Bancassurance has been around a while, and the UK it was heralded as “the next revolution in finance.” Banks such as NatWest and Barclays created their own insurance companies with a view to selling the products of those companies to their banking client base. But by 1996, Bancassurance growth in the UK had slowed to…well pretty much nothing, and now the phenomenon is but a dim memory.
However, that is not the case in the much of the rest of the world it seems. Other parts of Europe as well as Middle East, Africa and Asia Pacific have found it a highly effective means of provisioning their customers who are in need of insurance and savings provision at just the right level, rapidly becoming coined the “Big Banc Theory”.
A brief search will readily reveal continuing optimism of EMEA/APAC growth of this sector. Here are a few comments from the International Banker from August 2015 which lends some perspective
ASIA: “Some of the fastest growth markets for bancassurance activity include India, Korea, Singapore, Indonesia and the Philippines, and many countries are exhibiting an evolving Asian bancassurance structure that involves several foreign insurers competing in the limited space currently occupied by the relatively few domestic bank distribution platforms.”
EUROPE: “Despite the onslaught of financial regulation that European banks have endured since the financial crisis, the region still leads the way for bancassurance in terms of global market share. Life insurance and long-term saving products have historically dominated European bancassurance, although non-life products have become more attractive and easier to mediate in recent years.”
The Europe quote is quite handy actually, as it mentions legislation using the “despite” word. I think in the sense that legislation tends to make operations trickier. But, there is opportunity even with legislation, as we make a virtue of the provision of using guided advice in an organized and well-structured manner. Guided advice, I understand, is becoming superseded by the splendid phrase “Robo Advice” and comes in three flavors:
This sort of brings a digital distribution angle into the bancassurance discussion, so with Full Robo we have a banking client using facilities at their disposal to perform their own evaluation, get some quotes and then make a purchase.
Mainly Robo is where the banking client makes use of the facility to engage in some light interaction with includes some online chat or telephone discussion.
The Half Robo being where an advisor from the Bancassurance firm is more instrumentally involved in the process, putting a human face and personalization of service on things.
These are not definitive descriptions of course, but they articulate the principle.
So possibly a workable Robo process from the Bancassurance perspective could be based on the Modern Portfolio Theory (MPT) under which there is an algorithm taking into account assets, income, expected return, risk assumptions and so forth used to perform the calculations and guide ones client to a satisfactory and acceptable decision and outcome. So I guess this is a nice new thing then, perhaps as MPT was first introduced in 1952 in an Essay by one Harry Max Markowitz born August 28th 1927 in Chicago, Illinois for which he won a Nobel Prize in economics!
Deloitte reckons that “Digital, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments. But we have seen only the beginning of what automated advice can become. Big data and advanced analytics have the potential to broaden the scope of Robo Advice dramatically, incorporating financial planning into broader retirement, health, and wellbeing, and enabling quasi institutional research. Robo-Advice could then impact all investor segments, not just the mass-market and mass affluent retail investors. Robo-Advice is here to stay and poised to evolve into much more disruptive and wide-ranging forms of advice” (Deloitte, Robo Advisors: Capitalizing on a growing opportunity, 2015).
Know Your Customer
I’ll get back to distribution a bit later, but let’s talk about legislation for a while longer, as the Insurance Regulatory and Development Authority of India (IRDA) is proving a most intriguing distraction. According to the ENS Economic Review in Mumbai in August 2015, the IRDA “has allowed banks to tie up with a maximum of nine insurers from three segments —life, non–life and standalone health insurers — as part of the new bancassurance guidelines”. This article introduces a concept key to the developing proposition, something which whilst emphasized by IRDA, is relevant to Bancassurers or any institution offering financial products anywhere they operate, and that is a common Know Your Customer (KYC) approach.
KYC is an established foundation of properly conducted financial planning, whether a light touch, guided or full blown fee-for-service advisor. If you don’t have the facts, you cannot perform a meaningful analysis of the customer’s needs, and therefore cannot substantiate the rationale behind the purchase. Without a good KYC foundation, it can be “tricky” for a bank to justify to a regulator why any form of financial product purchase is allowed if this foundational fact gathering (even if it’s initiated by the purchaser themselves) has not been performed.
So, Know your Customer is only one of the many to come as the market develops. Which again brings me back to distribution nicely (as promised), and how KYC information is gathered, stored, tracked and utilized in the greater financial planning process. It’s all about communication, and IRDA’s proclamation is proving really quite useful here, where a Bancassurer can interact and conduct business with multiple insurance carriers covering Property and Casualty, Life and Annuity and Health Insurance. So another challenge beyond KYC is how to coordinate communications across the participating parties. This aspect will come under further scrutiny as the reach of Bancassurance expands, and the use of disparate emails, spreadsheets and custom “front ends” may be found lacking.
Building a Customer Gateway
So we can anticipate the expansion of some in-house custom developments. Or perhaps we’ll see bits and pieces purchases of some webby communications technology which will be strung together. Or maybe there will be some new products entering the market from IT vendors to the banking industry. Bancassurance clearly is not banking though; it is Insurance plus Short/Long Term Savings, which requires additional views on the customer and a very different basis for analysis and communication of information and process status.
So we really need to start with a built-for-purpose communication gateway. This needs to be done to cover the fundamentals before venturing forth to create additional facilities that will make the whole Bancassurance enterprise run more smoothly and satisfy the needs of the end customer, the Bancassurer, the Insurer, and regulators.
In part 1 of this Bancassurance series, we have established the need for said Gateway as well as the need for a Robo Advice facility which can facilitate MBT or equivalent. In Part 2 of the series, we shall expand this discussion to cover the challenges associated with the whole enterprise and how Bancassurers can address them.
In the meantime, take a look at a video that describes the Oracle Insurance Bancassurance Platform.