Post on 26-Feb-2023
Effects Of Bancassurance On Financial Performance Of Insurance Companies In
Kenya: A Case Of Selected Insurance Companies In Nairobi County
by
Jared Oirere Orora
A thesis presented to the School of Business and Economics
of
Daystar University
Nairobi, Kenya
In partial fullfllment of the requirements for the degree of
MASTERS OF BUSINESS ADMINISTRATION
in Finance
November 2018
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APPROVAL
EFFECTS OF BANCASSURANCE ON FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN KENYA: A CASE OF SELECTED INSURANCE COMPANIES IN NAIROBI
COUNTY
by
Jared Oirere Orora
In accordance with Daystar University policies, this thesis is accepted as a partial
fulfillment of the requirements for the Master of Business Administration degree.
Date:
Joshua Okeyo, MBA,
1st
Supervisor
Richard Maswili, MBA
2nd
Supervisor
______________________________ Samuel Muriithi, PhD, HoD, Commerce
_____________________
_________________________________
Evans Amata, PhD, Dean, School of Business and Economics
_____________________
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DECLARATION
EFFECTS OF BANCASSURANCE ON FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN KENYA: A CASE OF SELECTED INSURANCE COMPANIES IN NAIROBI
COUNTY
I declare this thesis is my original work and has not been submitted to any other college or university for academic credit.
Signed: Date: Jared Orora Oirere
13-1532
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ACKNOWLEDGEMENTS
First and foremost, I wish to thank our Almighty God for giving me the gift of life,
patience and persistence in pursuing this study. There are a number of people without
whom this research might not have been a success and I am greatly indebted to.
I would like to acknowledge my loving parents whom have always been there for me morally
and financially towards achieving my academic dreams. My sincere and profound gratitude
goes to my mentors and supervisors, Mr. Joshua Okeyo and Mr. Richard Maswili. It would
always be my pleasure reminding you of your insightful thoughts and contributions
throughout this study. God bless you abundantly for the job well done.
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TABLE OF CONTENTS
APPROVAL ....................................................................................................................... ii
DECLARATION ............................................................................................................... iv
ACKNOWLEDGEMENTS ................................................................................................ v
TABLE OF CONTENTS ................................................................................................... vi
LIST OF TABLES ........................................................................................................... viii
LIST OF FIGURES ........................................................................................................... ix
LIST OF ABBREVIATIONS AND ACRONYMS ........................................................... x
ABSTRACT ....................................................................................................................... xi
DEDICATION .................................................................................................................. xii
CHAPTER ONE ................................................................................................................. 1
INTRODUCTION AND BACKGROUND OF THE STUDY .......................................... 1
Introduction ......................................................................................................................... 1 Background of the Study .................................................................................................... 2
Statement of the Problem .................................................................................................... 9
Purpose of the Study ......................................................................................................... 10
Objectives of the Study ..................................................................................................... 10
Research Questions ........................................................................................................... 10
Justification of the Study .................................................................................................. 11
Significance of the Study .................................................................................................. 11
Scope of the Study ............................................................................................................ 12
Limitations and Delimitations of the Study ...................................................................... 12
Assumptions of the Study ................................................................................................. 13
Definition of Terms........................................................................................................... 13
Summary ........................................................................................................................... 14
CHAPTER TWO .............................................................................................................. 15
LITERATURE REVIEW ................................................................................................. 15
Introduction ....................................................................................................................... 15
Theoretical Framework ..................................................................................................... 15
General Literature Review ................................................................................................ 22
Empirical Literature Review ............................................................................................. 30
Conceptual Framework ..................................................................................................... 31
Summary ........................................................................................................................... 32
CHAPTER THREE .......................................................................................................... 33
RESEARCH METHODOLOGY...................................................................................... 33
Introduction ....................................................................................................................... 33
Research Design................................................................................................................ 33 Population of the Study ..................................................................................................... 34
Target Population .............................................................................................................. 34
Sampling Size ................................................................................................................... 34
Sampling Technique ......................................................................................................... 35
Data collection Instruments. ............................................................................................. 37
Data Collection Procedures ............................................................................................... 37
Pretesting........................................................................................................................... 38
Reliability and Validity ..................................................................................................... 38
Interpretation of Cronbach’s Alpha .................................................................................. 39
Data Analysis Plan ............................................................................................................ 39
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Ethical Considerations ...................................................................................................... 40
Summary ........................................................................................................................... 41
CHAPTER FOUR ............................................................................................................. 42
DATA PRESENTATION, ANALYSIS AND INTERPRETATION .............................. 42
Introduction ....................................................................................................................... 42
Data Presentation, Analysis and Interpretation ................................................................. 42
Summary of Key Findings ................................................................................................ 57
Summary ........................................................................................................................... 58
CHAPTER FIVE .............................................................................................................. 59
DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS ............................... 59
Introduction ....................................................................................................................... 59
Discussion of Key Findings .............................................................................................. 59
Conclusions ....................................................................................................................... 62 Recommendations ............................................................................................................. 63
Areas for Further Research ............................................................................................... 64
REFERENCES ................................................................................................................. 65
APPENDICES .................................................................................................................. 73
Appendix A: Questionnaire .............................................................................................. 73
Appendix B: List of Selected Insurance Companies as at 18 September, 2017 ............... 79
Appendix C: Measuring Financial Performance............................................................... 80
Appendix D: Results of ROA and ROCE from Selected Insurance Companies .............. 81
Appendix E: Research Permit ........................................................................................... 82
Appendix F: Anti-Plagiarism Report ................................................................................ 83
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LIST OF TABLES
Table 3. 1: Sample Size ..................................................................................................... 36
Table 3. 2: Cronbach Interpretation ................................................................................. 39
Table 4. 1: Response Rate ................................................................................................. 43
Table 4. 2: Respondents’ Gender...................................................................................... 43
Table 4. 3: Respondents Age Distribution ........................................................................ 44
Table 4. 4: Respondents’ Highest education Level ........................................................... 44
Table 4. 5: Position Held in the Organization .................................................................. 45
Table 4. 6: Bancassurance Products ................................................................................ 47
Table 4. 7: Bancassurance Models Adoptd ...................................................................... 49
Table 4. 8: Challenges Facing the Bancassurance Industry ............................................ 50 Table 4. 9: Regression Modeling ...................................................................................... 53
Table 4. 10: The ANOVA Table ........................................................................................ 54
Table 4. 11: Regression .................................................................................................... 55
Table 4. 12: Factors Motivating Customers’ Need for Bancassurance ........................... 56
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LIST OF FIGURES
Figure 2. 1: Conceptual Framework ................................................................................ 31
Figure 4. 1: Department Worked in .................................................................................. 46
Figure 4. 2: Number of Years Worked .............................................................................. 47
Figure 4. 3: Bancassurance Products .............................................................................. 49
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LIST OF ABBREVIATIONS AND ACRONYMS
AKI:
BIM:
BRITAM:
CBK:
CIC:
GLB Act:
HFCI:
IRA:
MIP:
NCST:
NOPAT:
OODC:
OTC:
RBI:
RGAI:
ROCE:
SEDCAR
SPSS:
WIBA:
Association of Kenya Insurers
Bank Insurance Model
British American Insurance Company
Central Bank of Kenya
The Co-operative Insurance Corporation
Gramm Leach Bliley Act
Housing Finance Corporation Insurance
Insurance Regulatory Authority
Medical Insurance Providers
National Council of Science and Technology
Net Operating Profit after Tax
Old Outdated Distribution Channel
Over the Banks Counters
Reserve Bank India
Reinsurance Group of America Incorporated
Return on Capital Employed
Standards for Education Data Collection and Reporting
Statistical Package for Social Sciences
Work Injury Benefit Act
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ABSTRACT
This study aimed at assessing the effects of Bancassurance on financial performance of
insurance companies in Kenya. Its objectives were to; identify the Bancassurance models and
products, identify the challenges facing the Bancassurance industry, measure the financial
performance of the selected insurance companies and investigate how the effects of
Bancassurance had resulted to financial performances for the selected insurance companies.
The study adopted descriptive research design which gave both the quantitative and
qualitative aspects of the study. It targeted all the 12 insurance firms that had incorporated
Bancassurance business model in their business operations. Stratified random sampling
technique was used to select a sample size of 47 respondents. Data was analyzed using the
Statistical Package for Social Sciences (SPSS) version 24. Multiple regression analysis was
used to identify the relationship between Bancassurance and profitability of the insurance
companies. Study findings revealed a high preference for composite products with agency
model being best suited as the most desired distribution channel sought after by
Bancassurance firms in the Kenyan market. In addition, firms that had incorporated
Bancassurance activities in their business operations witnessed significant increase in
revenues and consequently, improved on product delivery that sought to address customer
needs. The study concluded that there was a positive and significant increase in product sales
owing to Bancassurance activities. The researcher recommended that there should be local
insights into the Bancassurance literature as a viable tool for financial performance as most of
these ideas were based on Western and Indian context. In addition, there was need for the
Bancassurance firms to engage in strong cross industry relationship-building activities that
emphasized on buyer-seller interactions which were the key ingredients that enhanced the
success of Bancassurance activities in Kenya.
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DEDICATION
I dedicate this study to my loving parents, Mr. Hobadiah Maosa Orora and Ms. Monicah
Nyamote Orora for their moral and financial support throughout this academic research.
Thank you for teaching me the core values of hard work, patience and determination
which enabled me to focus towards the successful completion of this study.
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CHAPTER ONE
INTRODUCTION AND BACKGROUND OF THE STUDY
Introduction
Bancassurance came from a combination of the two French words Banque (Bank) and
Assurance (insurance). This is basically the cross-selling of insurance products through
the banks’ platform (Voutilainen, 2005). Bancassurance therefore can be defined as a
partnership arrangement between banks and insurance companies where the insurer uses
the banks infrastructure to sell and distribute insurance products. This implies that both
the insurers and banks exploits their existing infrastructure to facilitate a transaction with
minimum investment outlay (Yasouka, 2005).
Financial performance refers to the fulfillment or accomplishment of a given task
measured against the standards of management efficiency, cost reduction and compliance.
In other words, financial performance is the degree or the process of measuring the firms
polices and operational results in monetary terms usually over a given period of time
(Juma, 2015). Jongeneel (2011) outlined five measures of financial performances; Age
and size of the firm, liquidity. Profitability (Return on Asset and Return on Capital
Employed), solvency and repayment capability of the enterprise. This study however
explored ROA and ROCE as the parameters for measuring financial performance. The
study revealed a strong evidence that Bancassurance affects financial performance in an
organization. Jongeneel (2011) found out that an increase in one unit of Bancassurance
led to an increase of 1.094 units in financial performance. However, this relationship can
be enriched by other factors such as customer needs.
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Background of the Study
Global perspective of Bancassurance
France is arguably the first European country to have used the term Bancassurance in the
late 1980s and this denotes the simple distribution channel for insurance products through
banks branches. Today however, the term is used to describe all kinds of transactional
relationships between the bank and insurance companies (Ricci, 2012).
In countries like Italy, Spain, Portugal and Romania, banks still remains to be the main
distribution channel for insurance policies while countries like United Kingdom and
Germany heavily relies on traditional agents, intermediaries and brokers to sell and
distribute insurance. ‘Latin-European’ countries and Australia ranks amongst the highest
consumers of Bancassurance products while Portugal is the leading distributer of
insurance in the world with 61.8 per cent of its total insurance primarily being sold over
the bank’s counters (Jongeneel, 2011).
In India, the word Bancassurance simply means Alfinaze and is a term used to refer to
distribution of insurance products through banks whose core business is in deposit taking
mortgages and lending (Neelamegam, 2008). The Bancassurance sector opened up its
doors to practice in August, 2000 and is currently being considered as one of the most
vibrant financial sectors in the world serving over 200 million clients and a vast banking
infrastructure consisting of over 53,000 branches that run across urban and rural India
(RBI, 2006).
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In the United States, Bancassurance has evolved on a full scale basis following the
enactment of the comprehensive financial modernization Act of 1999 also referred to as
Gramm-Leach-Bliley Act (GLB) which over saw Travel group insurance and Citicorp
bank merging together to offer Bancassurance products (Watson, 2010). Bancassurance
however took much longer to develop in Asian countries with its first sign noted in 2001
in Japanese markets. This was as a result of the enactment of the Financial Holding
Company Act of 2000 that permitted security firms and banks to engage in sale of
insurance products through banks. During these initial stages, insurance sales were
primarily restricted to credit life insurance and long term-fire insurance which were
closely related to banking core operations of mortgage lending. The slow pace of
Bancassurance uptake in these regions was attributed to inadequate regulatory
frameworks and guidelines governing the Bancassurance sector (Yasouka, 2005).
South Korea and Philippines whose markets were previously banned from participating in
Bancassurance are now taking a more proactive approach towards facilitating this
channel. In Singapore however, it is still a controversial issue as many critics argue that
the concept would give the banking and insurance sectors too much monopolistic control
and power over financial service markets (Gujral, 2014)
Bancassurance in Africa
Surprisingly enough, Bancassurance has not taken off with the same vigor in African soils
as compared to European markets. This has been partly attributed to stringed trust
relationships between banking and insurance institutions. Unlike lending institutions like
banks whom entrusts customers upfront with loans and hopes they will faithfully honor
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their obligations, customers here have to pay first and hope that the insurer shall make
good use of their promise while paying claims whenever they are due. The concept
therefore is at its infancy stages to African mindsets with countries like Angola, Côte
d'Ivoire, Ghana, Kenya, Mozambique, Nigeria, South Africa, Tanzania, Uganda and
Zambia being well-positioned to flourish due to their appreciation in the value of
insurance and the tax incentives that comes with it (Finacord, 2014). Banks in these
regions have not only increased their size of their branch networks and deposit accounts,
but are al increasingly adopting Bancassurance as their future risk-free revenue generator.
On the other hand, insurance companies are reaping benefits as they tap-into a wider
physical spread and hence increasing their clientele-profit portfolios (Jongeneel, 2011).
In sub-Saharan regions, South Africa Bancassurance markets are by far the most
sophisticated and mature. This is mainly attributed to the presence of international and
regional banks and insurance institutions namely; Bank of Africa, Barclays, and Standard
chartered, AIG, Eco bank, Jubilee insurance, Old mutual, Sanlam and Kenyan Alliance
insurance that have dominated this markets (Florido, 2002).
Bancassurance in Kenya
Bancassurance is a relatively new concept in Kenya. In the recent past however, banking
and insurance sectors have witnessed destructive financial innovations over the last nine
years following its adoption in 2009 with Equity Bank Limited (EBL) and British
American insurance (BRITAM) taking the first initiative to facilitate this move. This was
in response to meeting the ever growing customer needs for convenience, change in
market structure and government policies (Karanja, 2011)
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Currently, there are 12 insurance companies practicing Bancassurance in the country. This
includes; Takaful Insurance of Africa, ICEA Lion Group Insurance, APA Insurance
Company, CIC Insurance group, UAP Insurance Company, Madison Insurance Company,
Britam, AIG insurance, Kenindia insurance, Old Mutual insurance and the recently
launched Housing Finance Corporation Insurance (Juma, 2015). The rate of insurance
penetration currently stands at 3.5 percent and a meager 1 percent for life insurance. This
is quite low as compared to international standard rate of 6 percent for life covers while
developing counterparts like South Africa boasts a 9.94 percent insurance penetration rate
(Jaganathan, 2014).
Benefits of Bancassurance
Motives behind entry into Bancassurance vary from one set of individuals to the other.
Consumers have great accessibility to multiple financial services under one roof (both
banking and insurance products) and this has significantly enhanced customer satisfaction
and retention. Distribution costs are also reduced compared to traditional broker
distribution model with the same being passed on to consumers inform of lower premium
costs. Methods of premium payments for banking clients are also simplified as they are
debited directly from their accounts. This would not have been possible if the two
institutions worked separately.
Bank considers Bancassurance as cash cows for creating continuous revenue streams
arising from diversification strategy for business activities with minimum investment.
Banks become sort of supermarkets providing a One-Stop-Shopping facility for their
financial and insurance needs. There are endless opportunities in expanding their product
and service outreach and in-by so doing, they have improved on their customer needs 5
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satisfaction, retention and loyalty. Besides being a one-stop-shop for financial needs,
distribution costs are significantly reduced since in most cases it’s the banks existing
employees who mobilize and advertise insurance products for a commission per each
close of sale (Carow, 2001).
Benefits to insurers are quite compelling too. They have significantly expanded their
customer base and outreach with which would rather have been difficult to access.
Moreover, insurers have the opportunity to diversify their distribution channels to avoid
over reliance on a single network. Insurers have the advantage of reducing distribution
costs compared to costs inherent to traditional agents and brokers and hence products are
offered at lower costs. Carow (2001) observed that a foreign insurer can establish its
presence quickly in a new market by using an existing network of a local bank.
Risks and Vulnerabilities Associated with Bancassurance
Entry of banks into insurance industry has intensified a long standoff between insurance
brokers and sales agents. Agents contemplate losing placements and commissions to
banks. Benoist (2002), argued that the move is not financially sound for an economy as
this shall suppress the market and give banks a near monopoly over other financial
sectors. Image and reputation risks are viewed as a detrimental factor for banks in the
event of not handling claims as they fall due. Product cannibalism is another factor that
may render Bancassurance ineffective. Alzheimer (2013) observed that there were
fundamental unethical issues by account managers and relationship officers at the bank
level whom have often resulted into misrepresentation of a product to the general public.
Lack of unified chain of command has often rendered most of its customers confused on
whom to report to in the event of a claim.
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This however can be handled effectively by investing on trainings at the branch level and
the two institution working as business partners as noted by (Carow, 2001).
Financial Performance
Financial performance is a subjective measure of how well a firm can utilize its assets
from its primary mode of business to generate revenues (Doron, 2010). It is therefore a
term used in general to denote the overall financial health of an enterprise over a given
period of time. The core purpose of measuring organizational performance is to provide
researchers and managers a better understanding of the implications of selecting a
particular strategic approach.
Traditionally, the most frequently used measures of financial performance majorly
focused on stakeholders driven economy that was characterized by failure to include non-
financial factors such as products quality, employee’s morale, customer need and
satisfaction. This however led to poor predictors of financial performance (Cross, 1991).
In today’s contemporary approach however, performance measurements highlights the
intangible dimensions such as public image, customer satisfaction, employee retention
and investment in trainings. In insurance, financial performance is normally expressed in
monetary terms and this denotes the difference between revenues and expenses that can
take the form of underwriting profits, net premiums earned, return on investments, annual
turnover, and returns in equity (Chen, 2004).
Another determinant for financial performance is the level of liquidity which denotes the
ability of insurers to meet their immediate commitments and obligations to policy holders
when claims fall due (Adams, 2000).
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Size and age of the insurer is another factor cited by Chaharbaghi (1999), who stressed that
large firms can exploit economies of scale and scope by becoming more efficient compared to
small firms whereas older firms benefits from brand reputation and are not prone to liability
of newness due to the experience they have enjoyed over time. On the other hand, older firms
are prone to inertia and bureaucratic ossification which may be out of touch with the changes
in technology and market conditions (Shiu, 2004). In measuring financial performance, the
study addressed customer needs and profitability (ROA and ROCE) to denote the firms
overall financial health over a period of 5 years (2013-2018).
Bancassurance and Financial Performance
Financial institutions have been grappling with decreasing interest margins due to stiff
competition, changes in technology, deregulation of financial markets and globalization
and hence the dire need for finding out new ways of carrying out financial transactions at
minimal costs (Chaharbaghi, 1999). With the modern market liberalization and cross-
listing of companies in Africa, Bancassurance has become an effective tool for easing
transactions of policies between the main insurance companies and the affiliated banks
this despite geographical distance and inter-border restrictions. Customers have an access
to one-stop-shopping at banking halls. Sigh (2010) noted that this co-operation has led the
industry to leverage on the existing infrastructures, workforce and existing customer
service relations to its full capacity.
According to Chen (2011), Bancassurance will be a norm in the near future as we have
witnessed mergers and acquisitions in the recent past. In the Kenyan context however, we
have seen Equity bank and Britam, Jubilee insurance and KCB coming together to form a
Bancassurance unit and the future of this move looks bright. The kinds of revenue streams
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have been fairly steady and consistent over the past years. The study therefore sought to
investigate whether Bancassurance activities have resulted to financial performance for
the bank-insurance institutions.
Statement of the Problem
The idea of Bancassurance is a relatively new concept that has received significant
attention from European and Asian scholars with little attention of how it has influenced
financial performance of these industry players. The banking and insurance sectors plays
an integral part of the economy as they contribute heavily towards the financial
intermediation of the entire financial system. As such, their success means success to the
entire economy and consequently, their failure means failure to the economy at large
(Ansah-Adu, 2012).
Young (2013) observed that banking and insurance institutions have been witnessing
year-on-year declines in their profits and clients’ portfolios due to the rising costs of
doing businesses, new technological advancements and innovations from other sectors
players like mobile and internet banking. The industry is therefore under pressure to
change their business model to address these diverging challenges arising from
Statistics from CBK and IRA highlighted that only a handful of banks (12 out of 51 licensed
insurance companies) practiced Bancassurance, while other players are yet to explore this
option (IRA, 2014). In an effort to curb these dwindling profits and market dominance, banks
and insurers have developed the concept of Bancassurance. However, most of the
Bancassurance studies are Western based and hence the need to have such our own studies
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in the Kenyan context. This study therefore sought to establish whether Bancassurance is
viable tool for financial performance of insurance industries in Kenya.
Purpose of the Study
The purpose of this study was to assess the effects of Bancassurance on financial
performance of insurance companies in Kenya.
Objectives of the Study
This study sought to address the following research objectives:
i. To identify the Bancassurance products and models in Kenya.
ii. To identify the challenges facing the Bancassurance industry in Kenya.
iii. To measure the financial performances of the selected insurance companies.
iv. To investigate the effects of Bancassurance on financial performance for the
selected insurance companies in Kenya.
Research Questions
The study sought to answer the following research questions:
i. What were the Bancassurance products and models in Kenya?
ii. What were the challenges facing the Bancassurance industry in Kenya?
iii. What was the financial performance of the selected insurance companies?
iv. What were the effects of Bancassurance and financial performance on insurance
companies in Kenya?
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Justification of the Study
Financial institutions today are facing declining profit margins, intense competition,
drastic shift in customer tastes and preferences amidst fragile economic environment. In
order for these financial institutions to gain an extra coin amidst harsh economic climate,
there was the need of finding other ways of generating income and provide more value-
added services under one roof. Bancassurance therefore addressed the best possible
solution amidst these diverging challenges in the banking and insurance industry.
Significance of the Study
This study would be of great importance to several stakeholders including the insurance
sector, policy makers, researchers and the general public.
The main beneficiaries of this study would be the insurance sector that would wish to
venture into product sales through banks platforms. The study therefore provided an in-
depth insights into the Bancassurance practices as viable tools for supplementing the
banking and insurance core earnings. Through this channel, insurance companies would
be able to leverage on the banks vast customer base and marketing capabilities in entering
the untapped markets whereas banks would benefit from free based commissions from the
sale of insurance products. This therefore would adversely influence on the decision
making process on whether or not to adopt the idea of Bancassurance.
The study may benefit government agencies in reviewing their insurance and banking
policies. In by so doing, they will be expected to create a more conducive environment for
mobilizing savings and investment opportunities for its population through investing in
insurance policies.
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Benefits to the general public are quite compelling too. Convenience, lower premium
rates which are passed on to the client’s due to lower distribution costs. There’s a high
likelihood that new products would be developed to suit diverging clients’ needs. This
would not have been possible if the two entities worked separately (Benoist, 2002)
To the field of academia, the study made significant contributions to the existing body of
knowledge in the field of Bancassurance and the key findings may provide information to
potential scholars in expanding the local knowledge base as they fill in the gaps arising
from the study.
Scope of the Study
The study targeted employees from insurance companies in Nairobi County. The capital
was preferred due to its near proximity to their headquarters located within the city.
Nairobi County is also metropolitan city accommodating populations of different
economic status ranging from low to high income earners and thus making the scope
more justifiable and representative of other counties.
Limitations and Delimitations of the Study
The study findings were only limited to data collected from key respondents from the
selected insurance companies in Nairobi County and therefore findings from other
counties were not captured and hence this may not be replicated to the entire country.
However, Nairobi County being metropolitan, research findings can be representative
enough to be replicated and generalized to other counties.
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Assumptions of the Study
It was assumed that insurance products had gained popularity because they were being
sold over the banks counter and that Bancassurance activities were preferred to traditional
agency and broker channels of distribution. A number of reliable consultant studies were
however incorporated into the study to support this claim.
Definition of Terms
Bancassurance: is the cross-selling of insurance products using the banks distribution
networks Kumar (Kumar, 2001).
Composite/hybrid underwriter: Insurer accepting liability by guaranteeing payments in
both life and non-life business should there an event of death, loss or damage (Frinquelli,
1990).
Financial Performance: Simply means measuring the results of a firm's operations in
monetary terms as reflected in the firm's profits, return on investment and market share
(Wua & Lin, 2009).
Insurance: In financial sense, insurance is a contract in which a group of individuals (insured)
transfers their risk to another party (insurer) to provide for payment of losses from funds
contributed (premium) paid by members who transferred the risk (Ricci, 2012).
Life insurance product that guarantees a specific sum of money (sum- assured) to
beneficiaries in the event of premature death or at policy maturity (Ricci, 2012).
Premium-underwriting income which consists of earned premium after claims less
administrative expenses (Swain, 2005).
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Summary
The chapter looked at the background of the study, statement of the problem, objectives
of the study and the research questions. It gave the justifications as to why the study was
conducted in Nairobi County together with their limitations and scope. The key focus area
established the background of Bancassurance across continents. The chapter also focused
in discussing what had been researched before in filling the research gap and by so doing,
developing new ideas and areas that had never been explored before.
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CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter looks into the theoretical framework backed up with different Bancassurance
products and models being adopted in Kenya. It also discusses the general and empirical
literature in regard to the challenges facing the Bancassurance industry as a whole.
Finally, a conceptual framework is drawn defining the dependent and independent
variables together with the moderating variables.
Theoretical Framework
One of the most significant changes in the financial sectorial markets in Kenya has been
the development of Bancassurance which has often proved to be a profitable compliment
to the existing core businesses of the two institutions (banks and insurance). According to
Swiss Re (2008), Bancassurance has been used as a competitive strategy for achieving
increased income, reduced fixed costs and increased customer outreach.
In the late 2009, the Kenya government through the IRA felt it necessary to reform the
banking-insurance sector. This was in efforts to provide better insurance coverage to its
citizens and to increase the flow of long term financial growth. In the same year, the
regulatory body recommended opening up the sector to private players so as to improve
on service delivery and standards to a larger section of the population (Karanja, 2014).
In 2012, Britak rebranded itself to Britam implying that the brand was not restricted to
offering Kenyan products but on a global stance. This then followed with an agreement
between the insurer and Equity Bank to facilitate Bancassurance in Kenya. Jubilee
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Insurance and Diamond Trust Bank, Liberty insurance and CFC Stanbic Bank followed
suit making them the three top tier Bancassurance providers in Kenya (Wairegi, 2012).
Economies of Scale Theory
Developed by Alfred Marshall in the late 1890’s, economies of scale theories can be
defined as the cost advantages that arises with the increased output or scale of operations
of a product or service (Hart, 1996). The implication here is that the greater the quantity
of a good or service is produced or delivered, the lower the per-unit fixed costs.
Therefore, economies of scale sums to the cost advantages an enterprise obtains as a result
of increased size of output or scale of operations. In a broader sense banks and insurance
companies take advantage of economies of scale arising from the law of large numbers
that focused on cost reduction through increased productivity. Marshall’s chief purpose of
creating this theory was to explain the great historical reduction in production costs
associated with increased output of the product.
Bancassurance mechanisms are thus executed by use of the bank’s branch distribution
networks. Through this insurance companies have benefited through reduced cost of
setting-up and running a new branch. Jongeneel (2011) supported this argument and
added that economies of scale was the key pivotal ingredient in the adoption of
Bancassurance practices across the continent. Therefore, the more insurance products a
bank sells, the more experience it gains along with the ultimate reduction on marginal
selling costs. That’s the reason as to why purchasing Bancassurance products over banks
counters is comparatively cheaper than those purchased from brokerage firms. This claim
is also well supported by (Kamau, 2016).
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Modern Portfolio Theories
Pioneered by Harry Markowitz in 1952, the theory drew attention to constructing an
efficient frontier of optimal portfolios offering maximum possible expected return at a
given level of risk through portfolio diversification. Brealey and Myers (2003) added that
efficient portfolios consists of assets yielding high returns for a given risk. In practice a
smart investor may reduce risks of negative returns by holding different portfolios. In by
doing so he is basically attempting to remain relevant, increase earnings and maintain
feasibility in the market. Bancassurance is therefore a diversification strategy that brings
forth professional management in gaining access to the best practices of international
markets and political here say.
Bancassurance Products and Models Being Adopted in Kenya
Bancassurance products have evolved over time in response to the local market
conditions, global financial trends and the banks growing experience in insurance related
products. Therefore the feasibility, sustainability and competitiveness of bank-insurance
majorly depends on the comprehensive range of Bancassurance products offered in the
market that addressed the needs of the customer (Yasouka, 2005). Bancassurance
products can be broadly classified into three categories including; life insurance, non-life
or general insurance and composite/hybrid insurance.
Life Insurance Products
Life insurance often referred to as whole life or universal life, is a contract between the
policy holder and the insurer whereby the policy holder pays regular premiums towards
maturity of the contract and the insurer promises to pay a lump sum amount assured to the
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insured’s beneficiaries in the event of premature death, disability or maturity of the
policy. Depending on the contract, events such as terminal illness and incapacitation may
trigger a payment settlement (AKI, 2016). The main features of these products are that
financial needs of the family are protected should the policy holder lose income resulting
from disability, death or critical illness.
Life insurance products are more expensive than individual products due to the presence
of multiple risks of death as well as investment returns. Products under this category
includes term assurance that provides life covers within a specified period of time with no
investments benefits. Medical insurance, travel insurance, personal accidents, retirement
packages, last expense and the recent introduction of key-man insurance are some of the
life insurance products being offered in the Kenyan market (Nyambura, 2013).
Non-Life Insurance Products
Non-life insurance also commonly referred to as general insurance provides a lump sum
amount in case of destruction to the asset insured and that of third parties. The main reason
behind insuring assets is to protect oneself against financial loses likely to occur due to fire,
theft or accidents. Non-life insurance policies includes but not limited to compulsory
motor/auto insurance which protects insured and that of third party vehicle damages
resulting from fire, burglary, explosion and accidents. Mortgages and personal loan
insurance, Home and property insurance, goods in transits insurance, fire insurance, marine
and cargo insurance constitutes to general insurance products (Nyambura, 2013).
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Composite or Hybrid Insurance Products
Composite insurance often referred to as ‘co-insured’ is a contractual agreement that
combines insurance covers for several risks under one product. In essence, two or more
people are insured under one policy (Bowers, 2017). The author added that for a policy to
be composite, parties ought to have divergent/different interests where the misconduct of
one insured party will not affect another insured’s entitlement to insurance. They are
beneficial to clients in a sense that they provide multiple risks covers at affordable prices
whereas from the insurer’s perspective, they are often attractive and easily sold than
standalone products.
Bancassurance Models
The success of any business model depends on the level of integration of various
structures within the business environment. Benoist (2002) outlined four major
Bancassurance models which included; agency model, strategic partnership, joint ventures
and financial holding models as discussed here under.
Agency Model
Agency model also referred to as Pure Distribution Model is a scenario whereby banks
plays an intermediary role of distributing insurance products produced, serviced and
financed by one or more insurers. This therefore means that banks are solely responsible
for insurance sales and premium collection whilst underwriting and claims-handling
processes being operationalized by the insurer. The business assumption behind this
model is that banks are unwilling to offer such expertise internally but are willing to issue
policies at a commission (Swiss Re, 2008).
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The main features of agency model is that it is quick and simple to implement with
relatively low startup costs. This is so because bank only sets up dedicated Bancassurance
units with well-trained professionals to run these departments. The model however poses
potential challenges for insurers since they have little or no control over which customers
the products are being sold to.
Strategic Alliance Model
Strategic alliance commonly referred to as Partnership agreement is a model where the
bank only sells the products of one particular insurance company. The main advantage of
this model is that insurers are able to access the banks customer base without having to
make a major financial investment while the banks are able to select the best insurer in
terms of their product offering and brand reputation.
In such agreements, both parties have a stake in the success of the business venture and its
success is determined by the level of commitment of the two entities. Potential challenges
over this model however is that, at low levels of integration both companies may end up
operating as separate entities. Adrian (2003) observed that in strong partnership, companies
engage themselves in cross holding of equity, made mutual investments and enter into a long-
term exclusive selling agreements whereas in weak partnership agreements may last for few
years with limited mutual efforts. A weak partnership arrangement provides the bank with an
advantage over the insurer since the bank acquires extensive knowledge on insurance business
and at the termination of the agreement; it may have the option of exploring their
organizational strategies with the advantage of a wider customer base.
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Joint Venture Model
This is the creation of a new insurance company by an existing bank and an existing
insurance company. This therefore implies that banks and insurers establish a jointly co-
owned insurance company or a distributor. The relationship between the bank and the
insurer is reinforced by a balanced strategic share-holding. The main advantage of this
model is that there’s equal partnership and joint decision making processes. Partners
leverages on each other’s strengths while focusing on their core business. The model is
best suited for foreign insurance companies in entering new untapped markets by linking
up with domestic banks and hence allows the insurer to leverage on the banks presence in
the local market (Boyd, 1988).
Financial Conglomerate model
Also referred to as financial-holding company, financial conglomerate model is a model
where a holding company owns both the insurer and the bank. The bank staff wholly
owns the insurance sales process while the insurer acts as a product and service provider.
Potential advantage of this model is that banks had the opportunity to leverage on the
insurers existing customers, provide a one-stop-shop shopping for financial and insurance
needs. Kumar (2001), added that in this model there’s strong information flow between
the banks and insurers and thus becomes the key drivers to the success of this model.
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General Literature Review
Challenges Facing the Bancassurance Industry
The Bancassurance industry has been facing several challenges since its adoption in the
Kenya. These challenges ranges from economic, social and political point of view. In
Traditional African cultural and religious practices for instance, it’ was and still a taboo to
talk or even contemplate about death as the bereaved family was well taken care of by the
extended families and ‘chamas’ with the objective of collecting monies to cater for such
diverse contingencies. Selling of Bancassurance products like funeral expense or last
expense covers to these individuals could be perceived as one is planning for their early
death (Sharma, 2005).
Macro-economic activities such as inflation and poverty is another challenge corroding
the value of Bancassurance practices in an economy. Africa’s earnings per capita is
generally low with the majority of its population living below the poverty line. There are
also instances where the sum assured paid at the end of ten or twenty years savings are not
worth the effort. Even though KRA will give the client a tax relief of 15% on annual
premiums, it may not make financial sense investing for three years only for your claim to
be delayed or rejected all together. These has therefore made the Kenya Bancassurance
practices to lag behind the rest of the world (Karanja, 2014).
Another shortfall observed by Amadeo (2016) was lack of institutional confidence in
managing Bancassurance affairs. There has been growing concern in the past that managers
only focus on developing the business and satisfying their personal interests at the expense of
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the customer. Majority of them have been also implicated in money laundering schemes
and scandals while disregarding the clients’ interests.
Another drawback highlighted by Mishra (2012), was mistrust between the two institutions
where Bancassurance officers at banks have been on record in overstating claims. This is
attributed to collusions at the branch level and the information shared to the insurer may not
necessarily replicate the true picture in the ground and thus rendering the insurer to bear high
costs on claim settlements and law suits by clients through the regulator.
Theoretical Approaches to Financial Performance
The concept of performance has been extensively documented over the past decades.
Campbell (2012), believes that performance is what the organization intends to achieve
however, the author cushions readers that this should not be seen as the only determining
factor of an entity’s success.
Financial performance
Financial performance can be defined as how well an organization is performing and to
what extent it had achieved its intended outcome (Namisi, 2002). The study of Kumar,
(2014), considered age and size of the organization as the important component of
financial performance. He observed that the older the firm is, the more will be the profits
this due to the internal experience and efficiency it gains from the business lifecycle.
There are several indicators of financial performance but for the purpose of this study, the
firm’s profitability was considered and discussed.
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Profitability
Profitability is the key determinant of financial performance of any sector and can be
defined as the measure of the business ability to generate revenues compared to the
amount of expenses incurred (Hofstrond, 2006). It is therefore important for the
company’s long term survival in deciding whether or not to invest into a business venture.
Profitability is measured with income and expenses whereby the income is the money
generated from business activities whereas expences are cost of resources used up or
consumed by the business activities.
Okeeno (2013) noted that there were two components of profits considered by insurance
companies. First was the premium underwriting profits which consists of earned premium
after claims less administrative expenses and the investment income that looked into the
company’s assets allocations (usually mentioned on financial statements) where majority
of these assets are invested in low risk bonds, money markets and equities. There are two
important measures of profitability namely; Return on Assets (ROA) and Return on
Capital Employed (ROCE). Their results can give the much needed information on the
financial health of the business (Swain, 2005).
Return on Asset (ROA)
Swain (2005) defined Return on asset (Return on investment) as an indicator of how
profitable a company is relative to its total assets. It’s therefore a comparative measure that
gives an idea of how efficient the management is at using its invested capital to generate
earnings. It’s therefore a performance measure that evaluates the efficiency of an investment
relative to investment costs. As a rule of the thumb, Malik (2011) suggested
that the higher the ROA, the more favorable it is for investors since it shows how efficient
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the company is at managing its assets to produce greater amounts of net income. ROA
Formula is shown in appendices II. The annual net income is derived from the company’s
income statement and more adjustments are made to Net operating profit after tax
(NOPAT) to get a more accurate picture of what was actually invested into the business
(Swain, 2005).
Return on Capital Employed (ROCE)
Return on capital employed is another financial ratio that measures the company’s
profitability and the efficiency with which its capital is employed as shown in appendix II
Capital employed in general is the capital investment necessary for a business to function
which is represented as fixed asset plus the working capital. Therefore, it’s the sum of
shareholders equity and debt liabilities as provided for in appendix II.
For a company to remain in business over a long term, its ROCE should be higher than its
cost of capital otherwise continuing operations gradually reduces the earnings available
for its shareholders. It’s a better measurement of profitability since it shows how well a
company is in utilizing its equity and debt to generate returns (Bragg, 2009).
Customer Needs
Stephens (2011) defined customer needs as the motives that drives one to purchase a
particular product in many competing brands. With the increasing competitive pressures from
industry players, financial firms are constantly looking for ways of addressing diverging
customer needs through fair pricing models and products that adds value to their customers
use. Siddiqui (2010) noted that in today’s market place, customers demand more
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than just competitive prices and the quality of products and services offering but are also
demanding for additional benefits that comes along with the product. In this view,
customers are willing to pay extra cash in exchange for quick and convenient services that
befits well into their lives.
One of the major goals of any enterprise is to increase production and service delivery to
its customers and understanding their expectations as a prerequisite for delivering high
standards of services for its future survival and growth. It is becoming more desirable to
develop a lasting customer centric approach in providing solutions that satisfies their
needs. Stephens (2011) believed that customers purchasing decision pattern was
influenced by product features and attributes, perceived benefits arising from the use of
the product, the products financial traits and customers attitude towards the brand.
Product Features and Attributes Satisfying Customer Needs
Product features are the basic salient characteristics of a product that distinguishes itself from
others in a competing market place (Gordon, 2014). It is therefore believed that today’s
customers make product purchases with multiple functions. This view was supported by
Gamage (2018), who argued that modern companies are producing multiple functioning
products to meet customer’s preference of greater functionality and utility. The driving force
behind considering to add many features to a product is the perceived belief that additional
features makes the product more appealing for customers. This claim was however criticized
by Siddiqui (2010), who argued that customers do not always use all the features of the
product they buy. In addition, increased new product features may increase the product
complexity and hence generating confusion in the minds of the users.
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Perceived Benefits Arising from the Use of the Product
Perceived benefit is the maximum price a customer is willing to pay for the use of the
product (Stephens, 2011). This therefore is the direct benefit that a client enjoys on
purchasing a particular product. Alzheimer (2013) added that purchasing an insurance
product does not necessarily depend on price but also the value derived from using the
product, the desire to feel safe and worry nothing about your future lifestyle in the event
of an eventuality. The Bancassurance industry therefore needs to understand how their
clients perceives the value of their products and make proposals and adjustments based on
customer benefits and experience.
Products Financial Traits
These are basically the pricing strategies that sends an important message to customers.
Melanie (2014) observed that as prices increase so does the customer’s perception of the
product being sold. This is so because the spending habits of consumers is naturally
skeptical about lower prices which portrays that the product in question is of a lesser
quality. Consequently, higher prices signals that the product is exceptionally good in
quality and performance. A study by Brussels business school of economics found out
that customers are more likely to display satisfaction when the product is priced fairly.
Therefore prices that are neither too high nor too low sends a positive message that not
only the price is of a high quality but also customers are getting value for their money.
Customers Attitude towards the Product and Brand
Consumer attitude is the behavior displayed by customers in search for a product feature
from different companies in satisfying their needs. Young (2013) noted that if the
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customers experience was that of dissatisfaction attributed to poor service delivery and
hence this may hinder or influence others on their future selection decision of that
particular product or brand. The Bancassurance industry therefore focuses on satisfying
these diverging customer needs should they wish to remain relevant and competitive in
the market.
Industry Regulatory Framework
Across the world, Yasouka (2005) observed that Bancassurance industry has been
adversely hampered by institutional regulatory environment which is a government body
mandated with the responsibility for rolling out best professional practices within a
country as discussed here under:-
Product Sales and Customer Protection
It has been quite a concern that many customers do not fully understand the risks and rewards
associated with the products they purchase and at the same time, internal pressures to meet
sales targets have contributed to substandard products being distributed without necessarily
addressing clients’ needs (Yasouka, 2005). One of the central questions therefore is how
much should the government intervene on Bancassurance activities? There are several
varying degrees in understanding the need or lack of government control in making economic
decisions. With this, there exists two diverging mindsets on the effects of regulation and
deregulation of financial markets. The classical liberalism theory for example argued that
markets alone should be left to regulate themselves whereas interventionist liberals supported
that government agencies should take the center stage of intervening in business activities
with the best interest of the customer. In contrast however,
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Cohn (2002) noted that market operating under complete freedom focused more on
maximizing its operational efficiencies thereby promoting policies that accommodated
privatization and liberalization of financial systems. In this sense, the removal of
government control out performed regulated markets in terms of product quality and
service delivery reducing the cost of operations which resulted to high returns on
investments.
Llewellyn (2007) however believed that regulations are counterproductive in achieving
substantial economic goals. This hindered growth and development of technology and the
social goal of protecting public and private interests. Carow (2001) supported this view
adding that there were positive effects of deregulation which had significant increase in
innovations that have directly forced out incumbent market players out business. Free
market mechanisms including self-regularization by experts and professions in respective
fields yielded excellent results as depicted in developed economies.
The Kenyan insurance sector is regulated by the Insurance Regulatory Authority (IRA), a
statutory governmental body established in May 2007 through the enactment of
parliament (Insurance Act 487). The body is charged with the responsibility of regulating,
supervising and developing sound operations of all insurance companies in Kenya.
Amongst other functions, the regulator issues operating licenses, protected the interests of
the insurance policy holders, investigated and prosecuted insurance frauds, consumer
education and awareness on matters insurance (IRA, 2014).
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Empirical Literature Review
Jongeneel (2011) did a study on Bancassurance entitled “Stale or staunch?” In pursuit of
exploring the present trends in Bancassurance as a feasible source of sustainable income
in the India’s insurance industry. Her findings were that Bancassurance had significantly
increased financial performance and that the concept would turn out to be a norm rather
than an exception in the near future.
Lovelin and Sreedevi (2014), did a study on the preference of Bancassurance in Taiwan.
The objective of the study was to find out the customer awareness and perception on the
role of Bancassurance and the factors influencing the buying patterns of insurance
products through the banks. Her findings were that out of the 100 respondents, 71
respondents were not even aware of the concept of Bancassurance. Further, the study
outlined customer loyalty, positive tax shelters and loan requirements as being amongst
the reasons for buying insurance products from banks.
In the recent past, a few studies have been conducted on the Kenyan insurance industry.
Notably Omondi (2013), did a study on the determinants of adoption of Bancassurance by
commercial Banks in Kenya. The results of his findings were that the adoption of the
concept was influenced by the need for new revenue streams, product diversification,
exploitation of economies of scale and the need to remain competitive in the market.
Juma (2015) did a study on the effect of Bancassurance as a penetration strategy for
insurance companies in Kenya and the findings revealed that the insurance sector had
witnessed rising sales and increased profitability. Further, the study showed that in each
product bundle, there was increased competition and overall cost reduction.
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A study carried out by Wabita (2013) on the capital structure and innovations on
Bancassurance industry established that the amount of tangible assets held by the industry
positively affected financial performance of life insurance companies. This ideas in the
study however have been borrowed from the Indian banking industry.
Conceptual Framework
Conceptual framework is a schematic diagram showing the variables in the study. Arrows
are connected to boxes to illustrate the relationship between the independent and
dependent variables. Figure 2.1 demonstrates the conceptual framework of the study.
Moderating Variable
Customer needs
Regulatory framework
Product characteristics
Independent variable
Bancassurance
Non-life insurance. Composite insurance. Life insurance.
Figure 2. 1: Conceptual Framework Source: Researcher (2018)
Dependent variable
Financial performance (Profitability)
Return on Assets Return on Capital Employed
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Discussion
Riggan and Sharon (2011) stated that conceptual framework is an idea model that serves
the purpose of assessing and developing realistic justifications of the study. Miles and
Huberman (1994) agreed that conceptual framework is a written or a visual product that
explains either graphically or in narrative forms of the key factors and beliefs on the
variables under study. This therefore is a system of concepts, assumptions, expectations,
beliefs and theories that supports the research.
Figure 3.1 is the proposed linkage between Bancassurance and financial performance with
the Bancassurance concept being denoted in boxes. The solid arrows show the process or
a linkage to a concept. The direction of the arrow indicated the concept being explained
by other concepts in the model. In the above framework, three variables were connected
together by arrows. The independent variable (Bancassurance products) and the
dependent variables financial performance (Profitability) where ROA and ROCE gives
the quantitative aspects used in explaining the relationships between Bancassurance and
financial performance of insurance companies in Kenya.
Summary
In examining the effects of Bancassurance on financial performance of insurance
companies, the chapter looked into literatures on Bancassurance models including the
theories and conceptual framework behind the Bancassurance practices. Bancassurance
products were discussed together with the drivers of financial performance in the
insurance industry. The chapter also presented the conceptual framework of the study
which defined the independent, dependent and intervening variables.
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CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
Research methodology is the systematic scientific process of conducting and solving a
research problem (Rajasekar, 2013). It is the blueprint of a structured process in which the
research is to be undertaken and thus entails data collection, measurement and analysis.
This chapter described the strategies adopted in conducting the research. The following
key areas were examined; research design, population of the study, sampling design, data
collection instruments, data collection procedures and finally data analysis.
Research Design
Research design is the roadmap or state within which a research is to be conducted. The
aim of research design is to maximize control over factors that could interfere with
consistency and validity of the findings. Research design therefore refers to the plan,
structure and strategy of the research (Kothari, 2004).
The study used descriptive research design often referred to as ex post facto which
includes all surveys, fact-finding enquiries and descriptions of the present state of affairs.
Descriptive research design was preferred as it gave both the qualitative and quantitative
aspects of the data used in reporting numerical and personal accounts on the underlying
factors under investigation (Kothari, 2004).
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Population of the Study
Population is the summation of all elements of the same group which live in a particular
geographical area (Sandelowski, 2010). This is therefore a complete set of elements
(persons or objects) that possess some common characteristics established by the
researcher (Kothari, 2004). For the purpose of this study, the population constituted all the
12 Bancassurance firms in Kenya (AKI, 2010).
Target Population
Target population is the entire group of people or objects to which the researcher wishes
to generalize the study findings (Harter, 1980). The target population constituted all the
12 insurance firms that had incorporated Bancassurance business model in their business
operations (Nyambura, 2013). The 12 Bancassurance firms were conveniently chosen
since their headquarters were located in the city with majority of its population harboring
middle income earners and for this reason therefore, the results can be replicated to all
Bancassurance firms in Kenya.
Sampling Size
Sampling is the process or technique of choosing a sub-group from the population to
participate in the study. Sampling is done because it is impossible to test every single
element in the population (Mugenda & Mugenda, 2003). A sample size of 47 respondents
were conveniently selected from the 12 Bank-insurance companies.
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Sampling Technique
A sampling technique is a definite plan of selecting a sample before data is collected from
a given population (Alzheimer, 2013). Stratified random sampling technique was used,
where samples were divided into three strata consisting of top level managers, middle
level managers and senior officers as illustrated in Table 3.1.
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Table 3. 1: Sample Size
Insurer Management Level Staff Staff Total Staff (%) (N) (N) (N/N)
Top level Managers 2 UAP Middle Level Managers 2 7 14.89%
Insurance Lower Level managers 3
CIC Top level Managers 1 5 10.64%
insurance Middle Level Managers 3
Lower Level managers 1
Top level Managers 2 APA Middle Level Managers 1 6 12.78%
Insurance Lower Level managers 3
Top level Managers 1 Jubilee Middle Level Managers 2 4 10.00%
insurance Lower Level managers 1
Top level Managers 4 Britam Middle Level Managers 2 8 8.51%
insurance Lower Level managers 2
Top level Managers 2
ICEA LIONS Middle Level Managers 1 6 12.77%
Lower Level managers 3
Top level Managers 1 Takaful Middle Level Managers 2 5 10.64%
Lower Level managers 2
Top level Managers 1 Madison Middle Level Managers 3 6 12.77%
Lower Level managers 2
Total respondents 47 100%
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Data collection Instruments.
Data collection instruments are the systematic data gathering and measuring tools. This
can be in the form of questionnaires, case studies, checklists and observations, content
analysis from printed or audio recordings including still photographs (Murray, 2003). In
this study however, questionnaires were issued for each respondents, paraphrased the
same way and hence making the information more reliable and comparable. Respondent
anonymity was also advantageous in the sense that respondents had the freedom to
express themselves without fear of being victimized.
Data Collection Procedures
These are guidelines for data collection, processing, analysis and reporting as provided by
SEDCAR 1999 (Bala, 2005). Accurate data collection procedures are essential in
maintaining the integrity of the research process with the primary role of error detection.
A letter from Daystar University was used to seek authorization addressed to the
insurance firms to confirm that the research was for academic purposes. The researcher
also obtained a research permit from the National Commission for Science, Technology
and Innovation (NACOSTI). The researcher then prepared questionnaires that were used
in the study. The researcher with the help of two research assistants administered the
questionnaires to the respondents which were then collected after one week.
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Pretesting
Pre-testing involves testing of the research instruments in conditions similar to the research
but not to report the results. The reason behind pre-testing is to check for glitches and the
general flow of the questionnaire. In other words, pre-testing assists a researcher to refine
the research instruments with the aim of providing results that were valid, reliable,
consistent, unbiased and complete as suggested by (Collins, 2003).
The researcher therefore randomly issued 5 questionnaires to the respondents in the cohort
with the aim of checking if the set questions were easily to understand. The findings found
out that there were no significant challenges with the wordings nor complexity with the preset
questionnaires. These results however did not form part of the study.
Reliability and Validity
Cronbach Alpha (α) was used to measure the reliability of data collection instruments.
Cronbach Alpha (α) is the degree to which an assessment tool will produce stable and
consistent results under similar conditions. Cozby (2001) highlighted that measurements
are said to be highly reliable if and only if they are accurate, consistent and can be
replicated from one testing condition to the other. The theoretical value of alpha ranges
from 0 to 1 with the higher value of alpha being more desirable. The rule of the thumb
however is that the reliability of 0.7 or higher denotes the acceptable threshold whereas
values below 0.65 are considered to be poor and unacceptable.
Cozby (2001) explained three types of validity. First was the face validity where
performance of Bancassurance industry can be viewed from the focal-facial value in a
sense that if shareholders believe a certain measure is inaccurate, then they become
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disengaged and the measuring tool disregarded all together. Secondly was the construct
validity that is commonly used where experts are involved in determining what the specific
item intends to measure. Last is the content sampling validity which ensures a specific
measure covers a broad area within the study. A combination of two or more validity
measures were used in this study in attempts to making the study more reliable and flexible.
Interpretation of Cronbach’s Alpha
If (α) is zero, then items are said to be not correlated and hence have no covariance
implying that the study is questionable and unacceptable. If (α) approaches 1, then the test
is said to be more reliable and consistent as it produces similar outcomes under similar
conditions. Poor correlation between items implies that the measuring tool should be
revised or otherwise be discarded all together (Cronbach, 1951). This is summarized in
Table 3.2.
Table 3. 2: Cronbach (α) Interpretation
Cronbach (α) Range Interpretation on consistency
0.9 ≤α≤1 Excellent
0.8 ≤α≤0.9 Good
0.7 ≤α≤0.8 Acceptable
0.6 ≤α≤0.7 Questionable
0.5 ≤α≤0.6 Poor
α≤0.5 Unacceptable
Data Analysis Plan
The researcher generated both qualitative and quantitative aspects of the data. Data was then
edited, coded and fed into the computer software (IBM Statistical Package for Social Sciences
version 24) for analysis. Multiple regression analysis was used to identify the relationship
between Bancassurance and profitability of insurance companies. In this study,
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α0 is constant denoting customer needs with their corresponding dependent variable
profitability (ROA & ROCE) and independent variable Bancassurance (life, non-life and
composite insurance products).
The regression equation therefore is; Y = α0 + α1X1 + α2X2+ α3X3+ ε where,
Y = Financial performance
α0= Alpha co-efficient
αiXi = Proceeds from Bancassurance products
ε = Error term
Ethical Considerations
Ethics are norms, beliefs or common sense standards that distinguishes right from wrong.
The codes of professional conduct also referred to as Hippocratic Oath simply means first
of all, do no harm (Shamoo & Resnik, 2009). Ethical values promote high standards of
collaborative work such as trust, mutual respect, accountability and knowledge expansion.
Efficient and ethical research requires voluntary participation, objectivity, anonymity and
confidentiality of the respondents.
The key objectives of ethics in research is to ensure that no one is harmed or suffers
adverse consequences resulting from research activities and thus respondents remained
anonymous throughout the study.
The researcher sought permission to conduct research from the NACOSTI and the Daystar
University. In addition, approvals were sought from the management of insurance firms in
which the study was conducted. The researcher ensured that the questionnaires were
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Non-invasive and the information gathered was solely for academic purposes only and not for
any other purpose. Participation by respondents was on voluntary basis. The researcher also
obtained ethical clearance for the Daystar University Ethics and Review Board.
Summary
The following key areas were examined in this chapter; research design which is a
roadmap within which the research was to be conducted with the aim of maximizing
control over factors that could interfere with validity of the findings (Kothari, 2004).
Population of the study constituted all the 12 registered insurance companies that had
incorporated Bancassurance business model. Samples were then divided into three strata’s
consisting of top level managers, middle level managers and senior officers. Data was
collected using both open and closed ended questionnaires and analyzed using SPSS
version 24 which had extensive data handling capabilities. The chapter also provided the
ethical principles observed in the study.
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CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Introduction
Data presentation is the visual way of putting results of the study into bar-graphs, pie-
charts and frequency distribution tables showing the spread of the sample or simply how
often each value (sets of values) of variables in the questionnaire occurs in the data set
(Chandran, 2004). On the hand, data analysis is the systematic processes that condenses
and make sense of data into constituent parts. This serves the purpose of answering the
research questions by condensing data into interpretable forms so that relations of the
research problems can be studied, tested and conclusions drawn (Ziebland, 2000).
The purpose of the study was to assess the effects Bancassurance on financial
performance of insurance companies in Kenya. Data was collected using questionnaires
which were delivered by hand to the respondents. A letter of approval to conduct the
survey and a cover letter explaining the research were also attached to the questionnaire
as provided in the appendices.
Data Presentation, Analysis and Interpretation
Response rate
Out of the 60 questionnaires that were distributed to the respondents, only 47 questionnaires
were duly filled and returned. However, 10 questionnaires were not returned and three were
incomplete and hence did not form part of the survey. A response rate of 78.3% was therefore
achieved which complied with Mugenda (2003), who suggested that
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for generalization purposes, a response rate of 50% is adequate for analysis and reporting
whereas 60% is good and a response rate of 70% and over is excellent.
Table 4. 1: Response Rate Insurance Companies
Frequency Percent (%)
Takaful insurance of Africa 4 8.51% ICEA Lion group 9 19.15%
APA insurance company 8 17.02%
Britam insurance limited 11 23.40%
CIC insurance Company 7 14.28%
UAP Insurance Company 5 10.64%
Madison insurance 3 6.62%
Total 47 100%
Respondents’ Profile
The study sought to determine the profile of the respondents. Four demographic questions
were used in analyzing the respondent’s profile. Glaser (2012) advised that questionnaires
should be constructed in such a way that they do not compromise on respondents’
confidentiality and willingness to participate in the survey. Table 4.2 provides findings on
respondents’ gender.
Table 4. 2: Respondents’ Gender
Respondents Gender
Frequency Percentage (%)
Male 34 72.3%
Female 13 27.7%
Total 47 100
From the above findings, majority (72.3%) of the respondents were male and 27.7% were
female. As indicated in the frequency table above, there were disparities between male
and female Bancassurance professionals in the industry. With this therefore, it can stated
that this is a male dominated profession.
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Respondents’ Age
The respondents were asked to indicate their age distribution and research findings are
provided in Table 4.3.
Table 4. 3: Respondents Age Distribution Respondents age
Age distribution Frequency Percentage (%)
20-25 years 13 27.66 26-31 years 18 38.30
32-37 years 9 19.15
38-42 years 5 10.64
Non-response 2 4.26
Total 47 100
As outlined in Table 4.3, majority of the respondents (38.30%) were aged between 26-31
years with 27.66% being at the age bracket of 20-25 years, 10.64% were aged between 38-
42 years and 4.26% were unwilling to disclose their age. This clearly indicated that the
Bancassurance profession was run by the young professionals.
Respondents’ Highest Education Level
The study further sought to establish the highest level of education attained by the
respondents and findings are shown in Table 4.4.
Table 4. 4: Respondents’ Highest education Level
Respondents education level
Education level Frequency Percentage (%)
Diploma 14 29.79
Bachelors 23 48.93
Masters 8 17.02
Doctorate 2 4.26
Total 47 100
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Table 4.4 indicates that the distribution of the highest academic qualifications attained
from the 47 respondents. The majority at 48.93% had bachelor’s degree, with 29.79%,
17.02% and 4.26% having diploma, masters and doctorate degrees respectively. This
meant that all the respondents of the study were literate with an average qualification of a
Bachelor’s degree to hold an office in the Bancassurance industry.
Current Position Held by Respondnets
The study sought to determine the current position held in the organization. The results of
the findings are contained in Table 4.5
Table 4. 5: Position Held in the Organization
Position Frequency Percentage (%)
Manager 3 6.38
Assistant manager 8 17.02
Senior officers 13 27.66
Relationship officers 22 46.81
Others 1 2.13
Total 47 100
Over 25% of the respondents were designated as senior officers with 46.84% holding a
position as relationship officers/representatives. Similarly, 17.02% and 6.38% were
assistant managers and managers respectively. As established by Yaasi (1981), the rank
or position one held in an organization led to easier application of strategic processes
aimed at better understanding of the organizational performance. This implied that
respondents surveyed were in the category that the study was aimed at and hence the
results achieved were relevant and reliable throughout.
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Respondents Department
The study sought to determine the department the respondents worked for as indicated in
Figure 4.1.
9%
Bancassurance retail
3%
Relationship officers
25% Business development dept
10%
Finance dept
15%
Sales amnd marketing dept
23% life and pensions dept
15%
Underiting Dept
0% 5% 10% 15% 20% 25%
Figure 4. 1: Department Worked in
As shown in Figure 4.1, 25% of the respondent’s worked in business development
department, 3% were relationship Bancassurance officers, while 23% worked in life and
pensions department. This was a clear indication that all the selected respondents had
specialized professional knowledge in respective departments making the research more
reliable.
Number of Years Worked
The study sought to find out how experienced the respondents were in their respective
departments and the Figure 4.2 presents the findings.
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14
12
10 14
8
6 8
4 3 5 2
2
0 below 2 2-4 years 5-7 years 8-11 above 12
years years years
Figure 4. 2: Number of Years Worked
Study findings from Figure 4.2 show that all the selected respondents were well
experienced with a minimum of two working years for the organization.
Bancassurance Products
This section sought to find out the range of Bancassurance products offered in the market.
Table 4.6 depicts the findings.
Table 4. 6: Bancassurance Products
Bancassurance products
Model Frequency Percentage (%)
Life insurance products 8 17.02 Non-life insurance products 23 48.94
Composite insurance 15 31.91
products 1 2.13
Others
Total 47 100
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Research findings showed that were three categories of Bancassurance products bundle
offering. Life insurance products which paid out the sum insured to the insured or
nominated beneficiaries in an event of premature death, terminal illness and
permanent/temporary disabilities arising from one part of your body being incapacitated.
These policies included whole-life policy, term assurance, child education plan and
medical insurance. The second category was the non-life assurance products often
referred to as General insurance policy which protects the insured against loss or damages
other than those covered by life insurance. Risks covered under this category includes:
Property loss and damages, liability to third party and accidental death or injury. The
main products therefore include motor insurance, fire/homeowners insurance, WIBA and
Group personal accidents (IRA, 2014).
Findings showed 31.91% of the insurers surveyed sold composite/Hybrid insurance
whereas, 48.94% and 17.02% offered general/non-life insurance and life insurance
respectively. This findings contradicts our earlier assumption that general insurance is the
most underwritten insurance contract. This findings are depicted in Figure 4.3.
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Non-Life
2.1324567870654%
insurance
0%Others0%
Life insurance 48.94%
17.02%
Composite insurance
31.91%
.
Figure 4. 3: Bancassurance Products
Bancassurance Models
This section sought to investigate the current Bancassurance models that were being
adopted and findings tabulated in Table 4.6.
Table 4. 7: Bancassurance Models Adopted
Business model
Model Frequency Percentage (%)
Strategic partnership model 8 17.02 Joint venture model 12 25.53
Agency model 18 38.30
Financial holding company 7 14.89
Others 2 4.26
Total 47 100
Research findings indicated that agency model was the most predominant distribution
channel for reaching potential customers with its majority (38.30%) reporting that insurers
had a tied-up contract with one or more banks. Here, banks played the intermediary role of
distributing and sale of insurance products whilst underwriting and claims processing being
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the responsibility of the insurer. However, 14.89%, 25.53% and 17.02% reported financial
holding, joint venture and strategic alliance as their key mode of distribution. Only 4.26%
of the respondents reported other model possibly because they did not understand the
requirements of the question and to the best knowledge of this study being there are only
four Bancassurance distribution models that have been researched and documented
(Nyambura, 2013).
Challenges Facing the Bancassurance Industry
The section sought to investigate the challenges facing the Bancassurance industry with
1=strongly disagree, 2=disagree, 3=Neutral, 4=Agree and 5=strongly agree. This was
summarized in the Table 4.8.
Table 4. 8: Challenges Facing the Bancassurance Industry
Challenges facing the Bancassurance 1 2 3 4 5
industry
The Bancassurance industry is greatly 8.9% 14.6% 17.6% 40.4% 18.5% affected by traditional African beliefs and
practices on matters pertaining death and
unforeseen future calamities.
The macro-economic activities such as 4.7% 37.8% 13.4% 39.6% 4.5%
inflation and poverty that has rendered most
of the household not to afford Bancassurance
related products and services.
Products and service offered did not address 1.5% 8.1% 14.2% 49.4% 26.8%
the needs of potential customers
Lack of institutional confidence in managing 3.1% 12.5% 25% 34.4% 25.0%
Bancassurance affairs.
Poor claims management including rising 3.1% 15.6% 21.9% 28.1% 31.3%
numbers of unpaid claims, unending
investigations by some insurers
Mistrust between banks and insurance 15.5% 17.6% 28.8% 24.3% 13.8%
companies who wish to venture into
Bancassurance.
lack of public knowledge, appreciation and 9.4% 36.9% 40.7% 8.5% 4.5%
awareness on the role of Bancassurance in `
Kenya
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The majority (40.4%) of the respondents believed that the sector incurred substantial
losses of its total revenue collection in a fiscal year due to fraudulent claims. This is well
supported by Ernst and young (2015) survey which pointed out that the Kenyan insurance
sector incurs a substantial loss of more than 8% of its revenue collection on fictitious
claims with a single fraud case ranging as from 25,000 to 75,000 and hence had a far
reaching implications on a higher premium prices to recover losses.
In addition, 39.6% cited that the regulatory body has not done enough to wipe out cartels
(service providers) in the industry notorious for exaggerating claims and medicals bills. An
instance of long delays in the approval of a new product (Key man insurance- claiming that
one person cannot be insured on behalf of the company as the two are separate entities) is
another proof of regulators resistance to change as the regulator maintains its proverbial
phrase that it is always working at the best interest of the customer (Nyambura, 2013).
More than 49% of the respondents were convinced that there was a challenge in customer
servicing. Ideally, Service goes beyond delivery of product offered or processing of
customers’ requests. This involves going an extra mile of instilling mutual trust and
working relationship. Therefore it important for a customer to understand the primary
benefit of the policy and be convinced that the product truly serves the need.
Over 25% of the respondents cited there were challenges on compensation framework that
provided support allowance to encourage the agent for they are paid similar commission. The
study noted that there were no mechanisms which allowed some form of compensation
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for high-performing agents or any other service delivered. This had imparted on the
efficiency and overall profitability of the insurers.
Timely and efficient claim management was another crucial item for performance of the
industry with over 50% of the respondents citing delays in claim settlement attributed to
prolonged investigations by some loss adjustors, 34.4% believed that the current products
and services rendered in the market were way below customer expectations as they did
not meet their needs. Further, 25% of the respondents agreed that there was lack of public
participation and appreciation on the role of Bancassurance in the country.
Measures of Financial Performances of the Selected Insurance Companies
Secondary data extracted from financial statements were used in measuring financial
performances of the selected insurance companies as provided in appendix B. It was
observed that Britam Insurance boasted a ROA of 0.65428 which was slightly higher than
that of Apollo Insurance with Kenindia assurance recording the highest ROCE. This
market dominance was partly attributed to the two institutions being amongst the top three
tier insurance companies to have stated the concept of Bancassurance in Kenya. This is
provided for in appendix B.
Effects of Bancassurance on Financial Performance of Insurance Companies
To investigate the effects of Bancassurance on financial performance of insurance
companies in Kenya, a multiple regression correlation modeling was performed as shown
in Table 4.9.
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Table 4. 9: Regression Modeling Model R R Square Adjusted R Std. Error of the
Square Estimate
1 .683 .743 .698 .971
As indicated in Table 4.9, the R value presented a simple correlation between two
variables that is (the extent to which two variables have a linear relationship with each
other) and in this case R =0.683 implying there was a good correlation between
Bancassurance and financial performance. The model had R2 of 0.743 implying that
74.3% of financial performance is attributed to the use of Bancassurance whereas 25.7%
of the total variation is explained by other factors not part of this study.
Gamage (2018) did a study on the impact of Bancassurance practices on insurance
industry in Sri Lanka. In the survey, multiple regression was used to analyze the
relationship between productivity per branch and customer’s perception. Pearson
correlation of productivity per branch performed and R was found to be 0.664. The study
concluded that there was a high positive relationship between Bancassurance and
financial performance. Further the study revealed the coefficient of determination R2 was
0.679 implying the independent variables (productivity per branch) was explained by
67.9% of the total variation in financial performance.
Dalia (2014) did a study on the structure of financial systems and
economic growth in Romania. Study findings revealed that R was 0.981
implying that there was a strong positive correlation between the
dependent variable (GDP growth) and independent variables (Market
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money supply) the study further revealed that R2 was 0.962 which implied that 96.2% of
the total variation in GDP growth was explained by variation in market capitalization,
turnover of capital markets, domestic loan rate and money supply.
Comparing this with our study variables, R of 0.683 implied that there was a good
correlation between Bancassurance and financial performance. R2 of 0.743 is enough
evidence to conclude that the explained variation was higher than the unexplained
variation and hence the model perfectly fits well.
Analysis of variance
The study sought to investigate if the model fitted well enough to predict the relationship
between Bancassurance and financial performance. Table 4.10 therefore presented the
results of the analysis.
Table 4. 10: The ANOVA Table
ANOVA
Model Sum of Df Mean F Sig.
Squares Square
Regression 3.582 1 3.582 0.933 .0154b
Residual 36.637 30 1.221
Total 40.219 31
Table 4.10 indicates how well the regression equation fits the data. Named after Sir Ronald
Fisher, the F-statistic =0.933 (ratio of the two variances) where variance is a measure of
dispersion that explains how far data is scattered from the mean (Frost, 2014). The F-statistics
and P-values were used together in deciding whether the results are significant. From our
data, the regression model predicted the dependent variable significantly well
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since the p-value was 0.0154 which was less than the allowable p-value of 0.05 and hence
the overall regression model statistically predicts the outcome variable.
Regression
In estimating the relationships amongst variables in the study, regression modeling was
adopted and results presented in Table 4.11.
Table 4. 11: Regression
Model Unstandardized Standardiz t Sig. Coefficients ed
Coefficien
ts
B Std. Alpha
Error
(Constant) 3.346 .350 9.554 .000
Bancassurance 1605.67 .3225.84 0.671 1.713 .097
products 304.89 37.57 1.094 8.115 .001
Financial
performance
a. Dependent Variable: Financial performance
The coefficients in Table 4.11 were both positive providing the necessary information to
predict future profit margins from the range of products offered. This can be interpreted as
for every increase of 1 unit in the use of Bancassurance there is a corresponding increase
in financial performance by 1.094.
Therefore the regression equation Y = α 0 + α 1X1 + α 2X2+ α 3X3 + ε
Where
Y = Profitability
X1 = proceeds from life Insurance products
X2 = proceeds from non-life insurance products
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X3 =proceeds from composite/hybrid insurance products
This can therefore be presented as Y= 3.346 + 1605.67X1 +304.89X2 + ε
Customer characteristics in satisfying their needs
Table 4.12 presents the results of the level of agreement with respect to the factors
motivating the customer needs for insurance products and services with 1=strongly
disagree, 2=disagree, 3=Neutral, 4=Agree and 5=strongly agree.
Table 4. 12: Factors Motivating Customers’ Need for Bancassurance
Customer need 1 2 3 4 5
The Bancassurance product features and 6.9% 13.8% 17.6% 38.9% 22.8% attributes.
The perceived Bancassurance benefits 17.3% 9.9% 19.3% 14.6% 38.9%
arising from the use of the product.
The price tag attached to a particular product 8.9% 14.6% 17.6% 30.4% 28.5%
Consumer’s attitude towards a certain 18.4% 23.1% 13.7% 40.4% 4.4%
brand.
The majority of the respondents at 38.9% believed that product features and attributes
were the most desired motive behind addressing a particular client’s need. This therefore
agrees with Gamage (2018) assertions that the driving force behind companies
considering to add many features to a products is the perceived belief that additional
features would make the product more appealing for customers. With regards to the
perceived benefit from the product, 38.9% of the respondents supported that they
purchase an insurance product due to benefits derived from using the product. The
majority of the respondents at 30.4% agreed that pricing was another factor influencing
customer needs. This finding corresponded with Melanie (2014) assertions that customers
perceive products of high quality to be priced highly than those of lower quality.
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Therefore fair prices sends a positive message that not only the price is of high quality but
also customers are getting value for money. Finally, 40.4% of the respondents agreed that
consumer’s attitude towards the product or brand played a major role in satisfying the
customers need. This therefore means that customer may hinder or influence others on
future selection decisions of that particular product or brand.
Summary of Key Findings
1. The study, found out that the majority (31.81%) of the Bancassurance products
were sold over the banks counters constituted the composite insurance covers
which contradicted to our earlier assumption that general insurance products
dominates the market. The study however could not pinpoint a single
Bancassurance model being used in the Kenya since many companies were
adopting two or more models to facilitate this distribution channel.
2. Bancassurance practices in Kenya was faced with a several challenges that can be
broadly be classified into social, economic and regulatory environment. 39.6% of
the respondents reported the poor state of the economy that rendered majority of
the Kenyan households not to afford insurance. Surprisingly enough, the concept
of Bancassurance seems to be known and understood in the Kenya representing
40.6% of the total respondents. This was in contrast with earlier claims by Karanja
(2013), findings that the concept of Bancassurance is still at its infancy stages.
Cultural and religious beliefs, inflation rates, lack of institutional confidence,
divergent customer needs, government policies and regulations are some of the
challenges hampering the industry.
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3. R2 of 0.743 implied that the explained variation was higher than that of the
unexplained variation and hence the model perfectly fits well. p-value of 0.0154
was less than the allowable p-value of 0.05 and hence the overall regression model
statistically predicted the outcome variable. F-statistic of 0.933 indicated that data
is scattered away from the mean. With this therefore, the study concluded that
there was positive and significant evidence to suggest that those firms that had
incorporated Bancassurance model in their business had witnessed an increase in
financial performance.
4. It’s believed that customers purchasing decision pattern is based on the product
features and attributes, the perceived benefits arising from the use of the product,
the products financial traits and customers attitude towards the brand.
Summary
This chapter focused on answering the research questions by presenting the gathered data
in a simplistic reader friendly way by using frequency tables and charts. At the outset, the
chapter analyzed the respondents’ demographic details followed by the key findings on
the Bancassurance models adopted in Kenya. Further, the chapter provided the
Bancassurance challenges. Finally regression modeling was used to determine if there
was a linear relationship between dependent and independent variables.
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CHAPTER FIVE
DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS
Introduction
Discussions of the major findings of the study was guided by the research objectives. The
study further drew conclusions based on the study findings. Recommendations were made
based on the conclusions and areas for further studies were identified.
Discussion of Key Findings
Bancassurance Products and Models Adopted
Research findings showed that there were three categories of Bancassurance products broadly
classified into life insurance policies which pays out a lump sum of the sum insured to the
insured or nominated beneficiaries in the event of premature death, terminal illness and
permanent disability. Amongst the products in this category included whole-life policy, term
assurance, group personal accidents, child education plan and medical insurance products.
The second category was the non-life (General) insurance policy which protected the insured
against loss or damages to third party other than those covered by life insurance. Risks
covered under this category included, Property loss and damages, liability to third party and
accidental death or injury. The main products therefore included motor insurance,
fire/homeowners insurance and Work Injury Benefits Acts. Findings showed 84.4% of the
insurers surveyed provided composite/hybrid insurance products which was the combination
of both life and non-life insurance. These findings were consistent with
Makau (2015) who found out that 38.30% of the insurers preferred agency or pure
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distribution model, whilst 17.02% preferred strategic partnerships and 14.89% preferred
financial holding. Agency model was predominantly preferred since banks earned fee
based commissions supplementing their core banking business activities. The insurer’s
ability to tap into the banks huge customer base was a major incentive in establishing
market presence. Insurers had the opportunity of exploiting the banks selling and
marketing abilities at lower costs whereas customers enjoyed lower distribution costs
passed on in form of lower premiums. The convenience of a one stop shopping was
another incentive cited by 43.5% of the respondents.
Challenges Facing the Bancassurance Industry
Study findings revealed that the Bancassurance firms were facing several challenges since
its inception. In African cultural and religious point of view, it’s still a taboo to talk or
even contemplate about death and this makes it quite a hard to promoted or even sell
funeral expense or last expense policies to such individuals. The distributor could be
perceived as planning for their death
Macro-economic activities such as inflation and poverty was another challenge hindering
the value of Bancassurance practices in Kenya. Africa’s earnings per capita is generally
low with the majority of its population are living below the poverty line hence insurance
contract may not be a priority.
Lack of institutional confidence in managing Bancassurance affairs was another challenge
cited by the respondents. There has been growing concern in the past that managers only
focus on developing the business and satisfying their personal interests at the expense of the
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customer. Majority of them have been implicated in money laundering schemes and
scandals while disregarding the clients’ interests.
Another drawback highlighted by the study was mistrust between the two institutions.
Banks have been on record in overstating claims. This is due to collusion at the branch
levels and the information shared to the insurer may not necessarily depict the true picture
in the ground. This renders the insurer to bear high costs in claims settlements and
exorbitant law suits by clients through regulators.
The Measure of Financial Performances of the Selected Insurance Companies
Secondary data was extracted from financial statements which were used in measuring
financial performances of the selected insurance companies as provided in appendix II. It
was observed that Britam Insurance boasted a ROA of 0.65428 which was slightly higher
than that of Apollo Insurance with Kenindia assurance recording the highest ROCE. This
high ROA and ROCE was partly attributed to the two institutions being amongst the top
three tier insurance companies to have stated the concept of Bancassurance in Kenya.
Effects of Bancassurance on Financial Performance
The study revealed that there was a strong positive relationship between Bancassurance and
financial performance of insurance companies in Kenya. A multiple regression analysis of
R=0.683 was achieved indicating that there was a high degree of correlation between
Bancassurance and financial performance. The p-value of 0.0154 was less than the allowable
p-value of 0.05 and hence the overall regression model statistically predicted the outcome
variable. F-statistic of 0.933 indicated that data is scattered away from the mean.
With this therefore, the study concludes there is a positive and significant evidence to 61
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suggest that those firms that had incorporated Bancassurance model in their business had
witnessed an increase in financial performance.
Conclusions
The study sought to establish the effects of Bancassurance on financial performance of
insurance companies in Kenya. Conclusions were therefore drawn from the objectives of
the study. The first objective was to identify the Bancassurance product offering and
models used in distributing Bancassurance products in Kenya. The study came to a
conclusion that there was a positive and significant increase in product sales owing to
Bancassurance activities. Traditional Retail banks have been earning their income from
the spread between rates they charge on lending and those they pay for deposits. Growing
market competitions including mobile money transfers have been weighing down on their
interest margins as a result, banks are therefore increasingly looking for commissions
from selling insurance products in supplementing their core earnings (Jongeneel, 2011).
On the other hand, insurers have been grappling with limited geographical access to
customers. These financial institutions are therefore eyeing on Bancassurance as a viable
tool for supplementing their core earnings (Kamau, 2016).
Kamau, (2016) further reiterated that banks are best poised to do Bancassurance because of
their dense network of regional branches and sales strategies pegged on close community
relationships and it would be assumed that they are well conversant with their daily needs. By
selling insurance policies, banks earn continuous revenue streams that are purely risk free
since they play an intermediary role of outsourcing businesses for the insurers. Many banking
institutions and insurance companies are finding Bancassurance as profitable
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countrywide customer access. Therefore insurance companies who wish to realize
maximum profitability, customer base and cost reduction should consider the concept of
Bancassurance. This goes along with gaining economies of scale at minimum investments
(Jongeneel, 2011)
Recommendations
Most of the literature from this study was adopted from the West and Indian markets and
going forward, the study recommended that our local study on Bancassurance be carried
out to enrich the existing body of knowledge.
In order to curb the challenges facing the industry, the study recommended through
synergies between banks and insurance companies to form a strong partnership in
addressing this mishaps. In reducing fraudulent claims, the regulator should blacklist
tainted service providers with a history of submitting inflated medical bills. The insurers
also need to play a key role of setting up a detailed anti-fraud departments and spot-
checks such as visiting the hospital during the insured’s stay to examine the case papers.
To mitigate on product mis-selling, it was recommended that a certain level of
professionalism and competency be observed in all bank branch levels. The typical
Bancassurance personnel ought to be familiar with perhaps different products and ensure
guidelines and exclusions are well articulated and understood by the customer. This
should be attained through intense training supported with product brochures. The
insurers need to also understand what the customer really needs and can be achieved
through regular feedback, tracking customer complaints and empowering their sales force
to deliver an unforgettable customer experience.
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Areas for Further Research
It is worth reminding the reader that the concept of Bancassurance is relatively new in
Kenya. Future researcher should try to find out the viability of other distribution channels
other than bank-insurance partnerships including supermarkets, malls and petro-stations
in providing a one stop shopping in addressing the financial needs of its customers.
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APPENDICES
Appendix A: Questionnaire
Dear respondents,
Thank you for participating in this survey
My names are Jared Oirere Orora, an MBA-Finance student at Daystar University. This survey is meant
to collect data among the selected insurance companies that have adopted Bancassurance as their
distribution channel. The questionnaires will mainly focus on the Bancassurance products, Bancassurance
models, the challenges facing the Bancassurance industry and the effects of Bancassurance on financial
performance of insurance companies. Any information provided therefore shall be solely used for research
purposes and shall NOT be divulged or availed to any unauthorized persons.
Instructions
1. Please take your time to complete this survey
2. Please answer the questions correctly and as accurately as possible
3. Please tick ( ) the most precise answer in the boxes provided.
4. Write a brief answer where an explanation is required
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SECTION A: RESPONDENTS’ DEMOGRAPHIC DETAILS (please tick the most
appropriate response)
1. Please state the name of the Insurance Company……………….………………
2. Gender Male [ ] Female [ ]
3. Age
20-25 [ ] 26-31 [ ]
32-37 [ ] 38-42 [ ]
43-48 [ ] 49-54 [ ]
Above 55 [ ]
4. Highest education level attained
Diploma [ ]
Bachelors [ ]
Masters [ ]
Doctorate [ ]
Others [ ] Please Specify..................................................................
5. What is your current position in the organization
Manager [ ]
Assistant manager [ ]
Senior Officer [ ]
Others [ ] Please Specify………………………………………..
6. Department………………………………
7. For how long have you worked for the above organization................................... ?
SECTION B. BANCASSURANCE PRODUCTS
8. What range of products do you offer in the market?
a) Life insurance products only [ ]
b) Non-life insurance products only [ ]
c) Both life and Non-life insurance products [ ]
9. Please give three major insurance products that are widely sold in your company.
a) ………………………………………..
b) …………………………………………
c) …………………………………………
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10. How familiar are your clients with your range of products being offered?
a) Extremely familiar [ ]
b) Very familiar [ ]
c) Moderately familiar [ ]
d) Slightly familiar [ ]
e) Not familiar at all [ ]
11. In the scale of 1-5, to what extent do you agree/disagree with the following
statements pertaining your Bancassurance products? 1=strongly disagree
2=Disagree 3=Neutral 4=agree and 5=strongly agree
Statement 1 2 3 4 5
Our clients can spontaneously recall our brand without thinking of other competitors.
Our clients have recommended our Bancassurance products and services to other prospective customers.
Our clients will continue to purchase our products even if we were to raise our prices.
My organization has invested on social media platforms to increase the level of awareness of our Bancassurance products and services
We constantly review our products and services to improve on our client’s experience.
My organization has invested on social media platforms to increase the level of awareness of our Bancassurance products and service
BANCASSURANCE MODELS
12. Which Business model has your organization adopted as a distribution channel?
a) My organization has partnered with ONE bank to sell our products [ ]
b) My organization and the bank has built a new insurance company [ ]
c) The bank only plays the intermediary role of selling our products [ ]
d) My organization owns a bank that distributes our products and services [ ]
e) Others [ ]Please Specify………………………………………..
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13. Kindly indicate the bank(s) you have partnered with
a) ………………………………………………
b) ………………………………………………
c) ………………………………………………
d) ………………………………………………
14. To what extent do you agree/disagree the reasons for the above selected choice?
In each case, please tick your appropriate response using the scale 1 to 5.with
1=strongly disagree 2=Disagree 3=Neutral 4=agree and 5=strongly agree
Statement 1 2 3 45
To distribute insurance products across the vast banks branches across the country
To enter into new unexplored markets in the country using the bank(s)
platforms To leverage and exploit the banks sales and marketing capabilities.
To access the banks customer base without major investments
To improve on our product and service offering in the market.
The bank has good reputation and financial strength
To provide a one-stop-s hop for your customers
To cut on the overall overhead costs of setting up new insurance branches and hiring extra labor
SECTION C: CHALLENGES FACING THE BANCASSURANCE INDUSTRY
15. Please rank the following challenges facing Bancassurance industry with
1=strongly disagree 2=Disagree 3=Neutral 4=agree and 5=strongly agree
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Challenges 1 2 3 4 5
The Bancassurance industry is greatly affected by traditional African beliefs and
practices on matters pertaining death and unforeseen future calamities.
The macro-economic activities such as inflation and poverty that has rendered
most of the household not to afford Bancassurance related products and services.
Products and service offered did not address the needs of potential customers
Lack of institutional confidence in managing Bancassurance affairs.
Poor claims management including rising numbers of unpaid claims, unending
investigations by some insurers
Mistrust between banks and insurance companies who wish to venture into Bancassurance.
lack of public knowledge, appreciation and awareness on the role of Bancassurance in Kenya
SECTION D: FINANCIAL PERFORMANCE
16. Based on your professional judgment and the future projections on Bancassurance
in Kenya, to what extent do you agree or disagree with the following statements?
Statement 1 2 3 4 5
My organization has been experiencing rising sales for the last 5 years owing to
Bancassurance activities.
My organization shall continue experiencing high return on Assets and Returns on
capital employed resulting to Bancassurance activities for the next 5 years.
My organization has experienced market penetration to untapped markets due to the
vast banks branch network
Bancassurance practices in my organization shall remain sustainable and relevant in
future
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SECTION E: CUSTOMER CHARACTERISTICS
17. To what extent do you agree or disagree with the following statements?
Customer characteristics 1 2 3 4 5
The Bancassurance product features and attributes.
The perceived Bancassurance benefits arising from the use of the product. The price tag attached to a particular product
Consumer’s attitude towards a certain brand.
Thank you and highly appreciate your time and insights.
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Appendix B: List of Selected Insurance Companies as at 18 September, 2017
Name of Insurance Company Company’s Headquarters
1. UAP Insurance Company Bishop Gardens Tower
2. Takaful Insurance of Africa HFC House Nairobi
3. CIC Insurance Company CIC Plaza Upper Hill
4 APA Insurance Company APA Building Westlands
5. Jubilee Insurance Company Jubilee Insurance House
6. Britam Insurance Britam Center Upper Hill
7. ICEA Lions Insurance Company ICEA Lions Waiyaki way
8. Madison Insurance Company Madison House Community
9. Old Mutual Insurance Company Hospital Road Upper Hill
10. First Assurance Company First Assurance House Jacaranda Avenue
11. AIG Insurance Company AIG House, Eden Square Complex
12. HFC Insurance Company HFC House, Kenyatta Avenue.
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Appendix C: Measuring Financial Performance
ROA and ROCE.
Formulas for calculating ROA and ROCE are shown below
1. ROA= Annual Net income
Average Total Assets
Where, the average total assets is found in the balance sheet and is calculated as
Average Total Assets=Beginning assets + Ending assets 2
2. ROCE=Earnings before interest and tax (EBIT)
Capital employed Where capital employed is the difference between the total assets and current liabilities
ROCE=Earnings before interest and tax (EBIT)
Total Assets – Current liabilities
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Appendix D: Results of ROA and ROCE from Selected Insurance Companies
Name of Insurance Company Measure of financial Performance
ROA ROCE
1. UAP Insurance Company 0.27052 0.06898
2. Jubilee Insurance of Africa 0.27277 0.008388
3. Kenindia assurance Company 0.19845 0.073458
4 Trans century Insurance Company 0.16814 0.023519
5. Sanlam Insurance Company 0.34268 0.007825
6. Britam Insurance 0.65428 0.035727
7. Heritage Insurance Company 0.25375 0.006463
8. APA Insurance Company 0.49246 0.056352
9. Old Mutual Insurance Company 0.45682 0.046258
10. Liberty insurance Company 0.26094 0.003229
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