What Is Bancassurance? Bancassurance is a contract between two companies: an insurance company and a bank which allows the insurance company offers its services to the bank’s clients. This type of partnership can yield profits for both firms.
Banks generate additional revenue through selling insurance products, while insurance companies increase their customer base, without expanding the number of salespeople they have.
Bancassurance contracts are prevalent in Europe and have been around for a long time. European banks, including Credit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France) as well as ING (Netherlands) dominate the global bancassurance market.
The picture isn’t the same across countries. A 2013 study found that, while bancassurance accounted for 83.6 percent of the life insurance sales across Italy, 66.2% in Spain, 64.2% in France, and 62.6 percent in Austria however, its share of the market was less within Eastern Europe and nonexistent in the United Kingdom and Ireland.
It is true that the United States has been slower than many other countries to accept the idea. This is partly due to the issue of whether or not banks within the U.S. should be allowed to offer insurance was a subject of heated discussion for years. There were issues such as unfair competition among insurance brokers as well as the risk of a negative impact on the banking industry, as well as the possibility of banks being able to force customers to purchase insurance in order to be eligible for loans.
Advocates, however, claimed that both insurance companies will benefit from the arrangement. They also said it would also provide an advantage for consumers and that increased competition could result in lower premiums for insurance.
The Bank Holding Company Act of 1956 effectively banned many of the largest national banks from offering insurance products. However, whether a particular bank was able to sell insurance depended heavily on the kind of bank it was and the agency or agencies responsible for the business. According it was noted by the U.S.
General Accounting Office reported in a report 1990 that at the end of the 1980s, a number of states permitted state-chartered banks to sell all kinds of insurance. Additionally “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 federal Gramm-Leach-Bliley Act eliminated most of the restrictions that were still in place for U.S. banks selling insurance products while allowing states to regulate different areas of the insurance industry.
Bancassurance Industry Growth
The market for bancassurance is growing across the globe, especially for life insurance, particularly within the Asia-Pacific region. The consulting and research firm IMARC Group says the global market for bancassurance reached a total of $1.268 trillion by 2021. IMARC anticipates that the market will increase at an annual compound growth rate (CAGR) that is 5.9 percent and reach the value of $1.802 trillion in 2027.
One of the main factors driving the market is a rising “geriatric population that has a higher demand for life and health insurance, as well as retirement plans.
The Advantages and Disadvantages of Bancassurance
From a consumer’s point of view, bank insurance has advantages as well as disadvantages. On the positive side purchasing insurance from the bank is easy. This is especially true for small towns where insurance brokers may be scarce, but it’s less of a problem because insurance is readily accessible on the internet. This convenience could also lead more Americans who require life insurance to purchase it.
On the other hand, it is that the convenience of purchasing from a bank can deter buyers from looking around and getting a good deal for their insurance. There’s also a question about how competent bank employees are to assist customers with their insurance requirements in comparison to insurance agents and brokers who are experts in this industry.
If banks are involved in the field of bancassurance, it appears to be no negative side effects aside from the potential threat to their reputations if the insurance products they offer prove to be unsuitable or not suitable for consumers.
When Did Bancassurance Begin?
Bancassurance, as we have it today, seems to have been introduced within France during the 70s (which could explain its apparent French title). Spain was also among the first to adopt it during the 1980s.
Who Regulates Bancassurance in the United States?
In general, generally speaking, in generally speaking, in the U.S., the individual states are still regulating sales practices and insurance products as well as permitting insurance salespeople to sell their products. But, as of 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?
The country of origin and the specific bank customers can purchase various kinds of insurance from local banks, such as health, life, as well as property-casualty, and insurance. But it is life insurance that’s the most popular product sold in the U.S. and most of the world.
In 2018, for instance, around 29 percent of the world’s life insurance was purchased through bancassurance however, only 2 percent in property and casualty insurance was sold, in the estimation of McKinsey & Company.
The Bottom Line
Bancassurance does not constitute a kind of insurance but rather a channel for selling insurance products to banks. It is a common practice in a lot of the world and becoming more popular across the United States. For both insurance and banks it is a viable business. For consumers, it could be practical, however, it can hinder comparison shopping and restrict their access to advice from experts.