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March 27, 2013updated 13 Apr 2017 8:40am

Bancassurance: key to market growth

Banks are increasingly expanding their offering to include insurance products. A new Timetric report, available on the Insurance Intelligence Centre, looks at how bancassurance differs in regions around the world and what we can expect from this market in years ahead.

By Verdict Staff

Global Snapshot

In the consolidating world of financial services, the concept of bancassurance has taken a central role in the strategy of a growing number of financial institutions. Insurance products distributed through the banking channel have become a natural choice for mass-market clients looking for simple and low-cost products available from a trusted financial institution.

Globally, bancassurance has emerged as an important insurance distribution channel that has not only allowed insurance companies to expand their geographical presence but also enabled banks to expand their overall product portfolio. In the Americas, bancassurance accounts for a 60% market share whereas in Europe and the Asia Pacific it accounts for 87% and 47%, respectively.

In the Americas, Mexico and Brazil have the largest bancassurance market share owing to the strategic role played by banks in the initiation of pension reforms and the creation of pension funds. Other markets such as Chile, United States and Canada are dominated by traditional distribution channels such as agencies and brokers.

In Europe, Portugal and Spain are the largest markets in terms of market share for bancassurance. In most other markets such as Turkey, France and Italy, bancassurance is the prime channel of distribution, accounting for over 50% of all distribution channels. In these markets, bancassurance dates back to the late 1970s and banks are fully equipped and experienced to sell insurance products. The demand for alternative investment options and the reduction of social security spending by governments as part of fiscal consolidation is expected to foster bancassurance growth in Europe over the next five years.

In the Asia-Pacific region, bancassurance is still an emerging distribution channel. Most markets are dominated by traditional distribution channels such as agencies and direct marketing. South Korea however has the largest market share, with bancassurance accounting for 47% of all distribution channels. The growth of bancassurance in the Asia Pacific region is fostered by numerous factors such as the presence of foreign insurance players, availability of capital and demand for unsophisticated savings-oriented insurance policies.

Bancassurance business ventures driven by a number of factors

Bancassurance business drivers differ among geographical regions. The key business drivers in the Americas are high levels of bank penetration, the presence of large foreign players, the brand equity of banks, savings in the economy, financial de-regulation, tax advantages and domestic credit availability. In Europe, bancassurance is driven by the growth of relationship banking, a favourable tax structure, a general decline in interest rates and the reduction in social security expenditure undertaken by governments. Declining interest rates and the entry of foreign insurance players are expected to drive bancassurance business in Asia-Pacific. Wealthy customer segments and an ageing population are the major consumer drivers, whereas customer service facilities, the automation of sales, training of bank staff by insurance personnel and efficient Customer Relationship Management (CRM) IT systems are the bancassurances main infrastructure drivers.

The value of commissions earned through bancassurance is expected to grow at a CAGR of 5.3% globally. The key markets with high growth prospects include India, Singapore, Turkey, China and Chile, which are expected to record CAGRs of 21.6%, 17.9%, 16.7%, 16.0% and 12.7% respectively from 2008 to 2017. In Asia-Pacific, growth will be fostered by the entry of large foreign insurance players and a favourable macro-economic environment. In Turkey, the business is expected to grow owing to the growing demand for pension products in the country.

In terms of compliance, the changes to the regulatory landscape that will be brought about by the Solvency II and Basel III frameworks are expected to result in the reconstitution of bancassurance business ventures. The impact of Solvency II on banks will differ with the extent and type of their bancassurance businesses. For banks that offer a smaller portfolio of products such as simple life protection and non-life insurance products, Solvency II may create a greater disadvantage. This is because these banks may be less equipped to reap the benefits of risk diversification while computing their capital than banks with broader product portfolios.

Insurance subsidiaries will also be limited by Solvency II as they will be required to realign their corporate structure in accordance with new stricter norms. Under the Solvency II regime, insurers under a banking group will be required to assure compliance on an individual basis. This includes adhering to the capital requirement and capital tiering framework. The impact of the regime is expected to be more adverse for products which involve guaranteeing, such as fixed annuities. In other businesses such as life protection, Solvency II is expected to have a positive impact. Capital requirements under Solvency II will also be directly impacted by the reinsurance and risk mitigation strategies adopted by companies.

Similarly, the Basel III capital adequacy standards are expected to redefine the industry structure of all bancassurance ventures, especially those in Europe. Under the Basel III regime, banks will be required to hold a substantial amount of Tier I capital. The new standards may pose a greater challenge for banks with insurance subsidiaries, as the capital requirements and book value of investments of the subsidiary will be deducted from Tier I capital. Bancassurance ventures in countries where the deduction is taken from total capital rather than Tier I capital will also experience a greater impact if they hold business subsidiaries.

In addition, the extent of deductions from overall capital will correspondingly reduce the amount of capital required for other businesses managed by the banks. This is expected to prompt banks to reassess their bancassurance ventures. Some banks will be prompted to divest their operations owing to the high cost of meeting capital adequacy requirements; for example the Spanish Santander group has divested its operations in South America and redeployed the capital saved through divesting. Banking groups such as Lloyds TSB and Barclays also have revealed their intention to divest their bancassurance business.

The Americas

Bancassurance has seen rapid development in the Americas during the last five years, mainly driven by deregulation in many key markets. It has risen in importance since its introduction to become a significant distribution channel. The main business model has also diversified from simple distribution agreements to joint ventures and integrated financial services provisions. Countries such as Brazil, Mexico and Chile witnessed the highest growth in the value of commission earned through bancassurance while countries such as the US and Canada recorded moderate growth, due to the high level of maturity of their bancassurance markets.

In the US, banks have not historically played a large role in the insurance sector, but the success of bancassurance in Europe gave added impetus to the long-awaited deregulation of the US financial structure in 1999 through the passage of the Gramm-Leach-Bliley (GLB) legislation. Until then, the Glass Steagall Act had blocked most ownership ties between banks, insurers and securities firms, as well as the sale of most insurance products through bank channels.

During the 1990s, however, banks gradually won the right first to sell, and later to underwrite, annuities and life insurance. On the other hand, the banks strategic focus has traditionally been on selling investment products such as mutual funds and annuities. The passing of the GLB landmark legislation transformed the banking and insurance landscapes. Many consultant studies were published which gave an opinion on the right combination of mergers and alliances, along the lines of those established in Europe.

The passage of the GLB legislation coincided with the merger between two leaders in their respective sectors – Citigroup and Travelers. Sandy Weill, who had a track record of success in both the insurance and banking sectors, ultimately took over the CEO slot.

A decade after the GLB legislation was passed, the view on bancassurance is a muted one. On the one hand, M&A activity has been significant – but not in the form predicted by the experts. By 2004, banks owned 25% of the top 40 insurance brokers, with BB & T in North Carolina alone having acquired 56 of them. A total of 1,395 bank holding companies, including industry leaders such as Citibank and Wells Fargo, now sell insurance.

On the other hand, the banks current estimated life insurance market share is a modest 2%, in contrast to the 10-20% predicted by leading consulting firms. Insurance accounts for only 6.8% of the non-interest income of US banks that sell insurance and growth is tapering off.

Interestingly, the dominant product sold by US bancassurers is annuities. In the US, this is a tax-advantaged investment instrument that is not dissimilar to the classic European product sold successfully in France and similar markets, and is therefore well suited to marketing by a generalist banks sales force.


The bancassurance model in Europe originated in the mid-1980s in France. Bancassurance accounts for over a quarter of the life insurance segment and nearly 5-10% of the non-life insurance segment in the majority of European countries, except the UK where agencies and other distribution channels are better positioned to distribute life and non-life insurance products.

The markets with highest growth prospects in the life insurance segment are Poland and Turkey, which are expected to post CAGRs of 15.2% and 14.7% respectively during the forecast period. The main drivers of these markets are investment related life insurance products and retirement savings product. France, Italy and Spain are more mature markets. Bancassurance growth in these markets is also driven by investment related life insurance products. These served as an alternative to bank savings, which are less remunerative owing to a general decline in interest rates in the European region.

Bancassurance is expected to see positive growth prospects in Eurozone countries were social security spending is on the decline. Reduction of social security spending is expected to trigger a huge demand for private insurance, which can be well met by bancassurance ventures.

Northern European markets such as the UK and Germany have seen a rather slow development of bancassurance, mainly as a result of the unattractiveness of product offerings, which are not combined with banking products as they are in mature markets such as France, Portugal and Spain, and banks lack of full scale involvement in selling insurance products. In both Germany and the UK, bancassurance products are sold by non-bank personnel.

Asia Pacific

Bancassurance is an important distribution channel for insurance products in most Asia-Pacific countries considered. The largest market in terms of bancassurance development was South Korea. The bancassurance channel accounted for 47% of gross written premiums in the life insurance segment and 7% in the non-life segment in 2012. The growth of bancassurance in the country is favoured by the demand for savings oriented insurance policies and the prevalence of low interest rates, which has freed up a significant amount of capital in the economy.

Although the share of gross written premiums generated through bancassurance was higher in the life insurance segment, the demand for property insurance and other non-life insurance products is expected to offer significant scope for raising the share of bancassurance in the non-life insurance segment over the forecast period.

The second largest market in Asia-Pacific in terms of bancassurance development is China. In 2012, the bancassurance channel accounted for 43.6% of gross written life insurance premiums and 24.3% of gross written non-life insurance premiums in the country. The large networks of commercial bank branches and post offices which cater to huge client bases have significantly contributed to the growth of bancassurance as a distribution channel. Bancassurance is now the most widely used channel for the distribution of life insurance products. The ample availability of capital and demand for unsophisticated savings-oriented insurance policies also contributed to the growth of bancassurance in the country.

Bancassurance plays a significant role in both the life and non-life insurance segments in Japan. The bancassurance channel accounted for 27% of gross written life insurance premiums and 9.7% of gross written non-life insurance premiums in the country in 2012. The bancassurance market was driven primarily by the demand for personal annuity and personal life insurance products. The deregulation of the bancassurance market in 2008 has also contributed to the positive growth of the business during the review period. The inflow of new technologies and attempts to automate the sales cycle is expected to significantly reduce cost and improve the prospects of bancassurance business during the forecast period.

Finally, Bancassurance has emerged as a key platform for the distribution of insurance products in India. The channel accounted for 10.5% of gross written life insurance premiums and 11.5% of gross written non-life insurance premiums in the country in 2012. India is one of the most vibrant markets in terms of the emergence of bancassurance. Growth is aided by the presence of a large number of commercial banking networks. In 2011, nearly 93% of life insurance companies in the country used bancassurance as an important channel for the distribution of insurance products. Besides life insurance products, there is a high demand for health, endowment and pension products. Private insurers, who are actively seeking to expand their market share, have also significantly contributed to the development of bancassurance in India, by forging new partnerships with banks that have large client bases.

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