Bancassurance was just a new expression used in the specialist press 10 years ago. Today, the term is on the lips of professionals throughout the world. Why has bancassurance been such a success? What are its specific national characteristics? What are the implications for the future? For reinsurers? Yves Monmoton presents an overview of this strategic subject.

Frequently targeting their products at the same client base but separate for regulatory reasons, banks and insurers have developed independently throughout the world. For many years, each found sufficient potential for growth in its own sector. Nevertheless, a number of factors led to the conception of bancassurance (the sale of insurance products through the banking networks), and were followed by the increasing convergence of the two sectors.

France: a case study

It was in France, above all, where this evolution began. From the end of the 1970s, tax policies prompted investors to take out life insurance policies which contained a large savings element. Facing competition in their own sphere, banks reacted by creating their own insurance companies whose role was to sell insurance products via the bank branches. For the banking groups, it was then only a question of transferring the savings product from one company to another.

The success of the precursers, namely ACM, NATIO Vie (BNP) and Predica (Crédit Agricole) was such that it converted French banks as a whole to the concept. By 1997, half the life insurance premiums in France came through bancassurers who were responsible for 60% of the new business in this market.

Two factors favoured the expansion of bancassurance from the early 1990s:

1. Banks were over-staffed as a result of saturated markets and technological changes. They were, therefore, obliged to increase their efforts not just to rationalise but also to diversify their activities by better exploiting both their distribution networks and their client bases by providing a wider range of products.

2. The implementation in 1990 of European regulations lifting regulatory constraints on the closer integration of banking and insurance activities.

Encouraged by their results in life insurance, and thanks to their large client bases and their ability to analyse and segment those bases effectively, banks enlarged their ambitions to non-life personal lines, such as motor and household cover.

The obstacles, claimed by detractors, to the success of these forms of bancassurance, such as an inability to manage claims or an apparent incompatibility between rigorous management in insurance and rigorous bank management, were without substance. After a few years, the initial experience was very conclusive and numerous other banks followed suit.

International success

France did not remain an isolated case.

Netherlands: Bancassurance took off at great speed in 1991. Banks and insurance companies merged to form financial services conglomerates, such as ING, Rabobank, Interpolis and Fortis who began selling both banking and insurance products at the same time. In 1995, bancassurance in the Netherlands controlled 45% of the life insurance market and 23% of non-life with excellent results.

Spain: Bancassurance developed as major domestic banks bought shareholdings or took control of the country's insurance companies. Deregulation of insurance in Europe from the early 1990s allowed bancassurance to gain increasing market shares in Spain, in particular about 40% of life insurance but also 5% of the non-life business.

Germany: The shareholding links between banks, insurance companies and industry held back the development of bancassurance, as practiced in France. The relationships between banking and insurance groups lead them to develop the concept of "Allfinanz" where there are reciprocal sales of the partner's products. However, with a few exceptions (Drezdner Bank/Allianz, Deustsche Bank/Deutscher Herold), there does not seem to be great enthusiasm to take things further than cross distribution of products.

UK: Banks and building societies formed associations with insurers, but they did little more than distribute the insurers' products, hence the role of real bancassurance is relatively weak.

Bancassurance in Europe has thus developed with some dynamism, and by 1996, it was estimated that 19.2% of total life premiums and 1.5% of non-life premiums were generated by bancassurers.

The concept of bancassurance has also been successfully developed in Canada since 1987 by the Quebecois financial group Caisses Desjardins in co-operation with the French company ACM.

It is not the same case, however, in the United States, where the Glass Steagall Act imposes a strong and clear separation between banking and insurance activities.

The future

That banking and insurance are complementary activities is today reasonably clear. Therefore, when consumers are looking for straightforward solutions to their financial concerns, such as short term finance, savings, pensions, provision against unexpected losses, etc, bancassurance is able to offer a wide range of complementary products which respond to the totality of these needs and which are easily accessible through a single point of sale.

The banker also sees other commercial, technical and financial advantages, such as increased customer loyalty, greater knowledge of customers' needs, a wider client base and increased level of funds under management. On top of this, in the case of bancassurance such as we have described, the results generated by this increased level of activity combine with operating costs which are noticeably lower than in the classical system of insurance (distribution, management, claims settlement, etc).

Bankers, like traditional insurers, are now convinced of the value of bancassurance.

Associations between banks and insurers are multiplying in France and elsewhere, as evidenced by the cross shareholdings and mergers so regularly announced. Among recent examples, the most spectacular is the takeover by Credit Suisse in 1997 of Winterthur, which is the second largest Swiss insurance company and also has a wide international presence. So far, the two groups have contented themselves with merging distribution systems. However, together they form one of the most powerful players in Europe and they are considerably strengthening their position in fund management.

Less spectacular, but just as significant, is the increasingly close relationship in Belgium between Kreditbank and Group ABB/CERA and that announced between the Franco-Belgian bank Dexia and the Belgian insurer SMAP, both of whom specialise in serving the local authority market.

In this way, the concept of bancassurance has not just developed but also evolved since its first steps barely 15 years ago.

The role of the reinsurer

Does the development of bancassurance leave reinsurers indifferent? Certainly not. They cannot just shrug their shoulders to changes which are affecting their clients, the insurance companies. Certainly, the events described above - the regroupings and the creation of bancassurance conglomerates - are bound to affect reinsurance programmes.

Richer and less vulnerable, these insurers have different reinsurance needs. They are generally looking for more specialised forms of coverage, such as catastrophe cover, balance sheet protection, which, naturally, the reinsurers can provide.

Reinsurers must also serve the needs of insurance companies created as subsidiaries of banking groups to profit from banks' extensive distribution networks and the size of their client bases. For them, it is a question of providing all the usual services needed by a new insurance company.

Finally, bancassurance can be considered one example among others of new channels of distribution of insurance products. Three conditions are essential for a successful insurance operation: to have available a large client base, to be able to analyse and exploit that client base, and, naturally, to have a good name and reputation.

Today, with the analytical techniques and data available, there are a number of potential new players in the sale of insurance: mail-order companies, large retail outlets, credit card companies. All are potential clients for reinsurers who know how to offer the range of services required.

These tailor made solutions, ranging from the analysis of the risks and accumulation, rating and claims management through to training, will demand resources and technical and human skills such that only reinsurance companies which have reached a certain mass will be able to offer them.

Yves Monmoton is director of development and marketing for SCOR Group. Tel: 33 (0) 1 46 98 7228; fax: 33 (0) 1 46 98 7792; e-mail: