Actuarial Aspects of Bancassurance Distribution in Nigeria: Risk and Profitability Analysis

This study examines the actuarial and profitability dimensions of bancassurance distribution in Nigeria, analyzing how the bank-assurance partnership model affects product mix, claims experience, and insurer financial performance. Bancassurance has grown rapidly in Nigeria following NAICOM's revised guidelines, with commercial banks leveraging their customer bases and distribution networks to sell insurance products. From an actuarial perspective, bancassurance introduces distinct risk selection and persistency dynamics compared to traditional agency distribution that affect pricing assumptions and reserve adequacy. This study uses claims and persistency data from four insurance companies with active bancassurance arrangements in Lagos and Abuja for 2019 to 2023, supplemented by interviews with 25 bancassurance managers and actuaries. Loss ratios, lapse rates, and new business margins are compared between bancassurance and traditional agency channels. Regression analysis controls for product type and customer demographic differences. Findings reveal that bancassurance-distributed credit life products have significantly lower loss ratios and better persistency than agency-distributed equivalent products, reflecting the loan-linked structure of these products. However, investment-linked products distributed through banks show higher lapse rates, consistent with misaligned bank staff sales incentives. The study concludes that bancassurance is financially beneficial for credit life products but creates specific actuarial risks in savings-linked product lines. It recommends differentiated actuarial assumptions for bancassurance and agency channels in pricing and reserving models.

Keywords: bancassurance, distribution channel, actuarial pricing, loss ratio, persistency.