May 15, 2006	Monday	Rabi-us-Sani 16, 1427

‘BANC’ assurance is a French term which means distribution of insurance products through banking channels. It is pronounced as ‘Allfinanz’ and describes a package of financial services that can fulfil, banking and insurance needs, both at the same time.

It takes various forms in various countries depending upon the demography and economic and legislative climate. Demographic profile of a country decides the kind of products that can be offered under ‘Banc’ assurance and the economic situation will determine the trend in terms of turnover, market share, etc.

The objective behind the ‘Banc’ assurance initiatives for bank may vary— like product diversification, source of additional fee income, value addition to bank’s own product mix etc.

Insurance companies see this as a tool for increasing their market penetration and premium turnover which the customer sees as a bonanza in terms of reduced price, high quality product and delivery at doorsteps. Everybody seems to be a winner here.  

There are several reasons for banks to seriously consider ‘Banc’ assurance, the most important being the increased return on assets (ROA). One of the best ways to increase ROA—assuming a constant asset base, is through fee income.

Banks that build fee income can cover more of their operating expenses and one way to build fee income is through the sale of insurance products. Banks who effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios.

By leveraging their strengths and finding ways to overcome their weaknesses, banks could change the face of insurance distribution. Sale of insurance products through banks meets an important set of consumer needs.

Most large retail banks engender a great deal of trust in broad segments of consumers which they can leverage in selling them a broad range of insurance products. In addition, a bank’s branch network allows the face to face contact that is so important in the sale of personal insurance.

Another advantage banks have over traditional insurance distributors is the lower cost per sales lead made possible by their sizable, loyal customer base. Banks also enjoy significant brand awareness within their geographic regions, again providing for a lower per-lead cost when advertising through print, radio and/or television. Banks that make the most of these advantages are able to penetrate their customer base and markets for above-average market share.

Its other strengths are marketing and processing capabilities. Banks have extensive experience in marketing to both existing customers (for retention and cross selling) and non-customers (for acquisition and awareness). They also have access to multiple communications channels, such as statement inserts, direct mail, ATMs, telemarketing, etc. Banks’ proficiency in using technology has resulted in improvements in transaction processing and customer service.

European banks have more than doubled the conversion ratios of lead to sales, by leveraging their reputation, multi-channel distribution like branches, call centres and direct mailing to large customer databases filtered through data mining, sales techniques and products tailored to a wide range of customer needs. As a result, they are able to bring the sales productivity to a level which was more than enough to make ‘Banc’ assurance, a highly profitable proposition.

Bank-insurance partnership: In their natural and traditional roles and with their current skills, neither banks nor insurance companies could effectively mount a ‘Banc’ assurance start-up alone. Collaboration is the key to making this new channel work.

Banks bring a variety of capabilities to the table. Most obviously, they own proprietary databases that can be tapped for middle-market warm leads. In addition, they can leverage their name recognition and reputation at both— local and regional levels.

Strong players excel at managing multiple distribution channels, cross-selling products, and using direct mail. However, most banks lack experience in several areas critical to successful ‘Banc’ assurance strategies: in particular, developing insurance products, selling through face-to-face “push” channels underwriting, and managing long-tail insurance products.

Where banks usually fall short, a strong insurer will excel. Most have substantial product and underwriting experience, strong “push” - channel capabilities, and investment management expertise. On the other hand, they tend to lack experience or ability in the areas where banks prevail. They have little or no background in managing low-cost distribution channels; they often lack local and regional name recognition and reputation; and they seldom possess access to or experience with the middle market.  

Global perspective: Until 1998, approximately 20 per cent amongst all US banks were selling insurance vs 70-90 per cent in many European countries. Market penetration of ‘Banc’ assurance in new life businesses in Europe ranges between 30 in UK to nearly 70 per cent in France. Almost 100 per cent banks in France are selling insurance products.

In 1991 Nationale Nederlanden of Netherlands merged with Post Bank, the banking subsidiary of the post office to create the ING Group - a new dimension to the Banc assurance i.e. harnessing the databank of the post office as well.

CNP, the largest independent insurance company in France has developed its product distribution through post offices. The merger of Winterthur, the Swiss insurance company with Credit Suisse and Citibank with Travellers Group has resulted in some of the largest financial conglomerates in the world.

In Spain, Belgium, Germany and France where more than 50 per cent of all new life premiums are generated by ‘Banc’ assurance, only about six per cent P&C business comes from banks in Spain, five in Belgium, and four per cent in France and Italy.

A recent study by Boston Consulting Group and Bank Administration Institute in USA claims that if banks made a major commitment to insurance and a more narrowly targeted commitment to investors, within five years they could increase retail revenues by nearly 50 per cent. It further states that:

- banks could capture 10-15 per cent of the total US insurance and investment market by selling products to 20 per cent of their existing customers.

- banks’ existing infrastructure enables them to operate at expense levels that are 30-50 per cent lower than those of traditional insurers.

-‘Banc’ assurance’s bank-branch based sales system sells 3-5 times as many insurance policies as a conventional insurance sales and distribution force.

- by simplifying ‘Banc’ assurance products, each back office bank employee can quintuple managing policies compared to traditional insurers.

Conclusion: The creation of ‘Banc’ assurance operations has a material impact on the financial services industry at large. Banks, insurance companies and traditional fund management houses are converging towards a model of global retail financial institution offering a wide array of products. It leads to the creation of ‘one-stop shop’ where a customer can apply for mortgages, pensions, savings and insurance products.

Discovery comes from looking at the same thing as everyone else but seeing something different out of the same. Banks’ desire to increase fee income has them looking at insurance. Insurance carriers and banks can become part of the vision through strategic partnerships. Now is the time to position your company for the new millennium of insurance product distribution.