Personal Finance

Bancassurance

What is bancassurance?

Bancassurance is an arrangement between a bank and an insurance company that allows the insurance company to sell its products to the bank’s customer base. This cooperative arrangement is profitable for both companies. Banks generate additional revenue by selling insurance products, and insurers expand their customer base without adding salespeople.

key takeaways

  • Bancassurance is an arrangement between a bank and an insurance company through which the insurance company can sell its products to the bank’s customers.
  • Insurers don’t need to expand their sales force to benefit from increased sales and a broader customer base.
  • Banks benefit by generating additional income from insurance product sales.

Understanding Bancassurance

Bancassurance arrangements are common in Europe and the practice has a long history. European banks such as Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France) and ING (Netherlands) dominate the global bancassurance market.

But the situation varies widely from country to country. A 2013 report found that while bancassurance accounted for 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France and 62.6% in Austria, it had a lower market share in Eastern Europe, while​​​ England and Ireland do not exist.

The United States has been slower to embrace the concept than many countries. That’s partly because the question of whether U.S. banks should be allowed to sell insurance has been debated for years. These include unfair competition for insurance agents, possible risks for the banking industry, and the possibility that banks may force customers to take out insurance to qualify for loans.

At the same time, advocates insist that both banks and insurers would benefit from the arrangement, which would also be convenient for consumers, and that increased competition could lead to lower insurance prices.

The Bank Holding Company Act of 1956 effectively banned many large state-owned banks from selling insurance products. However, whether a bank can sell insurance largely depends on the type of bank and the agency that regulates it. As the U.S. Office of the General Accountant noted in a 1990 report, by the late 1980s, many states allowed state-chartered banks to sell most types of insurance, and “in towns and cities with a population of less than 6,000, bank holding companies, Bank Negara and some state-owned banks can sell all types of insurance.”

In 1999, the federal Gramm-Leach-Bliley Act removed most of the remaining restrictions on the sale of insurance products by U.S. banks, while continuing to allow states to regulate other aspects of insurance.

Bancassurance growth

The bancassurance market is growing globally, especially in life insurance, especially in the Asia Pacific region. The global bancassurance market is worth $1.268 trillion in 2021, according to research and consulting firm IMARC Group. IMARC expects the market to continue to grow at a compound annual growth rate (CAGR) of 5.9%, reaching a value of $1.802 trillion by 2027. One major factor driving this trend is the growing “demand for health and life insurance and The need for retirement planning is greater for the elderly population.”

Advantages and disadvantages of bancassurance

From a consumer perspective, bancassurance has both advantages and disadvantages. On the plus side, buying insurance at a bank is convenient. This is especially true in smaller towns where insurance agents may be scarce, and while insurance is now widely available online, this is less of a problem. The convenience may also encourage more Americans who need life insurance to buy some life insurance.

On the downside, the convenience of buying at a bank can deter consumers from shopping around and getting competitive insurance prices. There are also questions about how qualified bank staff can advise clients on their insurance needs compared to insurance agents and brokers who specialize in this area.

There appears to be little downside for a bank dabbling in bancassurance, but it could pose a risk to its reputation if an insurance product sold by its employees proves to be unsuitable or unsuitable for consumers.

When did bancassurance start?

Bancassurance as we know it today seems to have started in France in the 1970s (that’s the reason for its seemingly French name). Spain was also an early adopter in the 1980s. Both countries continue to be the bancassurance market share leaders.

Who regulates bancassurance in the US?

Generally, in the United States, states continue to regulate insurance products and sales practices, and license insurance salespeople. However, according to the Office of the Comptroller of the Currency, since the passage of the Gramm-Leach-Bliley Act in 1999, “state laws generally cannot ‘prevent or restrict’ insurance activities carried out by national banks and their subsidiaries”.

What types of insurance do banks sell?

Depending on the country and specific bank, consumers can purchase a variety of insurance policies at local banks, including life, health, property and casualty insurance. However, life insurance is the dominant product in the United States and much of the world. For example, in 2018, about 29% of life insurance globally was sold through bancassurance, while only about 2% of property and casualty insurance was sold through bancassurance, according to McKinsey & Company.

bottom line

Bancassurance is not a kind of insurance, but a sales channel for selling insurance products through banks. It is common in much of the world today and is increasingly accepted in the United States. Bancassurance can be a profitable business for banks and insurance companies. This may be convenient for consumers, although it may discourage comparison shopping and limit their access to expert advice.

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