their existing, proven distribution channels to offer products tailored to their needs.
They don’t have to do it alone. Bancassurance is an ideal place where banks and insurance firms can cooperate and create synergies to deliver value for clients – and reap rewards at the same time.
“By partnering with banks, insurers have an opportunity to not only leverage fast distribution and larger reach, but to educate SMEs on the importance of insurance,” said Jaya Balan Kathiravalu, Head of SME Banking, Group Commercial Banking, CIMB Malaysia.
In this paper, we will outline the opportunity bancassurance presents to banks, as well as the key considerations that should be made when pursuing a bancassurance strategy. We’ll also highlight case studies that illustrate exactly what can be achieved when a successful approach is taken.
The bancassurance opportunity
The vast majority (90%) of SMEs are now willing to purchase coverage from a non-traditional player, including their bank, so it’s no wonder that the global bancassurance industry is estimated to reach US$1.8 trillion in less than a decade, witnessing a CAGR of 7.4% from 2022 to 2031.
While it’s quite apparent that SMEs are currently often underserved, what’s also clear is that the industry is ripe for change.
“The needs of SMEs are very different when it comes to bancassurance types of products. For that reason, it’s quite difficult to figure out where exactly to play and how to play in this environment. What we do know is that SMEs desperately need these products. SMEs have struggled a lot, especially through the Covid-19 pandemic, and we know that insurance and risk-mitigating products are critically important to them going forwards. If we can get this right, then there are huge opportunities for us. There’s a massive market here and we stand to boost customer loyalty, strengthen relationships and benefit from enhanced revenue streams,” said Simone Cooper, SME Banking Community Vice-Chair and Head of Business and Commercial Banking, Standard Bank South Africa.
The vast majority (90%) of SMEs are now willing to purchase coverage from a non-traditional player, including their bank, so it’s no wonder that the global bancassurance industry is estimated to reach US$1.8 trillion in less than a decade, witnessing a CAGR of 7.4% from 2022 to 2031.
The benefits for the banks successfully provide SMEs with tailored insurance products via a bancassurance offering can be significant. They include:
• Enhanced revenue streams
The SME insurance market represents a huge non-interest income – and that’s something that, after a long period of margin and revenue pressure, banks cannot afford to ignore. Bancassurance also provides banks with a way to diversify their income streams away from traditional products – and that’s been a long time coming.
• Improved customer loyalty
The traditional bank-SME relationship is often quite transactional in nature. However, for those banks that get to know their clients and assist them through their insurance journey by delivering tailored insurance products, there’s an opportunity to strengthen relationships and enhance customer loyalty.
• Risk mitigation
By offering insurance solutions, banks can help SMEs manage risks effectively. This can lead to reduced loan default rates and improved asset quality in the banking portfolio.
• More cross-sell opportunities
Bancassurance provides an opportunity to bundle loans with an insurance product. It also offers other cross-sell openings such as investment services.
• Greater data insights
Bancassurance products provide banks with greater insights into the workings of the risk profile of an SME and allow them to create even more bespoke offers as a result.
• A stronger regulatory position
Many financial regulators are looking for ways to protect SMEs and to ensure that they are well supported. Bancassurance allows banks to promote financial inclusion and stability within the market.
However, capitalizing on these benefits takes a lot of work. It requires a carefully thought-out strategy and the right strategic partnership to succeed.
Entering the bancassurance market: Six key considerations
While entering the bancassurance market can bring enormous rewards for banks, a failed attempt can be damaging. With that in mind, it’s crucial to think beyond the actual sale of the bancassurance product and ensure you can show up to support SMEs throughout the entire value chain. It’s essential to consider the following:
1. The key needs of SMEs
With SME needs often largely unmet by traditional insurance products, banks need to make sure they understand what their small business customers are looking for and then create their products according to those needs. Simply taking their personal products and tweaking them isn’t enough.
“SMEs tend to have a lack of knowledge when it comes to insurance products and they often do not have access to brokers. We’ve found that SMEs need simple insurance products as opposed to more complex ones. They are looking for standard low coverage packages such as first loss products,” said Ali Önder Lülü, Group Director, Bancassurance Sales and Marketing, TEB
2. The approach to segmentation
Since SMEs vary in terms of their size, the industry they operate in and business challenges, a traditional approach to segmentation may not suffice. It may be better to segment based on the maturity of the client and their current stage in the business life cycle.
3. Risk and compliance
Banks must adhere to complex regulatory requirements. Bancassurance products differ greatly from traditional banking transactional products. With this in mind,
solid risk management is vital, as is ensuring you have appropriate underwriting frameworks, claims handling processes and fraud management.
4. Choosing the right partner
Identifying and choosing an insurance company to partner with should be a carefully considered process. Once you have chosen the partner, take time to define your roles and responsibilities in precise detail.
5. The need to upskill relationship managers
Most relationship managers have been well- schooled in traditional financial products but not necessarily insurance products. Education and training are, therefore, key to success.
6. Technology and infrastructure
Banks need robust digital platforms to facilitate insurance sales and streamline administrative processes. Think about using data and analytics to make for an exceptional customer experience.
What do SME customers want?
• Fast, easy service
SMEs value a customer experience that is simple, intuitive, and low effort. This means ensuring a seamless digital experience, taking advantage of automated data capture and entry to ease the application process. It also means providing consistent experiences across both digital and physical channels.
• Tailored products
SMEs represent an extremely diverse target group for insurers: they vary significantly in size, sector, and business needs. Off-the-shelf products are not enough – SMEs want personalized policies that meet their exact requirements.
• Advice and support
Deloitte research suggests that, for SMEs, advice is more important than price. Small business owners are under incredible pressure, so banks that can take the role of trusted advisor and help SMEs understand exactly what type and level of cover they need will help build long-term trust. Those banks that go further by providing a range of value-added services will do even better.
Bancassurance success stories
“Intuitive digital journeys are essential for sustained growth in the embedded- insurance mode. Banks must seamlessly integrate data intelligence, personalize offerings, and engage customers across multiple channels and banking segments. Optimized quotes for customers can increase conversion rates by up to 30%. We have already started seeing AI-led solutions help in decoding customer behavior, predicting risks, and tailoring insurance solutions on the fly,” said Zubair Ahmed, Managing Director, MEA, VeriPark.
Here’s our roundup of some of the best in-practice examples of banks succeeding in delivering bancassurance services:
• CIMB Malaysia
By joining forces with Sun Life, CIMB Malaysia is offering three takaful (Islamic insurance) bancassurance products to its SME clients. Each product provides hassle-free enrolment and is tailored to meet the exacting needs of micro-, small- or medium-sized clients.
• TEB Turkey
TEB has taken a 360-degree approach to SME bancassurance by not only providing and securing a loan but also offering insurance products that secure both the business and the business owner. The ultimate goal is to add value to the SME owner’s business, financial and personal life.
• Virgin Money and Superscript UK
Virgin Money, the high-street bank, is partnering with Superscript, the insurtech scale-up, to provide its business banking customers with customizable, flexible, subscription-based business insurance.
• PZU Poland
PZU is a multi-line insurance company which offers a range of life and non-life insurance products and services to a variety of customers including SMEs. The company distributes its products through a network of partners, including six of the ten biggest banks in Poland.
• Coalition USA
Coalition has released a suite of executive risk products to protect the leaders of small and midsize businesses. It is utilizing real-time financial, regulatory, and transactional data to generate bindable quotes in minutes through its executive risks broker platform.
• Chubb USA
Chubb is the number one publicly traded P&C insurer with 34,000 employees worldwide. By connecting with banks and other distribution partners, the company offers insurance protection to businesses of all sizes including smaller micro businesses. Much of this business is conducted through digital channels including mobile.
Final thoughts
There is a real opportunity for banks and financial services firms to stay ahead of rapidly growing competition. To do this, they must disrupt themselves and provide support for SMEs through a seamless digital experience and delivery of timely access to credit. Banks can also drive new revenue streams by addressing the changing needs of SMEs. This can be achieved by transforming their own business models, embracing digital ecosystems, optimizing relationship management models and the opportunity of embedded finance. Internalizing and understanding the five maturity levels of SME Banking and building an actionable roadmap is a critical step in that journey.
The five maturity levels of SME Banking: A journey from digital transformation to disruption
The Five Maturity Levels of SME Banking report was published in June 2023 and, since then, both Qorus and VeriPark have noticed much adulation within the banks focused on SMEs. Several banks have used it already to self-assess their current maturity and are now advancing their internal strategies to aim for higher maturity.
Are you ready to do the same? Learn more about how you can revolutionize your approach to the SME segment and multiply your customer base? Download The Five Maturity Levels of SME Banking report.
