Bancassurance Love Story. A New (Digital) Chapter

When Banking met Insurance…

This love story starts in France (well, no surprise here). Bancassurance emerged in the 1970s in the country of ‘amour’ and then spread throughout the world.?When banking met insurance, they gave a birth to Bancassurance – a unique combination of those two financial universes. Bancassurance means offering insurance products to banking clients through banking channels. The marriage of those two was not always easy and the bancassurance ‘baby’ had its ups and downs. However, it has survived misselling affairs, the financial crisis in 2008, IDD regulatory tsunami, just mentioning the most severe moments of its childhood and adolescence.

Bancassurance Baby Turns Into an Adult

Today, the bancassurance is an adult. And despite all the trouble experienced in the past, it is worth billions. Worldwide bancassurance annual premium is above EUR 600 billion and it is still growing, however at a slower rate. Bancassurance has expanded globally, gaining strong footholds in Asia and America, but the leading bancassurance markets remain European countries: France, Spain, Italy, UK, Germany. The bancassurance distribution is dominated by banking giants such as BNP Paribas, Credit Agricole, ING. A leading insurance provider is BNP Paribas Cardif, which holds the greatest number of bancassurance partnerships amongst the 500 largest financial groups in the world.

A Sybarite Loving Personal Interactions

Since its birthday, the bancassurance has been dominated by life insurance and savings products, which have higher average premiums, commissions and were more bank-related (e.g. life insurance policies covering repayment of mortgage loans). Very recently, non-life insurance products have started to take off. The secret of success of bancassurance was its heavy reliance on personal interactions. Many bancassurance deals were focused on incentivising and selling insurance through the banks’ physical branches. But nowadays, when customer preferences are shifting to digital channels and the banks themselves are reducing their network to put their costs down, the branch network has become less of an advantage. To put it simply, if banking customers visit branches less often, the banks have fewer opportunities to promote insurance products among their clients.

It’s Time to Mature… Digitally!

Challenges of the digital era have put a significant pressure on traditional bancassurance. It is difficult to achieve scale only on a human level and provide competitive pricing, coverage and unique features, when new agile players like InsurTech companies are moving more quickly. To adapt to the new digital reality, the banks need to transform their branch model to so called “phygital”- a fusion of online and offline customer experience. Bancassurance, as a vital part of this new experience, should provide more modular, personalized and relevant offerings, based on deep understanding of the customer needs and their preferences regarding the time, place and ways of interactions. ??

There are at least three key drivers which are forcing the 'analogue' bancassurance baby to become more digitally matured.

• Earnings Pressure is Increasing

Banks are confronted with declining earnings due to ongoing ultra-low or zero interest rates. They are also threatened by the risk of credit defaults as the result of Covid-19 crisis. Against this backdrop, banks and insurers find themselves under the pressure to develop new sources of income. Digital bancassurance is an obvious strategy to increase commission revenues through the direct sale of insurance policies to customers.

• Customers Habits are Changing

Both banks and insurers are facing shifting customer preferences. Fewer and fewer customers are willing to visit branches to meet with personal advisors.?Instead, clients expect solutions that allow them to manage their financial affairs remotely, sitting comfortably on the sofa at home. A satisfying customer experience can be provided by the 360-degree client view in online and mobile banking applications, which do not force customers to log into different portals where they can see only a small part of their finances.

• New Oil (Data) is Refined

The EU payment directive PSD2 ends the monopoly of banks on access to account data. Thanks to open banking, insurers and other third party providers are now able to access account bank data via standardised interfaces (APIs), if they receive an authorisation from customers. Until now, insurers have been equipped with isolated and static data covering a small part of their customers' lives. They were lacking data on daily activities of clients. Banks, on the other hand, hold a massive amount of transactional data.

InsurTech - New Data Refining Equipment

In a digital era, data utilisation is fuelled by new technologies and increased connectivity of smart solutions like cars, goods, machines, even humans armed with telematic devices. Thanks to Internet of Things, combined with Big Data, Artificial Intelligence and Machine Learning, new levels of data from different sources can be analysed in real time, and converted into the bancassurance offer which is more personalized, relevant and rewarding for clients. For example, in telematics-based car insurance, customers can receive a detailed analysis of their driving style via a dashboard in a banking mobile application. It can also automatically display tips for improving the driving score or introduce contests and rewards for safe driving. In life and health insurance, we can imagine individualized challenges provided to customers based on the number of steps and kilometers registered by mobile phones or smart wearables.

How Can Bancassurance Achieve Digital Maturity?

Since the early childhood, the bancassurance baby was brought up by its parents - banks and insurers - in at least three types of relationships. Either banks built own insurance companies to provide products within the same financial family, or they entered strategic partnerships with selected, external insurers, or banks acted as an insurance supermarket providing products from multiple insurance suppliers. Fundamentally the choices in a digital reality have not changed much, but the ways of interactions changed dramatically.

There are three examples of digitally rejuvenated bancassurance models:

• Bancassurance-as-a-Service

Platformisation of services is gaining traction across all markets and it is observed also in banking and financial sector. Bancassurance-as-a-Service describes the model of providing a digital platform for a wider range of insurers to offer their products within the umbrella of the banking ecosystem. Bancassurance platform model is particularly attractive for banks looking for a simple and quick way to tap into the digital insurance revenue pool. The model is also a natural starting point for digital neobanks entering the market, looking for ways to earn commission revenues with the growing customer base.

• Virtual Advisory

With the emergence of ‘phygital’ concept, many banks have started to offer some forms of virtual advisory services via mobile and web-enabled sales staff. Having mentioned the importance of Face-to-Face advice in bancassurance, it is natural that insurance, at least more complex products like life, savings and corporate insurance, can be adopted and sold during virtual discussions. Again, new technologies like Artificial Intelligence, Augmented Reality and Blockchain, play a crucial role in designing a smooth remote sales process – from data capture, analytics, product visualization, compliance checks to remote signatures.

• ?Embedded Bancassurance

Embedded insurance is a part of the larger trend of Embedded Finance and it’s defined as a complete digital integration of the insurance with a core product or service. It offers added value relevant to a customer at the point of sale when the risk is on top of his mind. We may say that insurance is bought, not sold, contextually linked with the banking transaction and the main purchase, easily understood, and accessed by clients. Listed amongst the top insurance trends of 2021, embedded insurance has the potential to add enormous value to the insurance market with unique value propositions, distinguishing insurance providers from their competitors and helping banks transform the traditional bancassurance offer to the digital one.

Finally - What Are the Benefits?

All key stakeholders can enjoy a full bowl of fruits thanks to bancassurance digitization.

? ‘Win’ for Banks – a digitally enhanced bancassurance proposition helps banks to attract new customers, increase retention, and create new revenue streams. Until now it was difficult and a long-lasting process to integrate an insurer’s old legacy technology with a bank’s digital platform. InsurTech helps to overcome this issue.

? ‘Win’ for Insurers – a digital bancassurance distribution gives insurers a high margin access to more banking clients and more data, which may be used for creation of innovative and personalised offers and also lead to better insurance risk selection, mitigation and prevention.

? ‘Win’ for Customers – technology driven bancassurance solutions provide customers with a better digital experience, simplify a buying process and ideally match protection to the time of need. Customers can buy the right coverage at the right time with just a touch of a button, and they know that the claims will be handled in the same easy way.

Broker - a Key Actor in the Love Triangle

Banks and insurers are in urgent need of bancassurance digitization in one way or another. The digital transition might be a time-consuming and costly process, therefore it makes sense to harness a third partner like a technology equipped broker, who can act as a facilitator between the bank and insurer and guarantee a smooth process of plugging insurance into the banking digital ecosystem. A broker borrows underwriting authority from fronting insurers, offloads risk to reinsurers, brings technical efficiency to underwriting, customer acquisition, claims handling and policy retention. Armed with smart, cloud based API, which offers advanced digital capabilities, data analysis in real time, and much more, a knowledgeable partner can ensure a successful transition of bancassurance from the analogue childhood of the 1970s to the digital adulthood of tomorrow.