Bancassurance is an arrangement where a partnership between a bank and an insurance company allows the insurer to offer its products to the bank’s customers. This mutually beneficial setup provides additional revenue streams for banks, while insurance companies gain broader access to customers without expanding their sales teams.
Key Takeaways
- Bancassurance is a strategic alliance between banks and insurance companies, enabling insurers to reach the bank’s clientele.
- Insurance companies benefit from increased reach and sales without needing to expand their sales force.
- Banks gain extra revenue from selling a range of insurance products.
Unpacking Bancassurance
Bancassurance has a well-established history in Europe, where it is particularly prevalent. Banks like Crédit Agricole in France and ING in the Netherlands are major players in this market. While Europe reflects high engagement, North America’s adoption has been more reserved due to regulatory debates and concerns over competition and fair practices.
A detailed study in 2013 reported varying levels of bancassurance penetration across global markets. For instance, life insurance sales through banks accounted for 83.6% in Italy, but significantly less influence was observed in nations like the UK and Ireland.
In the U.S., regulatory landscapes like the Bank Holding Company Act of 1956 restrained many banks from insurance sales. Changes came with the Gramm-Leach-Bliley Act of 1999, which eased these restrictions, allowing more American banks to venture into bancassurance.
Bancassurance Market Growth
The global market for bancassurance is expanding, primarily fueled by the life insurance sector and significant developments in the Asia-Pacific region. Research firms estimate the market achieving the value of $1.268 trillion in 2021, expecting a climb to $1.802 trillion by 2027, reflecting a CAGR of 5.9%.
Key drivers include the insurance needs of an aging population and a growing demand for convenient access to financial services.
Pros and Cons of Bancassurance
Advantages
- Convenience: Offers ease of access, particularly important in under-served areas and for customers who prefer banking in person.
- Integration: Helps banks provide a diverse range of financial services under one roof.
- Potential Cost-Savings: Increased competition can potentially lower insurance prices for consumers.
Disadvantages
- Limited Options: Convenience might prevent consumers from shopping around for the best insurance deals.
- Advice Quality: Bank employees may not have the same depth of expertise in insurance products as dedicated agents.
- Risk to Banks: The bank’s reputation can be at stake if the insurance products sold don’t meet customer expectations.
The Roots of Bancassurance
Modern bancassurance began taking shape in France during the 1970s, with Spain following suit in the 1980s. These early adoption regions remain influential in the market shares of bancassurance globally.
Regulatory Environment in the U.S.
Although states primarily regulate insurance, national banks gained more freedom to operate in bancassurance following the Gramm-Leach-Bliley Act. Still, state regulations continue to oversee essential practices and individual salesperson licensing.
Types of Insurance Sold Through Banks
Consumers can purchase various insurance types through bancassurance, including life, health, property, and casualty insurance. However, life insurance tends to dominate in both the U.S. and international markets, making up about 29% of products sold through this channel in 2018.
Final Thoughts
Bancassurance serves as a conduit for expanding insurance reach via bank channels. While it offers significant advantages for both banks and insurance companies, including increased profit and ease of customer access, consumers should be cautious about ensuring the value and appropriateness of insurance advice received through banking staff.
Related Terms: insurance policy, banking sector, financial growth, customer base expansion.
References
- Institut für Finanzdienstleistungen e.V. “Study on Remuneration Structures of Financial Services Intermediaries and Conflicts of Interest (MARKT/2012/026/H) Final Report”, Page 80.
- United States General Accountability Office. “Bank Powers: Issues Related to Banks Selling Insurance”, Page 2.
- Federal Deposit Insurance Corporation. “Important Banking Laws”.
- IMARC Group. “Bancassurance Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2022-2027”.
- Society of Actuaries. “Bancassurance”.
- Office of the Comptroller of the Currency. “Insurance Activities: Comptroller’s Handbook”, Page 3.
- McKinsey & Company. “2020 Global Insurance Pools Statistics and Trends: Distribution”, Page 2.
