Bancassurance: What Is It?

A bank and insurance business can offer their goods to the bank’s customer base through a partnership known as bancassurance. Both businesses stand to gain financially from this cooperation. Insurance goods bring in more money for banks, and insurance businesses grow their clientele without adding more salespeople.

Comprehending Bancassurance

Bancassurance agreements are widespread and have a long history in Europe. European banks like ING (Netherlands), BNP Paribas (France), ABN AMRO (Netherlands), and Crédit Agricole (France) dominate the global bancassurance industry.

However, the situation differs significantly across nations. In Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria, bancassurance accounted for 83.6% of life insurance sales, according to 2013 research. However, its market share was lower in Eastern Europe and nonexistent in the U.K. and Ireland.

Compared to many other countries, the United States has been slower to adopt the idea. That’s partly because the issue of whether American banks should be permitted to offer insurance has generated heated discussion for a long time. Among the concerns are unfair competition for insurance brokers, potential threats to the banking industry, and the possibility of banks pressuring clients to purchase insurance to be eligible for credit.

On the other hand, proponents contended that the arrangement would benefit banks and insurance firms alike, that it would also be convenient for customers, and that more competition may result in cheaper insurance costs.

Central national banks were barred from offering insurance products under the Bank Holding Company Act 1956. However, the bank type and the organization or agencies that oversaw it largely determined its ability to offer insurance. By the late 1980s, several states had permitted state-chartered banks to offer the majority of insurance products; as the U.S. General Accounting Office observed in a 1990 study, “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 most prohibitions on American banks providing insurance products. Still, it left the states free to regulate other areas of the insurance industry.

Growth of the Bancassurance Industry

Globally, the bancassurance industry is expanding, notably in Asia-Pacific, particularly life insurance. Research and consulting company IMARC Group estimates the worldwide bancassurance industry to have achieved a valuation of $1.268 trillion in 2021. According to IMARC, the market will expand at a compound annual growth rate (CAGR) of 5.9% until it reaches a valuation of $1.802 trillion in 2027. An increasing “geriatric population with a greater need for health and life insurance as well as retirement plans” is one of the main factors driving the trend.

The Benefits and Drawbacks of Guaranteed

From the customer’s perspective, bancassurance has benefits and drawbacks. The convenience of purchasing insurance at the bank is a benefit. This is especially true—though less so now that insurance is readily available online—in small communities where insurance brokers may be hard to come by. The ease of use might lead to an increase in Americans purchasing life insurance.

On the downside, customers can be deterred from searching for and finding a competitive price on insurance by the convenience of purchasing through the bank. Another area of debate is the degree to which bank staff members are qualified to counsel clients on their insurance requirements compared to insurance agents and brokers who focus on this area.

Apart from the potential reputational risk if the insurance products their staff offer are insufficient or inappropriate for the customer, there doesn’t seem to be much of a drawback for banks that engage in bancassurance.

When was the start of bancassurance?

The origins of bancassurance as we know it now seem to date back to France in the 1970s, which explains why its name seems so French. In the 1980s, Spain was another early adopter.

Those two nations still have the most significant market shares for bancassurance.

In the U.S., who is in charge of banking regulation?

State-level laws governing insurance products, sales techniques, and insurance salesperson licensing still apply in the United States. However, according to the Office of the Comptroller of the Currency, “state laws generally cannot ‘prevent or restrict’ insurance activities conducted by national banks and their subsidiaries” since the 1999 adoption of the Gramm-Leach-Bliley Act.

Which insurance types do banks offer?

Depending on the nation and the specific bank, customers can purchase a wide range of insurance from their local banks, including life, health, property, and liability insurance. Still, life insurance dominates the market in the United States and much of the world. For instance, according to McKinsey & Company, only around 2% of property and liability insurance was sold through bancassurance in 2018, compared to roughly 29% of life insurance globally.

Bancassurance is a sales channel banks use to market insurance products; it is not an insurance category. It is widespread worldwide and becoming increasingly accepted in the U.S. Bancassurance may be a lucrative business for banks and insurance providers. Although it can impede comparative shopping and restrict customers’ access to professional counsel, it might be handy for consumers.

Conclusion

• An agreement known as “bancassurance” allows an insurance provider to provide its products to bank clients through a bank.
• The insurance provider gains from higher revenue and a more extensive customer base without hiring more salespeople.
• The bank gains from selling insurance products, which generates additional revenue.