What Is Bancassurance?
Let me explain bancassurance directly to you: it's an arrangement between a bank and an insurance company that lets the insurer sell its products to the bank's customers. This setup can be profitable for both sides. As a bank, you earn extra revenue by offering these insurance products, and as an insurance company, you grow your customer base without needing to hire more salespeople.
Understanding Bancassurance
You should know that bancassurance is common in Europe, where it has a long history. Banks like Crédit Agricole in France, ABN AMRO in the Netherlands, BNP Paribas in France, and ING in the Netherlands lead the global market in this area.
The situation differs by country. A 2013 report showed bancassurance making up 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria, but it's lower in Eastern Europe and absent in the UK and Ireland.
In the United States, adoption has been slower due to debates over unfair competition for insurance agents, risks to banking, and potential pressure on customers to buy insurance for loans. Advocates argue it benefits banks and insurers, offers consumer convenience, and could lower prices through competition.
The Bank Holding Company Act of 1956 barred many large national banks from selling insurance, but it varied by bank type and regulation. By the late 1980s, many states allowed state-chartered banks to sell most insurance types, and in small towns under 6,000 people, various banks could sell all types.
Then, in 1999, the Gramm-Leach-Bliley Act removed most remaining restrictions on US banks selling insurance, while states still regulate other aspects.
Bancassurance Industry Growth
The bancassurance market is expanding worldwide, especially for life insurance in the Asia-Pacific region. According to IMARC Group, it reached $1.268 trillion in 2021 and is expected to grow at a 5.9% CAGR to $1.802 trillion by 2027. A key driver is the aging population needing more health, life insurance, and retirement plans.
The Advantages and Disadvantages of Bancassurance
From your perspective as a consumer, bancassurance has upsides and downsides. On the positive side, it's convenient to buy insurance at your bank, especially in small towns where agents are few, though online options have reduced this need. This ease might encourage more people to get the life insurance they need.
On the downside, buying at the bank might stop you from shopping around for better prices. There's also doubt about how well bank employees can advise on insurance compared to specialized agents and brokers.
For banks, getting into bancassurance has little risk, except possibly damaging their reputation if the products sold turn out unsuitable for customers.
When Did Bancassurance Begin?
Bancassurance as you see it today started in France in the 1970s, which explains its French-sounding name. Spain adopted it early in the 1980s, and both countries remain leaders in market share.
Who Regulates Bancassurance in the United States?
In the US, states generally regulate insurance products, sales practices, and licensing of salespeople. However, since the 1999 Gramm-Leach-Bliley Act, state laws can't prevent or restrict insurance activities by national banks and their subsidiaries, as per the Office of the Comptroller of the Currency.
What Types of Insurance Are Sold at Banks?
Depending on the country and bank, you can buy various insurances like life, health, and property and casualty at banks. Life insurance dominates in the US and globally. In 2018, McKinsey & Company reported that 29% of life insurance was sold via bancassurance, compared to just 2% for property and casualty.
The Bottom Line
Remember, bancassurance isn't a type of insurance—it's a channel for selling insurance through banks. It's widespread globally and gaining ground in the US. For banks and insurers, it's profitable. For you as a consumer, it's convenient but might limit your options for comparison and expert advice.
Key Takeaways
- Bancassurance is an arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers.
- The insurance company benefits from increased sales and a broader client base without having to expand its sales force.
- The bank benefits by receiving additional revenue from the sale of insurance products.
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