The Geneva Papers on Risk and Insurance Vol. 27 No.

3 (July 2002) 295–303

Bancassurance: The New Challenges

by Gilles Benoist

1. Introduction
Is bancassurance simply a method of distributing insurance products? By definition, yes
it is, but more than that, it is a global movement that is gradually breaking down the traditional
barriers between the various businesses of supplying financial products and services. Insurers
and bankers have all set their sights on the gold mine of household savings and the related
asset management business.
Is it a passing trend, confined to certain local markets, or a sector with a future?
Bancassurance is already a force to be reckoned with in some countries; the key advantages
that have underpinned its development are now leading to the concept being turned on its
head, with the emergence of assurfinance.

2. Development
2.1 Bancassurance in France
Bancassurance is highly developed in France. Banking networks account for a signifi-
cant proportion of life insurance sales although they are taking longer to make inroads into the
non-life market.

2.1.1 Life insurance

Banking networks represent the leading distribution channel for life insurance products.
In 2000, they accounted for 61 per cent of life insurance sales, ahead of the insurance
companies’ own sales teams (16 per cent), brokers (9 per cent) and general agents (8 per cent).
However, after enjoying ten years of steady growth during which the banking networks
saw their market share rise from 40 per cent in 1990 to 61 per cent in 1997, the proportion of
life insurance products distributed via this channel has levelled off in recent years.
In 2001, the banking networks’ market share remained flat, as a result of two
developments:
– Falling stock market prices prompted savers to turn their back on unit-linked products,
which account for a higher proportion of life insurance sales of banking networks than of
insurance companies;
– After reaping the full benefit of transfers from bank-type PEP savings accounts towards
life insurance products in 2000, the banking networks bore the brunt of lower transfers in

 President of the Executive Board, CNP Assurances SA, Paris

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296 BENOIST

2001. This phenomenon demonstrates how easily capital shifts between bank and
insurance products.

2.1.2 Non-life insurance

Bancassureurs have found it harder to penetrate the non-life market and their sales of these
products are still fairly low. In 1999, banking networks were ranked fourth among distributors
of non-life products, with a market shareof 8 per cent whichput them well behind general agents
(35 per cent), mutual insurers’direct sales teams (34 per cent) and brokers (17 per cent).
There have been three phases in the development of non-life sales by the banks:
– They started out by selling banking-related bolt-on products, such as payment media
insurance, a highly profitable business which requires little investment;
– They then moved on to offering their retail clients health insurance, comprehensive home
and householder insurance packages, and motor insurance. These require heavier
investment in salesforce training and product design. They are also less profitable;
– The last phase is to offer health insurance, comprehensive home and householder
insurance packages and motor insurance to people in business, a step that requires
substantial investments.

2.2 Bancassurance worldwide

The worldwide development of bancassurance has been uneven, but it is gaining ground
in most developed and developing countries.
In Europe, France has led the field in the distribution of life insurance products via bank
branches, alongside Benelux and Spain. By contrast, this distribution method has not really
taken off yet in Germany, Italy and the United Kingdom.
Bancassurance has yet to take hold in the United States and Japan but is going from
strength to strength in Latin America, tapping the potential offered by the reform of pension
systems and the development of private pension funds.

2.2.1 Position and outlook of bancassurance in selected countries

Argentina: Bancassurance is highly developed in Argentina:
– Foreign banks and insurance companies are setting up alliances with local players that
have extensive networks;
– Argentine banks are very well placed to tap the private pensions market and are actively
acquiring interests in non-life companies.
Brazil: The main banks play an important role in distributing insurance products in
Brazil for three main reasons:
– The law bans the development of agent networks;
– Banks have a dominant position in the private pensions market and will reap the full
benefits of future pension reforms;
– The banks have efficient distribution networks and enjoy strong brand recognition.
Canada: Current legislation is acting as a brake on the development of bancassurance,
except in Quebec.
Germany: Bancassurance has enjoyed only limited growth in Germany. In 1998, only 20

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per cent of life insurance products were sold via banking networks and an even lower 12 per
cent of non-life products. Nevertheless, the banks are making rapid inroads into the market.
Their market share doubled in the space of four years in life insurance and more than doubled
in the space of two years in non-life insurance, from 5 per cent in 1996 to 12 per cent in 1998.
Pension reforms will speed up the development of bancassurance, because insurers are
looking to acquire ready-made distribution networks allowing them to reach a larger number
of clients and take advantage of the increase in savings volumes triggered by the introduction
of defined contribution pension plans. Experts predict that savings will increase fivefold over
the next six years.
Allianz’s acquisition of Dresdner Bank in 2001 and the increase in Munich’s stake in
HypoVereinsbank and Ergo signal the beginning of a period of growth in bancassurance in
Germany.
Japan: In recent years, there have been moves to break down the regulatory barriers
between banking and insurance activities:
– Since 1998, insurance companies have been authorized to set up banking subsidiaries;
– Since 2000, life insurance companies have been authorized to sell non-life products and
vice versa;
– Since 2001, banks have been authorized to sell non-life insurance products.
The lifting of regulatory obstacles has paved the way for the development of bancassurance.
In 1998, insurance companies that have ties with the country’s four largest banks held
3=5ths of the Japanese life insurance market and 4=5ths of the non-life market.
Mexico: Bancassurance is a growing sector in Mexico due to the role played by the banks
in the creation of pension funds since the 1997 pension reform.
Joint ventures between local and foreign insurance companies were common prior to
1990 and in the last ten years, foreign insurers have established a growing number of
partnerships with Mexican banks.
United Kingdom: Bancassurance is still in its infancy in the United Kingdom, currently
accounting for 10 per cent of new premiums. The extensive network of highly competitive
independent insurance advisors has meant that, to date, bancassurance has met with only
limited success. However, as is the case in Germany, the creation of stakeholder pensions has
increased the potential benefits of mergers and alliances between bankers and insurers.
A number of banks and insurance companies have joined forces (AXA/Woolwich, AXA/
Bank of Scotland, Zurich/Bank of Scotland, CGNU/Royal Bank of Scotland, Legal &
General/Alliance & Leicester, Legal & General/Barclays Bank) and independent insurers are
setting up captive banks (Prudential and Standard Life).
United States: Regulatory obstacles have prevented the emergence of groups engaged in
both banking and insurance activities.
The lifting of these obstacles is leading to the creation of diversified financial services
conglomerates and the development of bancassurance.

2.2.2 Main reasons underlying the different rates of development of bancassurance among
the various countries
There are four main reasons for the different rates of development of bancassurance
around the world:
– The first and most important reason is the difference in legislative and regulatory
standards from one country to another;

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– Significant differences in tax systems and the structure of pension systems: in some
countries, such as France, life insurance products are very similar to banking products and
also qualify for tax incentives. This makes them easy to sell by banking networks;
– Differences in the role of banks in the financial system: bancassurance has made the
biggest inroads into the market in countries where the banks play a significant role in the
financial system. This is the case, for example, in Belgium, France and the Netherlands.
Bancassureurs have a smaller market share in those countries where everything revolves
around the stock market, such as the United Kingdom and the United States;
– A clear segregation between the various distribution channels hampers the development
of bancassurance: this is the case in Germany and Japan. Similarly in Italy, insurance
products are traditionally sold by independent insurance advisors, making it difficult for
bancassureurs to gain a foothold in the market;
– Lastly, in countries with an underdeveloped insurance market, foreign insurers generally
try to join forces with a local banking network, because this represents a cheaper way of
entering the market than by setting up a greenfield operation or acquiring a local
insurance company. This model explains the development of bancassurance in Latin
America and Spain.

3. The strategic benefits of bancassurance

The distribution of insurance products by banking networks has advantages for both
bankers and insurers, which is why bancassurance is developing throughout the world.

3.1 Making distribution networks more profitable

The distribution commissions paid by the insurer represent a source of profits for the
banker. These commissions boost the return on investment in setting up and maintaining
branch networks. As a result, bancassurance has played an important role in preventing job
losses and creating employment in the banking sector.
The characteristics of certain insurance products have helped to drive this diversification
of the product:
– Life insurance products are very similar, from a technical standpoint, to savings and other
investment products sold by banks, and are marketed as an alternative to these products.
They are also fairly straightforward. This means that financial advisors have no difficulty
in selling them and banks are not required to make a heavy investment in training;
– Unit-linked contracts are tax-advantaged products that are used to distribute mutual
funds, blurring the boundaries between banking and insurance;
– The life insurance market continues to offer growth potential;
– Personal risk insurance, encompassing death and disability cover, health and long-term
care insurance, represents a natural complement to financial services activities. It
involves developing close ties with clients and therefore represents a good means of
building client loyalty. In addition, personal risk insurance is a profitable business;
– By contrast, the profitability of motor insurance business depends on building a large
client base and distributing the products through a large number outlets.
Overall, for banks, costs are marginal, and for insurers, distribution costs are lower than
through agent networks.

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3.2 Building client loyalty

The shift from a product-based approach to a solutions-based approach, or ‘‘one-stop
shopping’’ at bank branches, makes life easier for clients. And selling each client a number of
products helps to build loyalty. This is why players in the savings market must be able to offer a
range of tax-advantaged personal equity plans and home loans backed by life insurance.
Overall, the best way of building client loyalty is by being able to offer a continuum of
financial products and services covering all phases in the client’s life.

4. Turning the concept on its head: assurfinance

Faced with the expanding market share of banking networks in the life insurance market
and, more recently, the non-life market, insurance companies are reacting by trying to sell
savings products via their own networks. The concept, variously dubbed ‘‘assurfinance’’ or
‘‘assurbanking’’, is developing throughout the world and especially in Europe.
Major European insurers are waking up to the potential offered by assurfinance,
following the same reasoning as the banks when they entered the bancassurance market.

4.1 A growing awareness of the importance of direct client contact

Client relationships are of critical strategic importance. Banking networks provide the
opportunity to establish initial contact with clients and then to maintain regular relations with
them.
Assurfinance allows insurers to:

– Get to know clients better, obtain information about them and enrich their databases;
– Create opportunities to contact clients in circumstances other than as a result of a claim.

4.2 Diversifying distribution channels

In Germany, for example, insurers want to build their networks in order to reach out to a
greater number of clients. They also want to get in on the ground floor of the defined
contribution pensions market.
The failure of on-line sales initiatives (AGF has shut down its OK Assurance operation,
Zebank and Banque Direct have been sold) is encouraging insurers to seek out new
distribution channels.
Insurers can achieve this diversification either by setting up their own banking networks
(the solution chosen by AGF) or through mergers designed to create a bancassurance solution
that works out cheaper than starting from scratch.

4.3 Boosting the profitability of distribution networks by offering multiple products

Growing household investment in financial assets is encouraging insurers to compete
with bankers for a share of this profitable market.
Clients are given the opportunity to reinvest their insurance benefits in the financial
products offered by the insurer, thereby building client loyalty.

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4.4 Achieving the critical mass required to compete effectively in the European or
international market
Industry concentration at national or international level is contributing to the develop-
ment of assurfinance.
Does this mean that developing bancassurance is a piece of cake? No. Bancassurance
carries certain risks and vulnerabilities that create challenges for the market players and
influence possible development strategies.

5. The risks and vulnerabilities associated with the bancassurance model

5.1 Image risk
This is the biggest risk for banks. Lack of control over the handling of claims, and
possible delays or problems in paying out settlements can damage a bank’s image and its
relations with its clients. It is therefore in the bank’s interest to have visible ties with an insurer
and to market products under the insurer’s brand. The insurer is thus viewed as being
responsible for all claims-related issues and assumes at least part of the image risk.

5.2 Qualifications of account managers

Selling non-life products requires different skills from those needed to sell savings
products. According to some observers, there are certain fundamental differences in culture
which cannot be overcome, even by investing heavily in training.
Two key issues are salesforce training and type of products.

5.3 General risks concerning relations with the network, including product cannibalization
risk
Very close ties (without integration) can bring the partnership to breaking point,
potentially leading to a very expensive divorce. Cannibalization between banking and
insurance products represents a real risk.
The same risks exist in assurfinance. However, in the same way that bancassurance
exposes the banks to certain risks, so assurfinance can give rise to dangers for the insurance
companies.
The main dangers can be summarized as follows:
– Clients may be reluctant to conduct all their financial dealings with a single partner;
– Products may be oversold to clients of captive networks;
– Rivalries among distribution networks, especially between insurance agencies and new
bank branches, may lead to fragmentation of the client base and/or ring-fencing of
product offers (offers labelled ‘‘bank’’ or ‘‘insurance’’);
– Creating a banking business from scratch requires heavy investments.

6. Creating real challenges

Cultural differences between insurers and bankers create real problems:
– Controlling relations with the network:

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• Determination of commissions;
• Trade-offs between products;
– Marketing organization;
– Databases;
– Client relationship management, especially ‘‘ownership’’ of the client;
– Technological resources (information systems);
– Back offices;
– Management quality/costs productivity gains must be achieved;
– Responding quickly to client needs time-to-market of new products and services included
in, or related to, these products (for example, carrés bleus service included in a
supplementary health insurance product).

7. Influencing possible strategies

7.1 Bancassurance and assurfinance strategies
Several bancassurance and assurfinance models are developing side by side. In addition,
different strategies may be adopted, depending on the group, in the areas of production,
management and distribution. The difference between the models lies in the level of
integration of the various structures: the quality of their response to challenges varies.

7.1.1 Marketing partnerships with or without capital ties

There are three main types of partnership:
– Distribution agreements, which are very common in France. This is the model adopted
by CNP for individual savings products. In non-life insurance, examples include the
agreement between Caisses d’Epargne and MMA. In Germany, Munich Re subsidiary
Ergo has set up a distribution agreement with HypoVereinsBank;
– Franchise agreements: examples include the agreements between Crédit Lyonnais and
Allianz, Royal Bank of Scotland and financial players such as Friends Provident;
– Cross-shareholdings: BNP/UAP in 1987 (fairly fragile).
Although, on the face of it, a partnership represents a less costly solution than an
acquisition, it nevertheless requires significant investment in logistics, administrative and IT
resources (for example, to develop compatible systems if management is delegated to the
partner).

7.1.2 Joint ventures

Joint ventures are common in Switzerland. Examples include Swiss Life, a joint venture
between UBS and Rentenanstalt, Columna, a joint venture between Crédit Suisse and
Winterthur.
They are less common in France: Société Générale/AGF and Commercial Union are an
example in non-life insurance, while Groupama and Société Générale are planning to set up a
joint venture in the first quarter of 2003. The subsidiary will benefit from the 4,400 Groupama
and Gan outlets and 8 million clients, with no more than a 10 per cent overlap in the client
base.
The main difficulty lies in balancing contributions and powers within the joint venture.

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7.1.3 Creation of integrated groups

The key issue concerns fixed costs.

7.1.4 Mergers and acquisitions

This is a common approach in Belgium, France, the Netherlands and Switzerland. It is
also a recent trend: there are few examples dating back before the 1990s, with the exception of
the NMB/Postbank and National Nederlanden merger which led to the formation of ING, the
Crédit Suisse/Winterthur merger and the Gan/CIC merger.
Mergers and acquisitions have increased since 1998. Examples include the Générale de
Banque/Fortis merger, the ING buying spree, the buyout of Egg and the current negotiations
concerning the possible acquisition of Zebank by Prudential.
In April 2001, Allianz made a bid for Dresdner Bank. The insurers are calling the tune.

7.1.5 Internal development (captives)

Crédit Agricole has set up Prédica (life insurance) and Pacifica (non-life insurance);
AGF’s new captive bank, Banque AGF, appears to have got off to a good start; Generali
launched Banca Generali in Italy in 1999 and plans to launch a French banking subsidiary in
2003; ING has set up ING Direct; Zurich Financial Services has set up Zurich Bank in the
U.K.
This development method requires considerable resources and carries substantial risks.
In addition, multi-channel distribution is not an option. Captives generally target the existing
client base of the insurer or the bank.

7.2 CNP Assurances distribution strategy

7.2.1 CNP’s unique strengths
CNP’s strategy of distributing products through several major partner networks sets it
apart from the competition:
– Individual insurance products are distributed through the Post Office, the Savings Banks
and the French Treasury, which are also shareholders of CNP. These independent partner
networks, representing 25,000 outlets, do not have exclusive distribution agreements and
are paid a commission on sales of CNP products. CNPAssurances has also set up two 50/
50 joint ventures with the Post Office – Assurposte for health and personal risk insurance
and Ecureuil Vie;
– Group products are distributed through banks, mutual insurers, local authorities and
companies. CNP does not have any general agents or in-house sales teams, except for
group insurance, and products are not marketed under the CNP brand.
As a general rule, CNPAssurances follows the same distribution strategy in international
markets, with joint ventures in Argentina, Italy and Portugal, and soon in China, and
distribution agreements with Prudential.

7.2.2 The advantages of this strategy

Partnerships benefit both CNP and its partners for the following reasons:
– Variable costs;

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– Scope for competition among networks;

– Exchanges of know-how and expertise;
– Each partner’s interests and culture are respected;
– Products are made to measure by involving the distributor in product design and
management;
– Partners are offered a wide range of services: shared data and information systems;
training of sales staff, marketing support, selling aids, etc.

7.2.3 Three risks need to be carefully monitored

First, stability risk, because CNP does not have its own networks. However, this risk is
counterbalanced by:
– The long duration of partnership agreements (5 to 11 years, renewable on expiry);
– Interconnected information systems;
– The existence of joint subsidiaries;
– The fact that CNP’s partners are also shareholders, which helps to maintain stable
relationships;
– The obligation to provide high quality service.
Second, potential conflicts of interest between our partners’desire to earn a reasonable
return on investment both as shareholders of CNP and as distributors.
Third, the lower visibility of the CNP brand.
CNP’s success is largely attributable to this strategy, which allows the Group to develop
and adapt to changing market conditions, as well as expanding its portfolio of businesses (to
include health insurance and long-term care insurance, for example) and product ranges at a
lower cost.
Some key figures:
– CNP Assurances’ premium income has climbed from A 6.5 billion in 1992 to A 17.3
billion in 2001 (approximately three times higher);
– Over the same period, assets under management have expanded from A 24.4 billion to
A 134.4 billion (3 5);
– The Group’s share of the personal insurance market has grown from 13.5 per cent to 20
per cent (+ 6.5 points).

8. Conclusion
There is no miracle model in insurance, but a major movement of funds in which Internet
will very gradually emerge as an additional distribution method (difference between
commodotized products and products requiring investment advice).
There are three golden rules: (1) The successful players will be the ones who are capable
of tailoring the model to the context (2) and of managing critical success factors: quality,
innovation, short time-to-market of new products, advanced technologies and low costs (3)
and, above all, of building strong client relationships.

# 2002 The International Association for the Study of Insurance Economics.