Bancassurance
Term bancassurance originates from the France. In a broad meaning it is used to describe the connection between the bank and the insurance company. As a result of such connection the bank and insurance company groups appear. Bancassurance is a situation in which the insurance products are being sold by a bank, by the same channel as a traditional bank's products.
Bancassurance can have many positive effects on the bank. First of all, it can be a new and very successful source of the capital. Then, the risk of selling products is divided between the bank and the insurance company. Finally, the image of the bank can be improved by creating the vision of the innovative, competitive and client-oriented bank.
Types of connection between the bank and the insurance company
There can be many different types of connection between the bank and the insurance company as below:
- bank as the owner of the insurance company - particular bank owns majority stock in the insurance company (could be achieved by the merger or acquisition),
- joint venture,
- bank is creating its own insurance company (bank's subsidiary),
- cross-selling - bank is selling insurance products together with the traditional bank's products within one package,
- cooperation agreement.
Popular products
The most popular products offered in the bancassurance are:
- financial advisory connected with the insurance products,
- life assurance,
- pension insurance,
- property insurance,
- credit card insurance,
- factoring transaction insurance,
- leasing transaction insurance,
- credit insurance.
See also:
Examples of Bancassurance
- Bancassurance is often seen in the form of a bank offering life insurance and other insurance products to its customers. For example, in the U.S., Bank of America offers a suite of life insurance products such as term life insurance, whole life insurance and universal life insurance.
- Bancassurance may also be seen in the form of a bank offering health insurance, such as in the U.K., where Lloyds Banking Group offers a range of health insurance products.
- Bancassurance can also take the form of a bank offering annuities and other retirement products to its customers. In the U.S., Wells Fargo offers a range of annuities, including fixed, indexed and variable annuities.
- In some cases, bancassurance can take the form of a bank offering property and casualty insurance products to its customers. In the U.S., JPMorgan Chase offers a range of property and casualty insurance products, such as auto insurance, homeowners insurance and renters insurance.
- In some cases, bancassurance can also take the form of a bank offering credit protection products to its customers. In the U.S., Citibank offers a range of credit protection products, such as credit card insurance, identity theft protection and purchase protection.
Advantages of Bancassurance
Bancassurance offers a range of advantages to both customers and businesses. These include:
- Increased convenience for customers, as they can purchase both banking and insurance products from the same provider.
- Reduced costs for businesses, as they are able to offer a broader range of services from one provider.
- Reduced risk for businesses, as bancassurance allows them to diversify their portfolio and spread risk across different sectors.
- Improved customer service, as customers can speak to a single provider for advice on both banking and insurance products.
- Increased profitability for businesses, as bancassurance allows them to increase their customer base by marketing to both banking and insurance customers.
- Enhanced customer loyalty, as customers are more likely to remain with a single provider if they are able to purchase multiple services from the same source.
Limitations of Bancassurance
Bancassurance has some limitations that need to be taken into consideration. These include:
- Insufficient knowledge of the insurance products by bank staff: Often the bank staff lack the knowledge and expertise required to answer customers’ questions regarding the insurance products and services.
- Potential conflicts of interest: Bancassurance can present a conflict of interest between the bank and the insurance company, since both parties have different goals and objectives.
- Potential mis-selling: Banks may face pressure to sell insurance products and services to customers, which could lead to mis-selling.
- Increased complexity: In order to ensure a successful implementation of bancassurance, banks need to put a considerable amount of effort in the technical, operational and organizational aspects. This can lead to additional complexity, cost and time.
- Regulatory restrictions: Banks are subject to a range of regulations, including those related to consumer protection, capital adequacy, market conduct and anti-money laundering. These regulations need to be taken into account when offering insurance products.
Bancassurance is not only limited to the connection between banks and insurance companies, but it is also used to describe other related approaches. These include:
- Bancassurance partnerships, in which the bank and insurance company agree to collaborate and form an alliance that mutually benefits both by providing access to a larger range of services.
- Bancassurance platforms, which allow customers to purchase and manage their insurance policies online.
- Bancassurance intermediaries, which are independent agencies that offer insurance products in collaboration with banks.
In summary, bancassurance is a broad term that encompasses a variety of different approaches to the relationship between banks and insurance companies, including partnerships, platforms, and intermediaries.
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References
- Benoist, G. (2002). Bancassurance: The new challenges. The Geneva Papers on Risk and Insurance. Issues and Practice, 27(3), 295-303.
- Davis, S. I. (2007). Bancassurance: the lessons of global experience in banking and insurance collaboration. VRL KnowledgeBank.
- Flur, D. K., Huston, D., & Lowie, L. Y. (1997). Bancassurance. The McKinsey Quarterly, (3), 126-133.
- Paige Fields, L., Fraser, D. R., & Kolari, J. W. (2007). Is bancassurance a viable model for financial firms?. Journal of Risk and Insurance, 74(4), 777-794.
Author: Aleksandra Nowak
