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Bancassurance is a relationship between a
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
and an
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
company that is aimed at offering
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
products or insurance benefits to the bank's customers. In this partnership, bank staff and tellers become the
point of sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...
and point of contact for the customer. Bank staff are advised and supported by the insurance company through
wholesale Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. I ...
product information, marketing campaigns and sales training. The bank and the insurance company share the commission.
Insurance policies In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as ...
are processed and administered by the
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
company. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or
broker A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be con ...
s. Bancassurance has proved to be an effective distribution channel in a number of countries in
Europe Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a Continent#Subcontinents, subcontinent of Eurasia ...
,
Latin America Latin America or * french: Amérique Latine, link=no * ht, Amerik Latin, link=no * pt, América Latina, link=no, name=a, sometimes referred to as LatAm is a large cultural region in the Americas where Romance languages — languages derived ...
,
Asia Asia (, ) is one of the world's most notable geographical regions, which is either considered a continent in its own right or a subcontinent of Eurasia, which shares the continental landmass of Afro-Eurasia with Africa. Asia covers an are ...
, and
Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
.


Description

BIM differs from classic or Traditional Insurance Model (TIM) in that TIM insurance companies tend to have larger insurance sales teams and generally work with brokers and third party agents. An additional approach, the Hybrid Insurance Model (HIM), is a mix between BIM and TIM. HIM insurance companies may have a sales force, may use brokers and agents and may have a partnership with a bank. ''BIM'' is extremely popular in European countries such as
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = '' Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , ...
,
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
, and
Austria Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous ...
. The use of the term picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry or creates too much competition with existing insurers. In some countries, bank insurance is still largely prohibited, but it was recently legalized in countries such as when the Glass–Steagall Act was repealed after the passage. But revenues have been modest and flat in recent years, and most insurance sales in U.S. banks are for mortgage insurance, life insurance or property insurance related to loans. But
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
recently allowed banks to buy insurers and vice versa, stimulating the bancassurance product, and some major global insurers in China have seen the bancassurance product greatly expand sales to individuals across several product lines. ''Private-bankassurance'' is a
wealth management Wealth management (WM) or wealth management advisory (WMA) is an investment advisory service that provides financial management and wealth advisory services to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high ...
process pioneered by Lombard International Assurance and now used globally. The concept combines private banking and investment management services with the sophisticated use of life assurance as a financial planning structure to achieve fiscal advantages and security for wealthy investors and their families. The banks are the agent of the insurance companies to sell them more and more policies. Bancassurance is an efficient distribution channel with higher productivity and lower costs than traditional distribution channel. In modern bancassurance module, there has a staff assigned by an insurance company which placed in particular banks to serve banking customers with their insurance solutions.


Business models across the world

'Integrated models' is insurance activity deeply integrated with bank's processes. Premium is usually collected by the bank, usually direct debit from customer's account held in that bank. New business
data entry Data entry is the process of digitizing data by entering it into a computer system for organization and management purposes. It is a person-based process and is "one of the important basic" tasks needed when no machine-readable version of the inf ...
is done in the bank branches and workflows between the bank and the insurance companies are automated. In most cases, asset management is done by the bank's asset management subsidiary. Insurance products are distributed by branch staff, which is sometimes supported by specialised insurance advisers for more sophisticated products or for certain types of clients. Life insurance products are fully integrated in the bank's range of savings and investment products and the trend is for branch staff to sell a growing number of insurance products that are becoming farther removed from its core business, e.g., protection, health, or non-life products. Products are mainly medium- and long-term tax-advantaged investment products. They are designed specifically for bancassurance channels to meet the needs of branch advisers in terms of simplicity and similarity with banking products. In particular, these products often have a low-risk insurance component. Bank branches receive commissions for the sale of life insurance products. Part of the commissions can be paid to branch staff as commissions or bonuses based on the achievement of sales targets. 'Non-integrated Models' – The sale of life insurance products by branch staff has been limited by regulatory constraints since most investment-based products can only be sold by authorised financial advisers who have obtained a minimum qualification. Banks have therefore set up networks of financial advisers authorised to sell regulated insurance products. They usually operate as tied agents and sell exclusively the products manufactured by the bank's in-house insurance company or its third-party provider(s). A proactive approach is used to generate leads for the financial advisers from the customer base, including through mailings and telesales. There is increasing focus on developing relationships with the large number of customers who rarely or never visit a bank branch. Financial planners are typically employed by the bank or building society rather than the life company and usually receive a basic salary plus a bonus element based on a combination of factors including sales volumes, persistency, and product mix. Following the reform of the polarisation regime, banks will have the possibility to become multi-tied distributors offering a range of products from different providers. This has the potential to strengthen the position of bancassurers by allowing them to meet their customers' needs.


Conclusion

Bancassurance plays a major role in worldwide insurance and dominates several major European markets such as France and Italy. Its market share is expected to accrue with the deregulation taking place in several Asian countries and in the UK. Bancassurance encompasses a variety of business models. These business models generally fall into three categories: * Integrated models (where the bancassurance activity is closely tied to the banking business). * Advice-based models (where there is less integration and the distribution is based on using professional insurance advisers to sell to the clients of the bank). * Open architecture models. The
business model A business model describes how an organization creates, delivers, and captures value,''Business Model Generation'', Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries, self-published, 2010 in economic, soci ...
tends to impact all aspects of the bancassurance activity including the company structure, sales and marketing, product design, and sales remuneration. In most countries, bancassurance has tended to see a gradual evolution in the products offered from protection business closely related to the banks lending activity to general savings business and finally to a wider range of protection products. In many countries, the choice of a business model is influenced by regulatory constraints (e.g., the minimum qualification required to sell insurance products, the type of products that banks are allowed to sell, or the nature of the relationship between banks and insurance companies). Bancassurance can be an efficient distribution mechanism with potentially higher sales and lower costs than traditional, segregated, distribution channels, in other words, in additional cost and revenue synergies. These advantages are positively correlated to the degree of the integration of the banking and insurance products, although there is no evidence showing the precise extent of the relationship between the two. The collapse of Fortis in Belgium, and the withdrawal of other players from the bancassurance market, since the crisis, has led to a reduced level of interest in this area.


References


External links


Bancassurance on Investopedia
{{Authority control Separation of investment and retail banking Types of insurance