The fusion of banking and insurance, or in other words, bancassurance, is a cooperative system between banks and insurance firms that facilitates the sale of insurance services to bank customers. This arrangement breeds mutual benefits for both institutions: banks acquire additional gains through the sale of insurance products while insurance firms broaden their client base without needing to expand their sales force.
Although prevalent in Europe, with powerhouses like Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands) controlling the global bancassurance trade, the scenario significantly deviates across countries. According to a 2013 research, Italy, Spain, France, and Austria fervently utilize bancassurance for life insurance sales, while it holds lesser share in Eastern Europe. For countries like the United Kingdom and Ireland, this concept is virtually non-existent.
The United States trails behind in adopting this approach. Hesitation was drawn from a disputed argument about whether banks should be given the liberty to sell insurance. Concerns included the possibility of unjust competition for insurance agents, probable threats to the banking sector, and the likelihood of banks coercing customers to avail insurance for loan approvals.
Supporters, on the contrary, argued that this arrangement would yield profits for both banks and insurance companies, convenience for customers and potentially lower insurance prices through increased competition.
The 1956 Bank Holding Company Act significantly hindered numerous large national banks from selling insurance products. The constraints, however, were largely applicable depending on the nature of the bank and the governing body. By the 1980s, most types of insurance were allowed to be sold by state-chartered banks in various states. Moreover, in small towns with populations under 6,000, all kinds of insurance could be sold by bank holding companies, national banks, and certain state banks.
In 1999, some of the hangovers from restrictions on U.S. banks selling insurance products were eradicated by the federal Gramm-Leach-Bliley Act while preserving the states' authority to manage other insurance-related aspects.
Increasingly, the global market of bancassurance is expanding, particularly in life insurance sales and more so in the Asia-Pacific region. A report by the research and consulting firm IMARC Group highlights that bancassurance held a global value of $1.268 trillion in 2021 and forecasts the market to grow by 5.9% per year, reaching $1.802 trillion by 2027. Driving this trend is a growing aged population requiring health and life insurance along with retirement plans.
Bancassurance brings with it mixed reviews from customers. The convenience of purchasing insurance from banks provides an advantage, especially in rural areas where insurance agents are few. This comfort might persuade more Americans who require life insurance to make an investment. But on the other hand, the seeming simplicity might dissuade clients from shopping around for the best insurance prices. The qualifying experience of bank employees to advise customers on insurance matters also remains dubious.
For participating banks, the possible reputational risk exists if the recommended insurance products prove insufficient or inappropriate for customers. Nonetheless, the French-rooted bancassurance, originating in the 1970s, shows substantial growth, primarily in the life insurance sector, and gaining traction in the United States.
However, in the U.S., individual states continue to regulate insurance product sales and practices, as well as licensing insurance salespeople. Yet, the enactment of the Gramm-Leach-Bliley Act in 1999 stipulates that state laws generally cannot hinder insurance activities carried out by national banks and their subsidiaries," as per the Office of the Comptroller of the Currency.
Consumers can avail a wide array of insurances at their local banks varying on the country and bank including life, health, and property and casualty insurance – life insurance being the primary product in the U.S. and across major parts of the globe.
Bancassurance, while being a sales medium for insurance products via banks, prevalent across much of the world and garnering acceptance in the United States, can be a significantly lucrative venture. For consumers, it means convenience, although the lure of simplicity might curtail comparison shopping and limit access to expert advice.