The Fundamentals of Bancassurance

Bancassurance is the delivery of insurance and banking products and services through a financial institution, typically a bank. Bancassurance allows banks to offer their customers a one-stop-shop for all their financial needs and can be a profitable way for banks to diversify their product offerings.

Typically, an insurance company and the bank form a partnership in which the bank sells the insurance products and receives a commission for doing so. The insurance company benefits from the partnership by being able to reach a larger customer base than it would otherwise. In a nutshell, it is a strategic alliance between a bank and an insurance company to sell insurance products to the bank’s customers.

Bancassurance can be traced back to the late 19th century when banks in Europe began offering life insurance products to their customers. In the early 21st century, bancassurance has become a popular way for banks to offer insurance products, particularly in countries like India, China, and Indonesia where the insurance sector is growing rapidly.

Let’s see a bancassurance example to help you understand how it works.

Tom is a customer of XYZ Bank. He has a savings account and a credit card with the bank. One day, Tom goes into his local XYZ Bank branch to withdraw some cash from his savings account. While he is there, the bank teller asks Tom if he is interested in investing in a life insurance policy. Tom is not familiar with life insurance and is hesitant to buy a policy. However, the bank teller tells Tom that he can get a free life insurance policy if he upgrades his savings account with the bank. Tom is interested and buys the policy on the spot. Tom has just experienced bancassurance in action!

In this example, XYZ Bank partnered with an insurance company to offer life insurance products to its customers. The bank was able to sell the policy and earn a commission, while the insurance company was able to reach a new customer.

A win-win-win relationship. 

There are many advantages of bancassurance for both banks, insurance companies, and their customers.

For Banks:

• It is a source of additional revenue as banks earn a commission from selling insurance products.
• It helps banks to build deeper relationships with their customers.
• Banks can use bancassurance to cross-sell other products and services to their customers.
• Customers are less likely to leave if they have all their financial needs met in one place.

For Insurance Companies: 

• It is a cost-effective way to reach new customers as insurance companies do not have to set up their branches or hire their own sales staff.
• It helps insurance companies to build brand awareness and loyalty.
• They learn more about their customers through the data that banks have on customers.

For Customers: 

• Customers can conveniently purchase insurance products from their banks.
• Customers can get expert advice from bank staff who are familiar with the customer’s financial situation.
• Customers may get discounts or rewards for purchasing insurance products through their bank.

The state of bancassurance.

Bancassurance is quite popular throughout Europe and Asia. Not so much in the United States. In Europe, bancassurance has been popular for many years and the market is well-developed. France is the largest bancassurance market in Europe, followed by Italy, Spain, and the Netherlands. Currently, bancassurance accounts for more than 50% of all insurance sales.

In Asia, bancassurance is a relatively new concept but it is growing quickly. The insurance markets in Asia are underdeveloped and there is a lot of growth potential. In countries like India, China, and Indonesia, the insurance sector is growing rapidly and bancassurance is becoming a popular way for banks to offer insurance products.

In the US, the bancassurance market is still in its early stages. Currently, only a few banks offer insurance products and the product selection is quite limited.

The global bancassurance market is expected to grow at a compound annual growth rate (CAGR) of 9.8 % from 2018 to 2025, reaching a market size of $1,200 billion by 2025.
The Asia-Pacific region is expected to be the fastest-growing market, with a CAGR of 14.2 % from 2018 to 2025.
The bancassurance market in the United States is expected to grow at a CAGR of 9.4 % from 2018 to 2025, reaching a market size of $55 billion by 2025.

The challenges.

Although bancassurance has many advantages, some challenges need to be considered. The most important challenge is the regulation of bancassurance. In many countries, there are strict regulations on how banks and insurance companies can partner with each other. These regulations can vary from country to country and make it difficult for banks and insurance companies to do business together.

Another challenge is the different cultures of banks and insurance companies. Banks are typically risk-averse while insurance companies are more aggressive. This can make it difficult to find common ground and create a successful partnership.

Finally, bancassurance can be a complex and expensive business model to set up and maintain. Banks and insurance companies need to make a significant investment in technology, staff training, and marketing.

Also Read: How to Avoid the 8 Pitfalls of Bancassurance

Types Of Bancassurance Business Model.

The bancassurance business model can be divided into two main types:

The captive model:

In this model, the bank and insurance company are part of the same group. The bank sells the insurance products of the insurance company. For instance, HSBC sells the insurance products of HSBC Insurance. The advantages of this model are that the bank has a deep understanding of insurance products and can offer a wide range of products to its customers. However, this model has its limitations. It can be inflexible and the product selection is limited to the products of the insurance company. The cost of operation can be significantly high as the bank is required to create the end-to-end infrastructure.

The collaborative model:

In this model, the bank and insurance company are separate but they have a partnership. The bank sells the insurance products of the insurance company. For example, in the US, Citibank has a partnership with Travelers Insurance. The advantage of this model is that it is more flexible than the captive model. The product selection is not limited to the products of one insurance company. As you can imagine, the cost of operation is lower as the bank merely acts as a distribution channel and is not required to take up additional costs.

Which business model is more successful? 

There is no clear answer as to which bancassurance business model is more successful. Each model has its advantages and disadvantages. However, we can agree on key elements that might make either model work.

Focus on customer needs.

If your products and services are aligned with the needs of your customers, you are more likely to be successful – no matter what business model you choose. The focus should be on selling insurance products that genuinely meet the needs of your customers. Hence, instead of making a one-time sale, your goal should be to build a long-term relationship with your customers.

The customer experience. 

Creating a great customer experience is essential for any business – bancassurance is no different. If customers have a positive experience when they interact with your people, products, and services, they are more likely to come back and do business with you again.

The use of technology. 

Technology can help you overcome many of the challenges associated with bancassurance. It can help you reach more customers, offer a wider range of products, and create a better customer experience. Many bancassurance success stories have one thing in common – they have used technology to create a competitive advantage.

Training and development. 

Another common denominator of successful bancassurance stories is a focus on training and development. Banks and insurance companies need to provide their staff with the necessary skills and knowledge to sell insurance products.

Learnsure Ai has collaborated with iPi Global solutions to offer world-class bancassurance training programs to banks and insurance companies. The programs have consistently received positive feedback from participants, with some citing it as the best training they have ever attended.

The bottom line

Bancassurance is a complex business model with many moving parts. There is no one-size-fits-all approach to successful bancassurance. The key is to find the right mix of people, products, services, and technology that works for your bank or insurance company.

What are your thoughts on bancassurance? 

We would love to hear from you.