BancassuranceExplained & Defined
What is Bancassurance?
Bancassurance is an agreement between banks and insurance companies whereby banks sell insurance products to their client base.
This practice has allowed both banks and insurance companies to earn more profits with banks having additional revenues and an expanded client base for insurance companies without the need for hiring an additional salesforce.
Understanding Bancassurance
In the United States, the acceptance of the concept surrounding Bancassurance has been slower than in most nations because of the debates on whether or not Banks should be allowed to sell insurance products.
The issues debated are focused on the unfair advantage that banks have in selling insurance products and therefore pose unfair competition for insurance agents, and that some banks would pressure their customers to avail of insurance products to qualify for loans.
There are advocates of bancassurance asserting that the practice of banks selling insurance products will lead to more profits for both banks and insurance companies.
With the added competition in the market, it will become beneficial and convenient for customers because the prices will become more affordable.
However, where the Bancassurance industry faces a lot of issues in the United States, the practice is common in Europe and has, in fact, a long history.
The banks that dominate the industry are Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands), just to name a few.
Bancassurance Industry Growth
According to the IMARC Group, a research and consulting firm, the value of the bancassurance market has grown in 2021 to $1.268 trillion and their experts claim that the growth will continue at a CAGR (Compound Annual Growth Rate) of 5.9% and achieve a value of $1.802 trillion by the year 2027.
In the Asia-Pacific region alone, the market has grown particularly because of the life insurance product.
The Advantages and Disadvantages of Bancassurance
There are advantages and disadvantages of bancassurance.
For customers, especially those who are living in small towns, having access to insurance products through banks is very convenient when there are only limited insurance agents in the area.
However, this convenience may also lead to people not finding insurance products with competitive prices and settling for the one that is readily available.
Another downside is the fact that bank staff is not as well-versed in the benefits that the product offers compared to insurance agents.
From the bank’s perspective, there is only a small disadvantage: a risk in their reputation should the insurance product not be compatible with the needs of their customers and end up being inadequate.
When Did Bancassurance Begin?
Bancassurance is dominated by two countries: France and Spain.
The Bancassurance industry first started in France in the 1970s and then Spain also started in the 1980s.
Who Regulates Bancassurance in the United States?
The state regulates the selling of insurance products including providing licenses to the salespeople.
However, since the Gramm-Leach-Bliley Act in 1999 has been passed, the state laws will not be able to restrict or prevent national banks and their subsidiaries to conduct insurance activities.
What Types of Insurance Are Sold at Banks?
The insurance products available at banks can vary depending on the country and the bank itself.
But some of the products offered include life, health, property, and casualty insurance.
Globally, life insurance is the most sold product. In the year 2018, life insurance products sold globally were at 28% as opposed to property and casualty insurance which was only at 2%, according to McKinsey and Company.
The Bottom Line
Bancassurance is merely an agreement banks have with insurance companies to sell insurance products and not an insurance product.
It allows both banks and insurance companies to increase their profits and at the same time, customers can conveniently purchase insurance products.
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Penn State "Does Bancassurance Add Value to Banks? - Evidence from Mergers and Acquisitions between European Banks and Insurance Companies " White paper. April 19, 2022
UNC School of Law "What Will It Take for Bank Insurance to Succeed in the United States" White paper. April 19, 2022