European life bancassurance overview

Life bancassurance is taken to mean several things:

-  ■■ Distribution partnerships, whereby a bank agrees to sell the products of a life assurance provider through its branches, or;

-  ■■ bank-owned life assurers, where the bank distributes the life assurance products of its life subsidiary;

-  ■■ or life assurer owned banks, where the parent life assurer distributes its products through its banking arm.

The distribution of life assurance products through the banking channel has been a successful model in the European markets studied (including France, Germany, Italy, Spain and the UK), with examples of each of the above models present in each country. For example, Lloyds TSB in the UK owns Scottish Widows, the life and pensions provider, distributing its products through the Lloyds TSB branches. In Germany, Allianz owns the German bank Dresdner and distributes its products through the bank’s branches, while in Italy, Banca Unicredito has a partnership with the Italian life company RAS to distribute its products. Caja Madrid owns Caja Madrid Seguros Generales and also has a cross-shareholding agreement with Mapfre resulting in Mapfre Vida now being part of Caja Madrid Seguros Generales whilst Caja Madrid falls under Banco Mapfre.

Whilst life bancassurance has been successful in France, Germany, Italy, Spain and the UK, the penetration of the bancassurance channel in these countries is not uniform.

Across the five countries, the market share of life assurance distribution owned by the bancassurance channel ranges in size from 18% to 77%.

Table 2.5: Distribution of life assurance by distribution channel, 2002

Banks/

Tied

Direct

IFAs/

Other

Bancassurers

Agents

salesforce

Brokers

 

Spain 77%

0%

3%

20%

0%

France 61%

8%

6%

9%

16%

Italy 56%

34%

9%

1%

0%

UK 18%

17%

-

56%

9%

Germany 19%

51%

9%

21%

0%

* Estimated figures for Spain and Germany, ** Direct salesforce and tied agents counted together

in the UK

 

 

 

 

Source: Business Insights

 

 

 

Business Insights

Bancassurance has been particularly successful in France, Italy and Spain. Banks in these countries enjoy more than 50% of the distribution of life assurance products.

In Italy, bancassurance accounted for 56% of the distribution of life assurance products, with five of the top 10 life assurance competitors in the market owned by Italian banks.

In France, bancassurance has been even more successful, with the channel responsible for 61% of distribution. Of the top 10 bancassurance competitors in the French market, the French banks owned five in 2001.

The most successful bancassurance market in Europe by far was Spain, where the banks have grown over the last decade to dominate the market with 77% market share. Prior to 1992, banks were not allowed to distribute life assurance products. By 2002, Spanish banks owned seven of the top 10 life assurance competitors.

Whilst bancassurance has been very successful in the Latin countries, German and UK investors have resisted buying their life assurance products through bank branches.

Bancassurance in Germany has experienced the least success, sharing only 19% of the life assurance distribution market. Of the top 10 life competitors, the German banks owned two in 2001.

The UK market is slightly more complex due to the dominance of the IFA channel in the distribution of retail life, pensions and investment products. Distribution figures show that banks have cornered only 17.7% of the life assurance distribution market. However, this does not mean that the banks have not taken an interest in life assurance; four of the top 10 competitors in the life assurance market are bank-owned. Lloyds TSB for example, distributes Scottish Widows life assurance products through its branches, but Scottish Widows also distributes its products through IFAs, the preferred channel for UK investors.

Unit linked policies

The mainstay of life bancassurance - unit linked policies - have suffered at the hands of world stockmarkets. Unit linked products such as endowment policies, which have two components - savings and life assurance - have no minimum income guaranteed, instead income is directly linked to the underlying fund in which money is invested. The endowment buys specific units in stock market-linked investments, which can go up and down in value daily. Because of the fact that unit-linked policies can take advantage of the stock market performance, they have the potential for greater and faster growth than other products such as with-profits endowments. However, as with any potential for greater return, there is also an increased risk that the unit-linked policy may produce much lower returns than a with-profits policy, in cases where the stock markets decline, as seen in years 2001 and 2003.

Before the year 2001 unit-linked insurance policies were showing significant growth all over Europe, however the events of September 11, 2001, and the global recession that followed, saw the worldwide stock markets decline significantly, which meant that returns on unit-linked insurance fell beyond the contributions value (resulting in the value of the unit-linked policy being lower than the sum of the contributions invested).

Since the trust in equities has now been shaken, consumers are more reluctant to opt for products with an element of equity included. According to industry experts, since the memory of past events in finance is rather short, unit-linked products are likely to pick up again in the future.

In the UK for example, sales of unit-linked life products have decreased dramatically in both endowments (savings) and whole life (protection). New business in endowment policies and whole life decreased by 31.2% and 20.6% over the period 2000 to 2002 compounded annually.

Opportunities in European bancassurance

The results of a survey of industry experts ‘Bancassurance Opportunities in Europe’ (survey of 52 banks and life assurors across the UK, Germany, France, Spain and Italy conducted in 2003) concerning the issues of bancassurance in Europe indicated that the outlook for bancassurance was extremely positive with 81.6% of respondents believing there to be further opportunities. With 77% of life assurance premium income coming via the bancassurance channel, it would seem the opportunities for further dramatic growth in the Spanish market for life bancassurance are limited. However, 90% of respondents believe that there are still plenty more opportunities in the Spanish market.

Respondents believed that these opportunities would open up for banks launching their own life companies rather than forming partnerships. The largest banks such as La Caixa and BBVA, which hold their own life assurers, were exemplified as the best bancassurance models in the Spanish market.

Going forward, only 10% of respondents regarded the need for independent advice as a threat to the bancassurance model. However, more quality advice offered by the banks was seen as a key factor in the continued growth of the bancassurance channel. Whilst brokers and IFAs do not dominate, they do hold significant market share to influence the growth of life bancassurance and banks will need to be able to offer a rival advisory service.

The dynamic changes in the tax regimes across the various countries will increase the desire for advice. With more and more diverse products entering the European markets, each with its own tax advantages, the need for expert advice will become ever more important. Over recent years there have been changes and proposed changes that have both boosted and dampened growth in premium income in the life bancassurance arena. In Germany, proposed changes to the tax regulations on life assurance products in 1999 caused a surge in sales of endowment policies, with investors rushing to buy up policies before taxation was implemented. The effects of taxation on investor sentiment should not be underestimated.

Regulations

Depolarisation in the UK that will allow non-independent institutions to offer life and pensions products of more than ones provider, coupled with the introduction of more and more simple products will offer a competitive advantage to banks. UK banks will be able to capitalise on their large customer bases and distribution networks to sell more products and take market share away from the IFAs. Simpler products will reduce the need for investors to pay for advice through IFAs when advice on various products will be available on the high street through local bank branches.

Retirement provision in Germany is undergoing significant changes after the Pension Reform was passed in May 2001. This created both opportunities and threats for those concerned, including the government, product providers and consumers. The German government is trying to shift the responsibility for pension provision away from the state and onto the individual. A new set of Riester life assurance and pensions products was created that can be sold by any institution, this could pave the way for banks to target existing customers who are concerned about their retirement provision, in turn enabling banks to capture a larger market share.