Bancassurance: emerging trends, opportunities and challenges
18 October 2007, Zurich
According to a recent sigma study, bancassurance is on the rise, particularly in emerging markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a foothold in markets with low insurance penetration and a limited variety of distribution channels.
Bancassurance, the provision of insurance services by banks, is an established and growing channel for insurance distribution, though its penetration varies across different markets. Europe has the highest bancassurance penetration rate. In contrast, penetration is lower in North America, partly reflecting regulatory restrictions. In Asia, however, bancassurance is gaining in popularity, particularly in China, where restrictions have been eased. The research shows that social and cultural factors, as well as regulatory considerations and product complexity, play a significant role in determining how successful bancassurance is in a particular market.
The outlook for bancassurance remains positive. While development in individual markets will continue to depend heavily on each country's regulatory and business environment, bancassurers could profit from the tendency of governments to privatise health care and pension liabilities. In emerging markets, new entrants have successfully employed bancassurance to compete with incumbent companies. Given the current relatively low bancassurance penetration in emerging markets, bancassurance will likely see further significant development in the coming years.
Though bancassurance has traditionally targeted the mass market, bancassurers have begun to finely segment the market, which has resulted in tailor-made products for each segment. The quest for additional growth and the desire to market to specific client segments has in turn led some bancassurers to shift away from using a standardised, single channel sales approach to adopting a multiple channel distribution strategy (See table 1). Some bancassurers are also beginning to focus exclusively on distribution.
In some markets, face-to-face contact is preferred, which tends to favour bancassurance development. Nevertheless, banks are starting to embrace direct marketing and Internet banking as tools to distribute insurance products. New and emerging channels are becoming increasingly competitive, due to the tangible cost benefits embedded in product pricing or through the appeal of convenience and innovation.
Finally, the marketing of more complex products has also gained ground in some countries, alongside a more dedicated focus on niche client segments and the distribution of non-life products. The drive for product diversification arises as bancassurers realise that over-reliance on certain products may lead to undue volatility in business income. Nevertheless, bancassurers have shown a willingness to expand their product range to include products beyond those related to bank products.
These developments are expected to challenge traditional bancassurers in the following ways:
- The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own.
- Increasing sales of non-life products, to the extent those risks are retained by the banks, require sophisticated products and risk management.
- The sale of non-life products should be weighted against the higher cost of servicing those policies.
- Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims.
Notes to editors
Swiss Re is the world's leading and most diversified global reinsurer The company operates through offices in over 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable the risk-taking essential to enterprise and progress. The company's traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated "AA-" by Standard, Poor's, "Aa2" by Moody's and "A+" by A.M. Best.