Following the deregulation of the financial sector in Australia in the 1980s and the 1990s, the life insurance industry saw a phase of brisk change and reorganisation. The integration of financial service provisions and the rise of bancassurance were an outcome of the rapid changes that came about. The early bancassurance partnerships in Australia usually consisted of agreements between banks and life insurers as in the case of AMP with Westpac. This alliance gave AMP access to the distribution network of the bank which was used to promote and sell life products and services.
With the foremost bancassurance model being the multi subsidiary company model, the leading insurance firms began to offer integrated financial services. Businesses like Colonial, National Mutual and AMP grew into “allfinanz” institutions offering the full range of financial services from banking to insurance to financial planning for its clients.
With the consolidation of the bancassurance business in Australia and the growth in the bancassurance channel, the sector has seen a steady uptick. Major lender ING, that divested its all its insurance businesses a few years ago, signed a multi-country bancassurance deal with AXA in June 2018. This exclusive, long-term combination brings about a competitive advantage for both parties with collaboration on property & casualty, health and protection, insurance products and services. This fully digital integration features INGs mobile application and connects with the bank’s 13 million customers in Australia, Austria, Czech Republic, France, Germany, and Italy and brings them on to a central insurance platform.
The current state of bancassurance
Mostly consisting of four big domestic banks, a big life insurance company and one bank insurer, the Australian life insurance market is led predominantly by the bancassurance channel. After initial upheavals in its infancy, the bancassurance market in Australia seems fairly stable for now. However, with the possibilities of changes in regulations looming large, there could be a fundamental change in the Australian bancassurance market. Right from the 1990s when the largest banks acquired a sizable chunk of the fund management and life insurance business, the bancassurance model in Australia tends to be focused on the life insurance market. The bancassurance model in Australia is driven through various channels — third party financial groups, bank owned financial planning networks, bank branches and also via traditional call centres and web sites. Life insurance is still predominantly coupled with wealth management products for both retail and corporate customers but is increasingly being sold together with lending products (consumer credit insurance) and through direct channels, which have lower distribution costs and generally higher returns compared to traditional channels.
What’s driving the market?
Although Australia’s bancassurance market seems fairly stable today, there are a few factors that could considerably influence this channel in the future.
- The recent introduction of the conglomerate capital standard applicable to banks in Australia, is one that could very well have a major impact on the capital requirement for life insurance businesses. This will result in a direct impact on the return on capital for banks.
- Mid to high single digit ROEs are achieved by most of the Australian life insurance businesses however, the big banks target mid-teen ROEs which causes an ROE drag for the group as a whole.
- Mandatory conduct risk reviews and the burgeoning trend toward simplifying corporate structures may also create additional pressures on the sector.
- Additionally, banks are also confronted with capital pressures resulting from Basel III rules and local APRA regulatory imposts, which bring capital management and efficiency under unrelenting focus.
The road ahead
Depending on how the upcoming government mandates and policies are applied, some banks may focus on high ROE segments which will ultimately result in portfolio rationalisation. Other banks could take a call to rework strategies and outlook and reduce their expectations on returns to be in line with global levels. Either way, going by current trends, the bancassurance market in Australia is set to diversify with systemic changes to strategies until they are able to forge the most suitable way ahead.
It is imperative however, for bancassurance to recalibrate, reengineer and implement a new growth model for the future — one that will make the most of emerging new technologies and also meet the ever growing demands of their customers. Bancassurance of the future will need to be more digital, more intuitive and more seamlessly integrated into the banking relationships and experiences of the customer. And finally, bancassurance will need to be completely focused on the demand of its customers in order to succeed in the customer-need-driven economics of today.
Digital rings in changes to customer preferences
What was earlier perceived as enviable — a large network of branches in physical locations, has lost a lot of its pre-eminence as customers show a marked preference for digital channels and banks are also cutting down costs by reducing their network of branches. With customers visiting branches less frequently, banks do not have as many opportunities as they earlier did, to offer insurance products to their customers. Most of the customer visits to branches now, are mainly to resolve concerns that they have. And this might not be the ideal time for banks to offer to facilitate insurance covers for their clients.
After having paid large sums of money to banks by way of bancassurance agreements covering many years, many insurers might now wonder if they made the right decision. However, the only option left to insurers now is to invest significantly once again — to improve their own digital offerings to customers. Unfortunately this is not an easy task for them either as most of these digital offerings are often way behind the banks as a result of enormous changes required to the legacy systems that insurers are burdened with.
The solution to this new reality is for banks to restructure their branch models. The branches need to shift focus on to advisory services for wealth management and target specific segments of customers. This is where insurance will find it’s new niche — as a part of the larger specialised offering that banks can present to targeted customer groups based on an in-depth understanding of the customer — driven by customer analytics.
Solving challenges through partnership
A close coordination and collaboration between banks and insurers is a key factor in trouble shooting and streamlining the bancassurance sales and service pipeline. For example, an ideal omnichannel strategy for insurance will need banks and insurers to work closely and in complete harmony to plan and deploy efficient and effective digital products and digital solutions to meet customer expectations.
With the rich insights that banks can garner from the extensive financial data of their customers, and their experience of customer behaviour over many years of interactions, banks can work closely with insurers to develop omni channel platforms and offer bespoke insurance products that will benefit their various customer segments.
The collaboration between banks and insurers is critical to streamlining of operating procedures. This facilitates hassle free data collection and analysis and enables seamless customer referrals and data retrieval. Customers will then have access to an effective and efficient single interaction with the insurer who has easy access to all their relevant data and they will not need to provide the same data to different departments, multiple times.
While both insurers and banks have their own intrinsic advantages, their cooperation in tackling the regulatory burden will ensure that they have a robust, data driven tailored and seamless offering for customers. This will help them to leverage on their strengths to navigate the regulatory minefield and avoid the usual pitfalls of misconduct issues that often crop up today.
In order to make bancassurance work well for all the stakeholders, the underlying objective must be to build strong and unambiguous partnerships with collaborative organisations. This might require that there are fewer partnerships built so that the stakeholders can concentrate all their resources to making a success of their investment deployment and efforts.
Some of the bancassurance successes include banks in India that offer insurance products to their customers through online channels that are supported by call centres. These initiatives have seen success with a large number of life and travel insurance products being sold via these channels. Other notable successes have been seen with claims processing workflows where photographs taken with mobile phone cameras and real time AI enabled assessment able to provide much faster claim resolution to customers.
Digital transformation — The way forward for banks and insurers
- Improve customer engagement and customer experience by focusing on the larger financial objectives of different target customer groups; example: planning for retirement, wealth management and financial planning for family entities.
- The advisory role of the branch staff must be augmented integrating regulatory requirements to provide customers with a seamless omnichannel process.
- Customised insurance offerings can be offered by setting up relevant and curated customer data sets to allow joint customer analytics by the bank and the insurer.
- In order to retain the possibilities of including relevant third parties for holistic customer propositions (example, for health insurance), a digital open standards platform should be set up with the bank and the insurer to support customer omnichannel access.
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