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Bancassurance — the sale of retail insurance products to a commercial bank-s client base — has evolved different models since its origins in the European Union (EU) in the mid-1980s. The different models drive profitability, product design and operational challenges. The classic European model is an integrated one, with common ownership or some form of exclusive commitment between the insurance provider and bank distributor.
In the US, despite early indications that bancassurance might achieve market penetration levels in life insurance comparable to the one-third share it has in Europe, US banks have struggled to achieve a market share of 2% and essentially offer a range of third-party insurance products to provide choice to their clients. In contrast, in the booming markets of Asia-Pacific and Latin America, the market shares of the bank channel are rapidly approaching European levels. In Latin America, the demand for pension products and simple savings oriented life insurance products are the main drivers, whereas in Asia-Pacific, growth is fostered by life insurance, protection, endowment, health and pension products.
The recent financial crisis of 2007-9 has had a traumatic impact on global bancassurance. Sales of life and other long-term investment products have collapsed as banks prioritize deposits to replenish their liquidity, and clients flee the equity market in favor of liquidity and cash. Lower sales of non-life products reflect reduced volumes of consumer loans as clients deleverage.
Bancassurance business drivers differ between 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 favorable tax structure, a general decline in interest rates and the reduction in social security expenditure undertaken by governments.
The value of commissions earned through bancassurance is expected to grow at a CAGR of 5.29% globally. The key markets with high growth prospects include India, Singapore, Turkey, China and Chile, which are expected to record CAGRs of 21.62%, 17.86%, 16.71%, 15.98% and 12.71% respectively from 2008 to 2017. In Asia-Pacific, growth will be fostered by the entry of large foreign insurance players and a favorable macro-economic environment. In Turkey, the business is expected to grow owing to the growing demand for pension products in the country.
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