Combining banks and insurance companies – known as bancassurance – seemed to be an outdated concept. The idea flourished ahead of the 2008 financial crisis with lenders benefitting from selling new products to customers and insurers enjoying a new platform from which to distribute. However, deals involving the likes of ING, Credit Suisse and the Royal Bank of Scotland all fell apart and had a serious impact on the businesses involved.
And so it seemed the concept had been left behind: until now.
In recent years there has been a spate of bancassurance deals in new markets, such as Asia. Back in December, Bajaj Allianz General Insurance struck a deal to sell its products via Canara Bank, one of the largest public sector banks in India (see article); while insurance giants AXA and Allianz are reportedly locked in a battle to secure a distribution deal with Standard Chartered in its Asian branches (see article).
Revitalising the concept in emerging markets makes sense – banks are already established and trusted players there, so for insurers they present a window of opportunity to succeed in an untapped environment.
However, what about the concept re-emerging in Europe?
That appears to be the case with Intesa Sanpaolo’s ongoing pursuit of Assicurazioni Generali, in Italy. A potential 60 billion euro deal would combine the largest insurance firm in Italy with one of the country’s biggest lenders. Indeed Intesa has plenty of right to believe that the deal would be a success given that it already owns a life insurance business.
However, the common sense behind a deal certainly has its doubters with Gordon Aitken, insurance analyst for RBC Capital Markets, telling the Financial Times that “history would tell you that it hasn’t worked. They are fine when times are good, but when extreme events happen it hasn’t worked for one side or the other.”
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There are clear financial motivations for the companies to work together – there are potential capital benefits for banks that own insurance companies under Basel III rules, albeit Intesa does not currently benefit from the rule; and there could be operational benefits if Intesa is able to sell new insurance products from its branches while also capitalising on the firm’s agency network. There are cost cutting benefits too by moving some of the distribution into branches and therefore reducing Generali’s customer acquisition expenditure which the publication reports makes up 75% of its 10.8 billion euro costs.
However, there are concerns too about cross-selling – particularly with customers moving away from using bank branches and preferring to carry out banking via mobile or online devices.
Here in the UK there are few bancassurance deals remaining, with Scottish Widows being part of Lloyds Banking Group as perhaps the most notable. However, overseas they are more common with Credit Agricole and BNP Paribas of France both owning insurance businesses.
The key for bancassurance then, appears to be ensuring the banking model still remains the focus of consumers’ financial needs. Where it does, there may still be reasons to believe it has a future.
What is your opinion on the bancassurance concept? Leave a comment below with your thoughts.
