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| Definition and Explanation Bancassurance |
What is Bancassurance?
Bancassurance is a partnership between a bank and an insurance business that allows the insurance company to offer its products to the bank's customers. This collaboration could be beneficial to both companies. Banks make more money by selling insurance products, and insurance companies grow their customer bases without increasing their sales team.
Recognizing Bancassurance
In Europe, where the practice has a long history, bancassurance arrangements are common. The global bancassurance market is dominated by European banks such as Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands).
However, the image differs greatly from country to country. According to a 2013 survey, 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 and was nonexistent in the United Kingdom and Ireland.
The United States has been slower to accept the concept than many other countries. That's partly because the topic of whether banks in the United States should be permitted to offer insurance has been a source of contention for many years. Among the concerns are unfair competition for insurance brokers, potential threats to the banking industry, and the possibility that banks could urge customers to purchase insurance to qualify for loans.
Meanwhile, supporters argued that the agreement would benefit both banks and insurance companies, that it would be a convenience for consumers, and that the increased competition would result in cheaper insurance pricing.
Many large national banks were effectively barred from offering insurance products by the Bank Holding Company Act of 1956. However, whether a bank could offer insurance was largely determined by the sort of bank and the agency or agencies that governed it. According to a 1990 report by the United States General Accounting Office, by the late 1980s, many states permitted state-chartered banks to sell most types of insurance, and "in towns with populations less than 6,000, bank holding companies, national banks, and some state banks can sell all types of insurance."
The federal Gramm-Leach-Bliley Act of 1999 removed the majority of the remaining restrictions on U.S. banks selling insurance products while allowing states to control other parts of insurance.
Bancassurance Business Expansion
The global bancassurance market is expanding, particularly in life insurance and in the Asia-Pacific area. According to the research and consulting firm IMARC Group, the global bancassurance market would be worth $1.268 trillion in 2021. According to IMARC, the market would increase at a compound annual growth rate (CAGR) of 5.9% to $1.802 trillion by 2027. A growing "geriatric population with a larger need for health and life insurance as well as retirement plans" is a major element driving the trend.
The Benefits and Drawbacks of Bancassurance
From the perspective of the consumer, bancassurance has both advantages and downsides. On the plus side, purchasing insurance through a bank is convenient. This is especially true in small towns where insurance agents may be rare, but this is becoming less of an issue now that insurance is commonly available online. This ease of use may also inspire more Americans who need life insurance to purchase it.
On the other side, the simplicity of purchasing insurance at the bank may discourage customers from looking around for the best deal. In addition, there is some debate about how qualified bank personnel is to advise consumers on their insurance needs, as opposed to insurance agents and brokers who specialize in the sector.
There appears to be no downside for banks who enter the bancassurance business, except for the potential harm to their reputation if the insurance products their personnel offer are inadequate or unsuitable for the consumer.
Bancassurance's disadvantages
Following the description of the benefits of bancassurance, the following are some of its drawbacks:
- Despite the fact that bancassurance is an investment product with higher yield potential, it also has larger investment risk.
- The bank does not guarantee the investment return from bancassurance.
- Bancassurance is not permitted in some countries.
- Bancassurance requirements in some nations are extremely stringent.
When Did Bancassurance First Appear?
The modern concept of bancassurance appears to have originated in France in the 1970s (which would account for its seemingly French name). In the 1980s, Spain was also an early adopter.
Both of these countries continue to dominate the bancassurance business.
Who is in charge of banking regulation in the United States?
In general, individual states in the United States continue to regulate insurance goods and sales techniques, as well as license insurance salespeople. According to the Office of the Comptroller of the Currency, since the Gramm-Leach-Bliley Act was passed in 1999, "state laws typically cannot 'prevent or restrict' insurance activities done by national banks and their subsidiaries."
What Kinds of Insurance Are Available at Banks?
Consumers can acquire a range of insurance from their local banks, depending on the country and the specific bank, including life, health, and property and casualty insurance.
However, life insurance is the most popular product in the United States and the rest of the world. According to McKinsey & Company, in 2018, over 29% of global life insurance was sold through bancassurance, whereas just about 2% of property and casualty insurance was.
In conclusion
Bancassurance is a sales channel for selling insurance products through banks, not a sort of insurance. It is widespread in much of the world today and is gaining popularity in the United States. Bancassurance can be a successful business for banks and insurance firms. It can be easy for customers, but it may hinder comparison shopping and limit their access to expert counsel.
Essential Readings
- Bancassurance is a partnership between a bank and an insurance business that allows the insurer to offer its products to bank customers.
- The insurance firm gains more sales and a larger client base without expanding its sales personnel.
- The bank gains from increased revenue from the selling of insurance products.
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