YURESH MAHARAJ | Banking and insurance are converging, and Africa stands to gain

Across much of the world, the walls between banking, insurance and asset management are falling. The convergence of insurance and investment products through banking channels has been reshaping European and Asian financial services for three decades, and it now accounts for the majority of life premiums in markets such as France, Spain, Italy and much of emerging Asia.

Africa is beginning to follow the same trajectory, and the prize for the continent could be considerably larger than it has been elsewhere.

The logic of convergence is compelling. Clients would rather deal with their finances holistically. A business owner seeking finance also needs employee benefits and group risk cover.

A young professional wants transactional banking, life cover, savings and retirement planning to be co-ordinated. Affluent clients expect investment management, estate planning and offshore diversification to be available in a single conversation with a trusted adviser.

There is an additional driver that is often overlooked: earnings resilience. Banking and insurance respond differently to the interest-rate cycle.

Lower rates tend to compress banking margins while improving insurance performance, and higher rates do the reverse. An integrated model creates a natural hedge and smooths returns through macroeconomic cycles — an attractive property for shareholders and, over time, for regulators assessing systemic stability.

Integration of these components requires sustained investment in shared systems, product design, distribution alignment and, hardest of all, culture. Bankers and insurers have different time horizons, different risk appetites and different sales rhythms.

Getting them to collaborate at the point of client contact is a multi-year project. The persistency rates being reported through bank distribution by the groups that have put the work in suggest the investment pays off — clients appear to value the convenience and trust that come with an integrated offering and stay on the books longer.

Insurance penetration outside South Africa averages less than 3% of GDP, against a global average of about 7%

The size of the opportunity in Africa is what makes the trend particularly interesting. South Africa accounts for roughly two-thirds of the continent’s insurance market by value. It is a mature, sophisticated market, yet even here there is considerable room to deepen penetration, particularly through advice-led solutions in the mass-market, middle-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, against a global average of about 7%. A young, urbanising population, rising household incomes in key markets and the gradual formalisation of employment are all creating demand for protection, 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 client relationships can be a structural advantage.

Nigeria, Kenya, Ghana and the Sadc markets each offer scope for convergence models adapted to local regulation, mobile-first distribution and the realities of informal-sector income. The banks that already hold the primary relationship with tens of millions of African households are well placed to deliver protection and long-term savings products at a cost-to-acquire that standalone insurers simply cannot match.

Where does convergence go from here? Two shifts seem likely. The first is a move towards advice-led distribution, with human advisers supported by data and digital tools rather than replaced by them.

Estate planning, retirement funding, insurance and business succession are decisions that benefit from a trusted adviser who understands the client’s full financial picture — technology makes that adviser more effective, it does not substitute for the relationship.

Providers that invest in advice capability should earn lasting client trust; those that rely on product-push distribution will find it harder to retain and deepen relationships.

The second is a broadening of purpose. Millions of African families remain underinsured and underinvested. Closing the continent’s savings and protection gap will require financial services businesses that combine reach, trust and integrated solutions at scale.

The commercial opportunity is real. So is the social one. Convergence of banking and insurance, done well, can serve both — and the early results from the groups that have committed to the model suggest there is a long runway ahead.

• Maharaj is CEO of the insurance & asset management division of the Standard Bank Group