What Is Bancassurance?
Bancassurance is an arrangement between a bank and an insurance company permitting the insurance company to sell its products to the bank's client base. This partnership arrangement can be profitable for the two companies. Banks earn extra revenue by selling insurance products, and insurance companies grow their customer bases without expanding their sales force.
Figuring out Bancassurance
Bancassurance arrangements are common in Europe, where the practice has a long history. European banks, like Cr\u00e9dit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands), overwhelm the global bancassurance market.
However, the image differs widely from one country to another. A 2013 report found that while bancassurance accounted for 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria, its market share was lower in Eastern Europe and nonexistent in the United Kingdom and Ireland.
The United States has been more slow than numerous nations to embrace the concept. In part, that is on the grounds that whether or not banks in the U.S. ought to be permitted to sell insurance involved argumentative discussion for a long time. Among the issues: unfair competition for insurance agents, potential risks to the banking sector, and the potential for banks to pressure customers into buying insurance to fit the bill for loans.
Advocates, in the interim, kept up with that the two banks and insurance companies would profit from the arrangement, that it would likewise be a convenience for consumers, and that the additional competition could lead to bring down insurance prices.
The Bank Holding Company Act of 1956 really precluded numerous large national banks from selling insurance products. Nonetheless, whether a bank could sell insurance relied largely upon the type of bank and which agency or agencies regulated it. As the U.S. General Accounting Office noted in a 1990 report, by the late 1980s, many states permitted state-contracted banks to sell most types of insurance, and "in towns with populations under 6,000, bank holding companies, national banks, and some state banks can sell a wide range of insurance."
In 1999, the federal Gramm-Leach-Bliley Act wiped out the vast majority of the excess limitations on U.S. banks selling insurance products while continuing to permit the states to regulate different parts of insurance.
Bancassurance Industry Growth
The bancassurance market is becoming worldwide, particularly for life insurance and particularly in the Asia-Pacific region. The research and counseling firm IMARC Group says the global bancassurance market arrived at a value of $1.268 trillion out of 2021. IMARC anticipates that the market should keep on developing at a compound annual growth rate (CAGR) of 5.9% and accomplish a value of $1.802 trillion by 2027. A major factor driving the trend: a developing "geriatric population with greater requirement for wellbeing and life insurance as well as retirement plans."
The Advantages and Disadvantages of Bancassurance
According to a consumer point of view, bancassurance offers the two benefits and detriments. On the plus side, buying insurance at the bank is advantageous. That is particularly true in small towns where insurance agents might be scant, albeit less so now that insurance is widely accessible online. That convenience may likewise support more Americans who need life insurance to buy some.
On the negative side, the simplicity of buying at the bank might deter consumers from shopping around and getting a competitive price on their insurance. There is additionally some inquiry regarding how qualified bank employees are to prompt customers on their insurance needs, compared with insurance agents and brokers who work in the field.
For banks that become engaged with bancassurance, there seems, by all accounts, to be little downside, aside from the conceivable risk to their reputation assuming the insurance products their employees sell demonstrate deficient or unsuitable for the consumer.
The Bottom Line
Bancassurance isn't a type of insurance yet a sales channel for the selling of insurance products through banks. Today is common in a large part of the world and filling in acceptance in the United States. For banks and insurance companies, bancassurance can be a profitable enterprise. For consumers it very well may be helpful, in spite of the fact that it might deter comparison shopping and limit their access to expert guidance.
- The bank benefits by getting extra revenue from the sale of insurance products.
- The insurance company benefits from increased sales and a more extensive client base without extending its sales force.
- Bancassurance is an arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers.
What Types of Insurance Are Sold at Banks?
Contingent upon the country and the particular bank, consumers can buy a wide assortment of insurance at their nearby banks, including life, wellbeing, and property and casualty insurance. Nonetheless, life insurance is the predominant product in the U.S. furthermore, a large portion of the world. In 2018, for instance, around 29% of life insurance globally was sold through bancassurance, while just around 2% of property and casualty insurance was, as per McKinsey and Company.
When Did Bancassurance Begin?
Bancassurance as far as we might be concerned today seems to have started in France during the 1970s (which would account for its apparently French name). Spain was likewise an early adopter, during the 1980s. Both of those countries keep on being bancassurance market share leaders.
Who Regulates Bancassurance in the United States?
Generally talking, in the U.S., the individual states keep on managing insurance products and sales practices as well as to license insurance salespeople. Notwithstanding, since the section of the Gramm-Leach-Bliley Act in 1999, "state laws generally can't 'forestall or confine' insurance activities directed by national banks and their auxiliaries," as per the Office of the Comptroller of the Currency.