Effect of Bancassurance on financial performance of Commercial Banks in Kenya

Abstract

Bancassurance is viewed as the future of the banking industry. It originates from French usage of banks to carry out their insurance transactions which has been adopted globally. Its growth was boosted by fact that household savings have moved from deposits to more remunerative investments causing a drop in traditional banking profitability forcing banks to compensate the decrease in their interest margin by offering investment banking or insurance services to diversify the resources required to manage risk. The study analysed the effects of bancassurance on performance of commercial banks and observed that the banking sector in Kenya is very dynamic and highly profitable as an investment avenue with a declining asset to liability ratio, reducing cost to income ratio, and an increasing return on assets ratio. An analysis of bancassurance performance showed an increasing profitability, increasing return on assets and increasing return on investment where 96% of the banks with bancassurance reported profits within the study period. A model was created that can be used to analyze the effects of bancassurance on net profit margins of the banks which is 96.2% efficient and reliable. The study concludes that profitability of bancassurance has significant effect to the overall profitability of the banking industry, and has made key findings to support this observation. The study recommends that the banking sector should invest more into bancassurance by improving marketing strategies for its products such that more customers are attracted to these services. The study also observed that the banking sector needs more experts on bancassurance to help in rolling out better products that suits customer niche and embrace customer uniqueness in the Kenyan insurance market. The regulators should find ways to offer solutions to the challenges that were observed to hinder bancassurance investment. The study found that further research to assess the factors that causes successful implementation of bancassurance should be carried out and also assess the effects of bancassurance on the financial performance of insurance firms in Kenya.