DBRS: Bancassurance – North America Trails Europe & Asia
Banking Organizations, Insurance OrganizationsDBRS Limited (DBRS) published a commentary titled “Bancassurance: North America Trails Europe & Asia.” The bancassurance distribution framework is strongly embedded in Europe and is growing in Asian markets, as insurance companies and banks seek to diversify revenue streams and expand product distribution. However, regulatory intervention and market dynamics have constrained the expansion of bancassurance in North America.
DBRS views that bancassurance is an important conduit for the distribution of insurance products globally, particularly in life insurance, where it has outperformed other channels. The bancassurance distribution model is very attractive because it allows banks to diversify their revenue stream, which decreases their dependence on net interest income, particularly during times of interest rate compression. On the other hand, insurance companies can benefit from growing sales without incurring excessive distributions costs.
DBRS notes that the percentage of insurance premiums written globally through bancassurance has grown faster than other channels, as more insurers seek to expand their distribution strategy. Bancassurance sales as a percentage of global combined life and non-life insurance premiums written (including Property and Casualty) was estimated at 15.5% (EUR 510 billion) in 2011 and has grown to 16.5% (EUR 724 billion ) as of 2017.
The bancassurance model has been particularly successful in the distribution of life insurance products. For instance, tax advantages of certain life insurance policies, such as access to the accumulated cash value of a whole life policy on a tax-deferred basis, have contributed to the increase in life insurance activity through the bancassurance channel in some countries.
DBRS notes that the bancassurance distribution strategy is entrenched in the European market where regulation in most markets has been favourable for decades. The enactment of the Gramm-Leach-Bliley Act of 1999 removed part of the bancassurance barriers faced by U.S. financial institutions, which prevented bank holding companies from owning other financial institutions and selling insurance products through their branches. However, this distribution model is still not as popular in the United States as it is in Europe and Asia. In Canada, there are regulatory barriers that do not permit banks to cross-sell most insurance and banking products in the same location (except in the province of Québec).
A copy of this commentary is available by contacting us at info@ dbrs.com .
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