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Around the world, the walls between banking, insurance and asset management are falling down. The convergence of insurance and investment products through banking channels has been reshaping European and Asian financial services for three decades, and now accounts for the majority of life premiums in markets such as France, Spain, Italy and emerging Asia.
Africa is also starting to follow the same trajectory, and the rewards for the continent could be much bigger than elsewhere.
The argument for convergence is compelling. Customers will want to deal with their finances holistically. Business owners seeking finance also need employee benefits and group risk cover.
A young professional wants coordination of transactional banking, life insurance, savings and retirement planning. Affluent clients expect investment management, estate planning and offshore diversification to be available in a single conversation with a trusted advisor.
There is an additional driver that is often overlooked: earnings flexibility. Banking and insurance respond differently to interest rate cycles.
Lower rates reduce banking margins while improving insurance performance, and higher rates do the opposite. An integrated model creates a natural hedge and smoothes returns through macroeconomic cycles – an attractive asset for shareholders and, over time, for regulators assessing systemic stability.
Integration of these components requires continued investment in shared systems, product design, delivery alignment and, most difficult of all, culture. Bankers and insurers have different time frames, different risk appetites, and different sales rhythms.
Getting customer support at their point of contact is a multi-year project. The persistence rates being reported by working groups through bank distribution show that the investment pays off – customers value the convenience and trust that comes with an integrated offering and stay on the books for the long term.
Insurance penetration outside South Africa averages less than 3% of GDP, while the global average is around 7%.
The size of the opportunity in Africa is what makes this trend particularly interesting. South Africa accounts for almost two-thirds of the continent's insurance market by value. This is a mature, sophisticated market, yet there is considerable scope for increased penetration, particularly through advice-based solutions in mass market, mid-market and affluent segments.
The rest of the continent is a different proposition altogether. Insurance penetration outside South Africa averages less than 3% of GDP, while the global average is around 7%. A young, urbanized population, rising household incomes in key markets and the gradual formalization of employment are all creating demand for security, savings and investment products that barely existed a decade ago.
For groups with established banking franchises across the continent, the ability to layer insurance and asset management onto existing customer relationships can be a structural advantage.
Nigeria, Kenya, Ghana and the SADC markets offer scope for convergence models adapted to the realities of local regulation, mobile-first delivery and informal sector incomes. Banks that already have primary relationships with millions of African households are well-positioned to offer protection and long-term savings products at a cost that stand-alone insurers cannot easily match.
Where does convergence go from here? Two changes seem likely. The first is a move towards advice-based delivery, in which human advisors are supported by data and digital tools, rather than replaced by them.
Estate planning, retirement funds, insurance and business succession are decisions that benefit from a trusted advisor who understands the client's complete financial picture – technology makes that advisor more effective, it does not make a substitute for the relationship.
Providers investing in advisory capacity must earn lasting customer trust; Those who rely on product-push delivery will find it harder to maintain and deepen relationships.
The second is the expansion of the objective. Millions of African households remain underinsured and underinvested. Bridging the continent's savings and security gap will require financial services businesses that combine reach, trust and integrated solutions at scale.
The business opportunity is real. Social is also like this. The convergence of banking and insurance, done well, can serve both – and early results from groups committed to the model suggest there is a long way to go.
- Maharaj is the CEO of the insurance and asset management division of Standard Bank Group.