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What Is Bancassurance?
Bancassurance is an arrangement between a bank and an insurance company by which the bank makes the insurance company’s products available to its own customer base. Bancassurance is beneficial for both parties because the bank earns revenue through the sale of insurance products and the insurance company broadens its sales potential without investing additional money in its salesforce. Customers can benefit as well, as they can choose to buy important and useful financial products conveniently at their bank. In the U.S., regulatory changes in 1999 removed barriers to this relationship, allowing banks to sell insurance products. Bancassurance is most prominent in Europe and the Asia-Pacific region.
Key Takeaways
- Global Bancassurance Growth: The bancassurance market is expanding globally, with a significant presence in Europe and the Asia-Pacific region, and is projected to grow from $1.268 trillion in 2021 to $1.802 trillion by 2027.
- Historical Context and Regulation: Bancassurance began in France in the 1970s, with Spain as an early adopter. In the U.S., regulatory changes in 1999 removed many barriers, allowing banks to sell insurance products, though regulation largely remains state-controlled.
- Consumer Advantages and Disadvantages: While bancassurance offers convenience, particularly in areas with limited access to insurance agents, it may also lead to less competitive pricing and limited advice compared to specialized insurance agents.
- Predominance of Life Insurance: Life insurance dominates bancassurance sales globally, accounting for 29% of life insurance distribution through banks in 2018, with property and casualty products lagging behind.
- Bank and Insurance Company Benefits: Bancassurance allows banks to earn additional revenue and insurance companies to expand their customer base without increasing their sales force, benefiting both parties financially.
Exploring Bancassurance Market Dynamics
Bancassurance is common in Europe, which has a long-standing history with the practice. Major European banks like Crédit Agricole, ABN AMRO, BNP Paribas, and ING lead the global market.
However, market shares vary widely. In 2013, bancassurance made up 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria. It had lower shares in Eastern Europe and was nonexistent in the UK and Ireland.
The United States has been slower than many nations to embrace the concept. In part, that’s because the question of whether banks in the U.S. should be allowed to sell insurance was a matter of contentious debate for many years. Issues included unfair competition for insurance agents, risks to banks, and pressure on customers to buy insurance for loans.
Advocates, meanwhile, maintained that both banks and insurance companies would profit from the arrangement, that it would also be a convenience for consumers, and that the added competition might lead to lower insurance prices.
The Bank Holding Company Act of 1956 effectively prohibited many large national banks from selling insurance products. Whether a bank could sell insurance depended on its type and which agencies regulated it. As the U.S. General Accounting Office noted in a 1990 report, by the late 1980s, many states allowed 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.”
In 1999, the Gramm-Leach-Bliley Act removed most federal limits on banks selling insurance but let states regulate other insurance aspects.
Global Growth Trends in Bancassurance
The global bancassurance market is growing, especially for life insurance, with a strong focus in the Asia-Pacific region. The research and consulting firm IMARC Group says the global bancassurance market reached a value of $1.268 trillion in 2021. IMARC expects the market to continue to grow at a compound annual growth rate (CAGR) of 5.9% and attain a value of $1.802 trillion by 2027. A major trend driver is the growing population of older individuals, who need more health and life insurance and retirement plans.
Pros and Cons for Consumers in Bancassurance
From a consumer point of view, bancassurance offers both advantages and disadvantages. On the plus side, buying insurance at the bank is convenient. That’s especially true in small towns where insurance agents may be scarce, although less so now that insurance is widely available online. That convenience may also encourage more Americans who need life insurance to buy some.
On the negative side, the ease of buying at the bank may discourage consumers from shopping around and getting a competitive price on their insurance. There is also some question as to how qualified bank employees are to advise customers on their insurance needs, compared with insurance agents and brokers who specialize in the field.
For banks that become involved in bancassurance, there appears to be little downside, except the possible risk to their reputation if the insurance products their employees sell prove inadequate or unsuitable for the consumer.
When Did Bancassurance Begin?
Bancassurance as we know it today appears to have begun in France in the 1970s (which would account for its seemingly French name). Spain was also an early adopter, in the 1980s. Both of those countries continue to be bancassurance market share leaders.
Who Regulates Bancassurance in the United States?
Generally speaking, in the U.S., the individual states continue to regulate insurance products and sales practices as well as to license insurance salespeople. However, since the passage of the Gramm-Leach-Bliley Act in 1999, “state laws generally cannot ‘prevent or restrict’ insurance activities conducted by national banks and their subsidiaries,” according to the Office of the Comptroller of the Currency.
What Types of Insurance Are Sold at Banks?
Depending on the country and the particular bank, consumers can buy a wide variety of insurance at their local banks, including life, health, and property and casualty insurance. However, life insurance is the dominant product in the U.S. and most of the world. In 2018, for example, about 29% of life insurance globally was sold through bancassurance, while only about 2% of property and casualty insurance was, according to McKinsey & Company.
The Bottom Line
Bancassurance is an arrangement between a bank and an insurance company whereby the bank offers insurance products directly to their customers. It’s become accepted globally and is particularly prominent in Europe and the Asia-Pacific region. For banks and insurance companies, bancassurance can be a profitable enterprise, as banks generate additional revenue from insurance product sales and insurance companies enhance their sales reach (and potential revenue) without having to increase their own sales forces. For consumers, shopping for insurance at their banks can be convenient, although it may discourage competitive pricing, comparison shopping, and limit their access to expert advice.
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