Bancassurance in Europe

Bancassurance is one of the most important forms of business collaboration in the European financial services industry. Initially, the development of bancassurance was the result of the disintermediation process and the relaxation of regulatory barriers to financial conglomeration. Over the last decade, the cooperation between banks and insurance companies has increased continuously from the initial cross-selling agreements to strategic alliances and ownership links: this process was driven by the increasing investor demand for long-term savings products, growth in life expectancy and the crisis of social security systems.

The first use of the term bancassurance was in France, where cooperation between banks and insurance companies started earlier than in other European countries. This word was originally coined to indicate the simple distribution of insurance products by bank branches, while now it is used to describe all kinds of relationships between the banking and the insurance industries. Along with the development of the phenomenon, bancassurance definitions are becoming more and more general, as in the following examples:

Bancassurance is basically the provision of and selling of banking and insurance products by the same organisation under the same roof. (Elkington, 1993, p. 2)

Bancassurance can be described as a strategy adopted by banks or insurance companies aiming to operate the financial market in a more or less integrated manner. (Swiss RE, 1992, p.4)

The aim of this chapter is to analyze the main features of bancassurance products and their evolution over time. Generally, bancassurer products have a low insurance content if they belong to the life business, or a high degree of standardization, if they belong to the non-life business. These characteristics derive from the skills and knowledge of the banks which approach the insurance business. In fact, the bancassurance products were initially born as banking-related products and bank branches have gradually become one of the most important distribution channels of insurance policies. Bancassurers are able to combine the information about the financial behaviour of their clients with their insurance needs. In the first step of the bancassurance development process, bancassurers focused on life products because of their high saving content and because of the many similarities and complementaries these had with the asset management activity. The share of the written premium addressed to cover the mortality/longevity risk was equal to zero or limited to a small amount and the claim management process was quite simple. In the second step of the development process, bancassurers have also approached the non-life business with some standardized products or with the help of reinsurers. The variables of customization of non-life products are few (above all, the age of the policyholder) and the claim management process is in outsourcing.

Bancassurance, the provision of policies by banks or lending institutions, represents one of the most significant changes to have occurred in the insurance industry over recent years. This practice originated in France in the mid-1980s, and spread rapidly, particularly in Europe, Australia, and emerging markets; however, it is applied heterogeneously around the world. The present chapter draws on these appraisals, outlining the use of bank branches in insurance distribution. The aim is to identify the reasons for the pervasiveness of bancassurance in markets and business lines. In particular, differences among countries and type of products are examined on the basis of public statistical data and available reports. Special attention is given to the European area, consistent with the purpose of this volume.

The aim of this chapter is to analyze the regulatory framework for diversified financial institutions, considering its main evolution overtime and the drivers of future change. The opportunity to develop the bancassurance model was offered by the Second Banking Directive (89/646/EEC) which removed the existing barriers between different sectors of the financial services industry, so that a credit institution can become a distribution channel of financial and insurance services, if this complies with its strategy.

The aim of this chapter is to describe the evolution of accounting rules and financial statements for insurance companies, focusing on the evolution of the IFRS discipline. Current provisions and their prospective evolutions are particularly relevant for all financial institutions providing insurance contracts. The chapter is organized as follows:

The academic literature dealing with the combination of the banking and the insurance industries is not very extensive, reflecting the fact that bancassurance is a relatively recent phenomenon, especially in the US, where it has been allowed only since 1999 with the passage of the Gramm-Leach-Bliley Act (GLBA). A much wider empirical research stream deals with bank diversification in activities beyond the traditional deposits and lending business, but engagement in the insurance activity is often treated as an aside. As outlined in Chen et al. (2009), most studies focusing on bancassurance have only been descriptive in nature, providing a broad insight into the economic rationales, advantages and drawbacks for all of the involved institutions. Only a few authors have provided quantitative findings on the viability of bancassurance combinations as a new business model for financial firms. Empirical analyses focusing on bancassurance are hindered not only by the recent development of the phenomenon, but also by the availability of limited public information: for example, looking at a bank profit and loss account, it is quite difficult to distinguish the weight of the insurance business from other sources of non-interest income. And it is not easy to collect information on different forms of cooperation between the banking and the insurance industries, especially in respect of ‘soft integration’, such as non-equity strategic alliances or cross-selling agreements.

As outlined in Chapter 6, cost and revenue synergies are commonly recognized as one of the main economic rationales for bank diversification into the insurance industry. Nevertheless, there are only a very few studies dealing with efficiency issues and specifically focussing on bancassurance. This chapter aims to present the empirical analysis conducted on a European sample in order to answer the following research question: are banks engaged in the insurance business more cost and profit efficient than their competitors specialised in traditional and investment banking?

Most studies dealing with bancassurance provide readers with descriptive analysis by discussing economic rationales, advantages and drawbacks for all the institutions involved. In contrast, there are few studies providing an empirical assessment of the bancassurance business. More specifically, as outlined at the end of the previous chapter, there are no empirical analyses measuring bancassurance cost and profit efficiency gains from both the banking and the insurance perspectives. This chapter aims to fill this gap by answering the following three research questions: (1) Are banks engaged in the insurance business more cost and profit efficient than competitors who have specialised in traditional and investment banking? (2) Are bancassurance companies more cost and profit efficient than independent companies operating in the life business? (3) Which model of bancassurance performs best?

The aim of this book has been to analyze different aspects of the bancassurance phenomenon, that is unquestionably one of the most important trend in the evolution of the European financial services industry. The first part of the book provides a description of the phenomenon, examining its historical roots and main drivers of development. Alternative bancassurance organizational models are also investigated, paying attention to the current state of cooperation between banks and insurance companies in various European countries, for different types of life and P&C products. The second part is devoted to more specific issues, relative to accounting principles and regulatory constraints, outlining their main evolution in more recent years. After a comprehensive literature review of academic studies focused on bancassurance, the last part of the book presents the empirical investigations conducted in order to measure its potential efficiency gains on both the cost and the profit sides.