The value of commissions earned through bancassurance – the sale of retail insurance products to a commercial bank’s client base – is set to grow at a CAGR of 5.29% globally between 2013 and 2017. However, this growth is not evenly distributed between regions, with the distinct features of emerging markets fostering the vast majority of this growth.
Asia-Pacific – An Emerging Channel
In Asia-Pacific, bancassurance is still an emerging channel, with most markets still dominated by traditional channels such as agencies and direct marketing. However, the region’s declining interest rates – which have a detrimental effect on the remuneration offered by bank savings – have sparked a growth in the demand for savings based insurance products offered by bancassurance ventures. Furthermore, the Asia-Pacific bancassurance sector has swelled thanks to the entry of large foreign insurance players into the market, who are primarily targeting the region’s high net worth individuals.
Further drivers in the Asia-Pacific bancassurance market include the dramatic improvement in customer service facilities, the use of CRM technology, and the increasing use and effectiveness of automated sales and servicing systems. With these shifts in the market, strong growth is forecast for the Asia-Pacific region, with Japan, South Korean, China and India set for a combined CAGR in the life sector of 19.04% between 2006 and 2016.
Europe Strides Ahead
Bancassurance originated in Europe, where it holds one third of the total market share. As such, many of its bancassurance markets – such as France, Italy and Spain – have reached maturity. Whilst declining interest rates and reductions in social spending – which boosts demand for private insurance that can be met by bancassurance ventures – are still likely to yield growth in these markets, it is forecast to be minimal.
Conversely, Europe’s emerging markets of Turkey and Poland are set to grow significantly, with a projected combined average CAGR of 14.94%. This is primarily due to the low levels of insurance penetration in those countries, coupled with attractive investment related life insurance and retirement savings products that are in high demand.
Latin America Offers Growth
There is a relatively high penetration of bancassurance in the majority of Latin American states, with countries such as Brazil and Mexico benefitting from a favourable regulatory landscape and the presence of large foreign players who have successfully captured large client bases by partnering with banks. A combination of low insurance penetration and high bank penetration presents significant growth potential for bancassurance ventures, facilitating their easy distribution of insurance products to large customer segments that are not covered by traditional distribution channels.
The significant exception to this trend is Chile, where direct marketing by large foreign insurers dominated the market and slowed the growth of the bancassurance channel. However, aggressive marketing and attractive product offerings, combined with a high demand for pension products is set to reverse this trend, and bancassurance growth is forecast to rebound dramatically until 2016.
The United States – A Struggling Channel
Despite early indications that bancassurance market penetration in life insurance might achieve levels comparable to Europe’s 33.3%, US banks have in reality struggled to achieve a market share of 2%. Furthermore, the US joins the UK as the only markets where the value of commissions earned through bancassurance is set to drop.
The 1999 Gramm-Leach-Bliley (GLB) legislation that deregulated the US’ financial structure – in part as an attempt to emulate the success of the European bancassurance market – brought high hopes, and whilst it has contributed to the growth of bancassurance in the US, comparable success has proven elusive. A factor in this slow growth may be attributed to the almost total separation between the insurance provider and bank distributor in the US market, where banks essentially just sell third-party insurance products to their clients. Whilst this model is low-risk, and offers high commission and fee income, it has higher costs and lower efficiency than the integrated model.
Thus, the insurance market in the US is dominated by more established channels such as agencies and brokers.
