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Bancassurance: The Lessons of Global Experience in Banking and Insurance Collaboration - 3rd Edition
VRL Financial News Publishing, September 2009
Now in its third edition, this popular report includes a summary of the dramatic effect of the recent financial crisis of 2007-2009 on global bancassurance.
New and updated case studies include Aviva, Fortis, HSBC, KBC, and ING, who have been forced to retrench by massive asset losses, but has also driven many to divest themselves of banking or insurance affiliates because of a need for capital in the downturn.
A practical survey, rich in case studies, interviews and original research, "Bancassurance: The Lessons of Global Experience in Banking and Insurance Collaboration" evaluates global best practice in selling insurance products to a retail banking client base.
Offering incisive analysis for the retail finance and insurance industries, the report helps you:
- Evaluate which model - integrated, joint venture, distribution alliance - is the most effective for reaching traditional markets
- Understand what are the business critical issues in selling to wealthy clients
- Learn what are the cultural differences that exist between the insurance and banking industries
- Discover what are the prospects in emerging markets, including China and India
- Review the key business drivers, including geography, product, channel, profitability and regulation
- Implement bancassurance programmes and be inspired by fresh ideas to improve your existing strategy
Read this report to:
- Gain an understanding of industry best practice
- Learn about the most effective business models
- Get advice on improving insurance distribution
- Gain Insights into creating and improving a bancassurance model
- Get insights into future strategy
- Lessons that can be learned from others experiences and taken to clients
Bancassurance: The Lessons of Global Experience in Banking and Insurance Collaboration provides comparative data that can be used to keep up to date with industry best practice.
This report is particularly suited to heads of banking and insurance, as well as banking sector analysts who need information that they can use to understand growth potential in retail financial services. This report also provides vital information for business school academics and MBA students who are looking for a reliable source of information on current banking sector practice, plus anyone who wants to know more about the opportunities, challenges and possible pitfalls of bancassurance as a strategy for growth.
Chapter 1 Introduction
Chapter 2 What drives bancassurance?
Chapter 3 The alternative structural models
Chapter 4 The influence of regulation
Chapter 5 The bancassurance products
Chapter 6 The bancassurance client: - profile and trends
Chapter 7 Competitive distribution channels
Chapter 8 The profit profile
Chapter 9 The key national and regional markets
Chapter 10 Case studies
Chapter 11 The lessons of global experience: addressing the issues
Chapter 12 Summary and outlook
Bancassurance – the sale of retail insurance products to a commercial bank’s client base – has evolved in different models since its origins in the European Union (EU) in the mid-1980s. The classic European model is an integrated one, with common ownership or some form of exclusive commitment between the insurance provider and bank distributor. In the U.S, the model involves virtually total separation between the two, while in many emerging markets like Asia-Pacific, where foreign insurers compete for shelf space on the limited number of domestic bank distribution platforms, a third structure is evolving.
The different models drive profitability, product design and the operational challenge. While comparable profit data across a range of bancassurers is fragmentary at best, it would appear that the integrated European model not only combines both substantial manufacturing and distribution margins in insurance products but also offers significant operational economies in both the bank and front office. The available data thus indicates a relatively impressive return on investment and client penetration for experienced, integrated European bancassurers like KBC, Aviva and Crédit Agricole, as well as relative newcomers like HSBC in Asia-Pacific.
In the US, despite early indications that bancassurance might achieve market penetration levels in life insurance comparable to the one-third share it has in Europe, U.S banks struggle to achieve a market share of 2% and essentially offer a range of third-party insurance products to provide choice to their clients. In contrast, in the booming markets of Asia Pacific and Latin America, market shares of the bank channel are rapidly approaching European levels.
The recent financial crisis of 2007-9 has had a traumatic impact on global bancassurance. Sales of life and other long-term investment products have collapsed as banks prioritise deposits to replenish their liquidity, and clients flee the equity market in favour of cash and liquidity. Lower sales of non-life products reflect reduced volumes of consumer loans as clients deleverage.
Another issue raised by the crisis is the durability of long-term bancassurance links. While the overall durability of joint ventures and ownership links has historically been quite positive, the crisis has not only seriously damaged leading bancassurance competitors such as Fortis, KBC and ING, who have been forced to retrench by massive asset losses, but has also driven many to divest themselves of banking or insurance affiliates because of a need for capital in the downturn.
The recent EU decision to order the divestiture of ING’s insurance businesses is another manifestation of the crisis. At that time, ING’s Chairman acknowledged that bancassurance diversification did not mitigate the negative impact of the crisis.
The net impact is the deepening of the split between banks who are focusing on their distribution role and insurers who provide the insurance product. Thus major CEE banks like OTP and Erste have sold their insurance subsidiaries to insurers and bought back the product for distribution to their CEE client base.
A common strategy of the leading insurance providers is to be present, as appropriate, in all the major insurance distribution channels – company employee/agency, bancassurance and independent brokers (IFAs). It is widely assumed that there will be a natural shift from agents to banks to brokers as the market becomes wealthier, more sophisticated and willing to pay for advice and choice. One challenge for the future of the bancassurance channel in this regard is the growth of direct channels such as the Internet, in particular for simple products such as auto and home insurance.
National markets differ in fiscal treatment of insurance but also in structure, the role of banks, customer preference and a host of other variables. The survey conducted for this report found a totally pragmatic approach to product selection based on these variables. The core product grouping in the mature European market has been the life and other long-term savings products, but banks have become increasingly aware of the high margins available on non-life products sold in connection with a retail loan or even independently of the lending function. At the same time, across the world, lower cost and simpler tax-advantaged investment products, such as mutual funds and variable annuities, are playing an increasing role overall product offering, at the expense of life. Life insurance is understandably a more expensive product because of the medical process and regulatory framework involved, but such a complex product is also that much more difficult for a bank platform’s staff to sell in competition with their other responsibilities.
Many bancassurers have made significant efforts to move up from the mass market client segment, for which the early bancassurance model was designed, to more upscale segments such as the affluent, SME and high net worth categories. At the same time, their product offering has broadened to include a range of life and non-life offerings. In so doing, the bancassurer finds himself increasingly in competition with independent brokers offering advice as well strong client relationships.
For an insurer without a bank distribution network in the targeted market, the challenge is to find a major bank prepared to offer access to its retail client base on acceptable terms. A critical such term is an exclusive agreement with a single bank which permits alignment of front and back offices – effectively straight through processing – and joint investment in marketing, training and product development. In Europe, insurers like Aviva and CNP have been able to knit mutually satisfactory, long-term alliances which have, so far, stood the test of time. But this has been achieved only by heavy investment in systems, skilled specialist personnel and a management posture which is flexible enough to manage the inevitable conflicts such as compensation and product selection. Over time, banks have been able to play a leading role in many bancassurance alliances because of the contribution of their client base; it is estimated that perhaps 70-75% of the overall profits of such an alliance are paid in one form or another to the banking partner.
Bancassurance thus involves addressing the cultural divide between banks, which take an institutional approach to selling, and insurance, where selling is done by highly motivated individuals. Blending these cultures has been a challenge in all markets, whatever the ownership relationship. In addition, the relatively lower and historically more volatile returns on insurance have been a factor in the banks’ view of the insurance segment. The result has been a series of divestitures since the 1990s which has, in many cases, produced a devastating impact on stockholder value as well as continuity of the business. The most recent high profile such break-up is the sale in late 2008 of Dresdner Bank by Allianz, a strategic reversal which has resulted in a major change in distribution relationships as well as considerable financial loss to Allianz.
At the time of writing this report, an unresolved issue is the regulatory impact on bancassurers severely impacted by the banking crisis. If size and complexity is a major regulatory concern, separating banking and insurance businesses could be a solution applied outside the ING case study.
Steven I Davis has spent his career in the banking and financial services sector as a senior executive, strategy consultant, author, analyst and teacher. He is a graduate (magna cum laude) of Amherst College and of the Harvard Business School.
His 20-year career in international banking began at JPMorgan, where he managed a Paris-based research and M&A unit. For Bankers Trust Company, he ran a venture capital subsidiary in New York, and later the banks European businesses from a London headquarters. Subsequently he set up and managed for six years the London-based merchant banking subsidiary of First International Bancshares of Dallas, Texas.
Since establishing Davis International Banking Consultants (DIBC) in 1980, he has managed several hundred strategy assignments for commercial and investment banks, global fund managers, insurers and other financial institutions.
In 1993, he headed a DIBC team which advised the Norwegian Ministry of Finance on the restructuring of the country's banking sector during the Nordic banking crisis. In addition, he and his colleagues have prepared over 60 research reports on the financial sector for publication by investment banks and other clients.
Steven Davis is also the author of seven books on the banking sector (published by Macmillan in London).