Thursday, February 05, 2009

Insuring the masses

In a quiet month for banks Equity Bank is making some quiet strategic moves for the long term, that may shake up the insurance sector in Kenya.

They have started selling insurance cover to their customers through their wholly owned subsidiary Equity Insurance Agency. Like with the health care package they started selling last year, it is quietly marketed to customers within the banking halls only – no public adverts so far and little mention elsewhere. Customers can sign up for motor vehicle insurance, domestic over, personal accident & travel, medical, and fire & burglary for businesses.

Equity continues a trend of rolling out products that are useful but have low penetration in Kenya like medical insurance and mortgages (they own a ¼ of Housing Finance)

Also they were earlier reported to have acquired an investment banking license from Juanco Investments - a little known company who's also one of their shareholder.

15 comments:

Anonymous said...

I think Equity is going to change the face of banking in Kenya which will leave the dons such as BBK, Stanchart and KCB wondering what they have been doing all these years. We all underestimated Equity with their Kyuk culture embedded in most of the branches but professionalism they dont lack FYI.
I like how they are slowly wiping this market. I hope they continue with that trend and dont become another Murdoch story

Anonymous said...

Thanks for the good work.
One must admire Equity for their go go attitude and for continuously changing the financial landscape for customers.

However, I am making a quiet call that within the next 12 to 24 months, the bank will go through a crisis that will change the way we think about banking regulation in this country. I will keep watching this space and will gladly eat my words if proven wrong. 12 to 24 months.

ka-investor said...

@Anon2: can you be more specific on what kind of crisis? Nairomour has something that sounds too outrageous.

Concept said...

Banks, insurance is a relationship based industry. Clients buy from people they have a certain level of rapport. We are yet to get to that level where customers will walk in a bank hall, spot an insurance desk,inquire and buy the product.

AS you have rightly pointed out,insurance penetration level is so low in this country, even with the elites.

But who knows the peasants might take up their products since the bank enjoys a high level of trust with this group.

Nevertheless, i admire their innovativeness.

coldtusker said...

I don't think Banks in Kenya are allowed to sell insurance or own an insurance firm.

Note that Equity owns an INSURANCE AGENCY. So the question is... who is the lucky insurance firm?

CFC Stanbic is a holding co that owns a bank & insurance firm.

bankelele said...

ka-investor: equity has withstood rumors and naysayers before

Concept: PEV and recent fires should make more wananchi think about insurance. the industry itself has governnace issues like stockbrokers, that they have been trying to sort out.

coldtusker: it's a wholly owned subsidiary. Ther's a grey area in financial markets where family bank, m-pesa have operated and if equity selling to their own customers - is it the Commisioner of Insurance, or CBK who's in charge?

ke said...

Sounds like Equity bank is looking to raise money by "offering" all these services. i.e. pay us a monthly fee and we will provide you with insurance.

The problem I see here is that no one really knows where Equity bank is putting all this money it's collecting -- from what you have described as "strategic business moves".

The money isn't sitting in a bank account somewhere. It's being reinvested, but who knows where? and without a regulatory framework or rules to guide it, Equity will be free to do what it wants with your money.

Isn't this what happened to AIG? they made risky investments with the insurance premiums that people were paying and they lost so much money doing that, that they were unable to pay for many of these claims.

Are there rules in Kenya that limit the amount of money that insurance companies can "play" with? doing this is necessary if you want to maintain the ability to payout any claims that may arise.

Banks - I don't know why you won't discuss the importance of issues like the rule of law, especially as it applies to businesses whose core function is to collect money from the public. This is especially so, in light of what is happening with many of these brokerage firms. People's money is being stolen and they seem to have no avenue's of redress.

e_kijana said...

Equity is only making money out of insurance agency fees. The rationale is that since they have to get the loans taken by borrowers to be insured, they may as well may some money as they give that volume business to Britak (I think it is Britak that insures the loans based on the close relationship Equity has with it esp in Housing Finance). It would be extremely stupid for Equity bank to own the insurer that insures the loans its issues as there will be zero risk management so best divest if you are a n equity shareholder. So I think you got it wrong here Banks...

Anonymous said...

Bankelele, you are quite right that Equity has withstood all kinds of naysayers before. In response to Ka-Investor's question, the crisis I speak of is not very dramatic but will be of far reaching implications. It will be precipitated by the categorisation of certain types of loans where regular payments are not or cannot be made due to the nature of the underlying business.
I suspect the problem will lead to reports that their books are in much higher default rate than earlier reported. Happening in a period of general unease in Kenya's banking sector (another prediction), you can be sure that it will create some waves. i hope this does not sound alarmist? Anon2

Chebet said...

My two cents worth:

Diversification into securities is an indication that the bank has come of age,(as a building society it's core role was mortaging then duly changed to micro finance, it's basicly gone full circle and back to the basics) other thing: many of their account holders are new CDSC members who will need financial direction, and have almost full belief in their bank, and if economies of scale is anything to go by, well.:-)It would be interesting though to see which direction the Securities arm takes, Juanco has been a stock brokerage firm only, but I suppose Equity is looking for more than just that. I am all eyes on this one...Equity Bank Uganda is up and running & Equity Sudan has acquired a building and will be up and running in 8 weeks, and to me ...that's not short sighted.

@Anon 2, lets wait & see what te next 12 months hold

MainaT said...

Anon2-I agree with you partly and have already blogged on the bad loans. Where we disagree is your focus on Equity. In simple terms, any bank that gave out huge loans in 2007, will and should take a hit either in its 2008 or 2009 numbers. It can't be the case that only K-Rep suffered from the 2008 debacle and the afters. In terms of loans given out, BBK did the largest amount and whether they were classified correctly or not, hawking loans is silly business.

bankelele said...

KE: Equity’s history is one of too much cash, shortage of investment opportunities
- I’m happy to debate rules but in this case this is a grey area, like M-Pesa

E_kijana: no they are selling their own insurance policies. Don’t know what happened to Britak agency deal

Chebet: karibu. The story of equity is still been written, and expansion to Uganda, Sudan and beyond, can only lead to better things in terms of diversification. In insurance, health services and stock broking their reach and customer base can transform these industries locally, provided they have the right management and structures to manage these new sector which have inherent risks

MainaT: Hola, you’re the expert on equity. Can’t see their bad loan book growing more than Barclays or KCB. Certainly all banks have gone slow on the personal loan front, anon must be alluding to something else
- And I checked on K-Rep it was more of a management flaw, not PEV that will see them lose money for 2008

MainaT said...

K-Rep piece in the DN http://www.nation.co.ke/business/news/-/1006/495248/-/jh5wl4z/-/
If its corporate loans, how much of its loan book is involved?

Anonymous said...

a few corrections. equity insurance agency is a wholly owned subsidiary of the bank. its been in existence for a year now, and its basically just that. an insurance agency, at least for now. almost all branches by now have banc assurance officers whose mandate is to grow sizeable portfolios both from within the clientele as well as from the community the branch is in. the only product not on offer as yet is life insurance which should be out by year end. it does not sell its own products but rather is working wit 14 insurance companies to sell their products, though they have been adapted for the needs of the banks customers. this will surely revolutionize the insurance industry should CBK not interfere. i know, as am one of its officers.

bankelele said...

anon 1132, write in via e-mail

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