Bankers and insurers have always had a difficult relationship. In the past, mergers to create bancassurance groups offering the full range of financial products under one roof have often failed. German insurance giant Allianz suffered a debacle when it swallowed up Dresdner Bank in 2001, only to disgorge the institution seven years later after losing several billion euros. No wonder that in 2008 the then head of Axa, Henri de Castries, declared bancassurance dead.
But eight years on, it’s enjoying something of a renaissance. Increasingly pressured to deliver returns and faced with the upheavals of digitalization, banks and insurance companies are once again encroaching on each other’s territory. Bancassurance is back in fashion – this time in a new cloak.
“Banks and insurance companies will close ranks via distribution channels and the related processes. But that won’t mean it’s also necessary to combine them into a single company,” said the chief financial officer of Allianz, Dieter Wemmer. He’s not alone in that opinion. The head of Dutch group ING, Ralph Hamers, recently commented on the inclusion of insurance products in the digital offerings of banks: “I’m absolutely convinced this development will take place.”
“A lot of banks are interested in integrating insurance products in their digital services.”
Someone with a footing in both worlds is Felix Hufeld, president of Germany’s Federal Financial Supervisory Authority BAFIN. He is responsible for monitoring both bankers and insurers. “Consolidation will be redefined,” he stated recently. This doesn’t mean that an insurance company will buy a bank; but Mr. Hufeld could well imagine an insurer offering its customers financial products without acquiring the actual bank.
“This is a far-reaching revolution; we’ve only seen its initial stages,” said Mr. Hufeld. Insurance companies are evidently interested in getting into the lending business given the lack of attractive investments in the capital market. In 2015, insurers approved 41 percent more mortgages than the year before, as shown by figures from the insurance industry association GDV. “Insurers will most certainly increase their credit business,” said Jan Wicke, head of German operations for Talanx.
Things are the same in the other direction: Quite recently, the online subsidiary of savings bank Frankfurter Sparkasse, 1822direkt, integrated the online insurance agent getsafe into its banking app. Others will follow. “We have noticed that a lot of banks are interested in integrating insurance products in their digital services,” said Sascha Wolf, the chief operating officer of getsafe whose responsibilities include collaborations with banks and other companies.
It’s no accident that banks are acquiring a taste for insurance products. Mr. Wolf said there were two motives: commission income and the desire to boost customer loyalty by becoming their go-to place for all financial services.
“Digitalization will lead to a renaissance of the bancassurance concept.”
This is a necessary step, said Tomas Rederer, partner at the strategic consulting firm Capco: “In view of this stubborn low-interest phase, the only valid long-term strategy for banks is to expand beyond classic banking products.”
Big banks are starting to jump on the bandwagon. “I’m convinced that digitalization will lead to a renaissance of the bancassurance concept,” said Markus Pertlwieser, a senior executive responsible for digitalizing Deutsche Bank’s private and commercial clients business. For a good while now, Deutsche Bank has been working on digital solutions for bringing together various banking products. “The next logical step for us is to integrate insurance products as well,” Mr. Pertlwieser told Handelsblatt.
Mr. Hamers from ING said: “If it proves possible to digitally offer an uncomplicated and accessible insurance product, then it makes absolute sense for banks to offer that product to their customers within their digital ecosystem,” he told Handelsblatt.
There are a number of successful start-ups in this area. Investors share the upbeat outlook; in 2015, worldwide investments in insur-techs totaled some $2.7 billion, a record.
Germany is lagging behind in this regard: Since 2012, according to Barkow Consulting, the sector received a little less than €60 million, or $67 million, in venture capital.
Banks aren’t just shifting into insurance to open up new sources of revenue. They also want to make themselves indispensable to customers and are increasingly pinning their hopes on “digital eco-systems.” The underlying idea: A firm that provides its customers with a comprehensive range of financial services in its own digital universe can prevent Internet behemoths such as Google, Apple or Facebook from enticing them into alternative offerings of their own. Mr. Hamers of ING, for example, envisions the sale of accident insurance. Deutsche Bank finds it conceivable that in the future, banks could provide more property insurance.
But why should bancassurance start succeeding now when it’s failed so often before? “Ten years ago, bancassurance failed because it was too complicated for distribution,” said Mr. Pertlwieser. Without digitalization, it takes a long time to gather all the information about a customer that is necessary for advising them effectively. “Digitalization makes many things easier,” he said. For example, an insurance claim can be processed more easily if customer record the damage on their smartphones.
For Mr. Rederer from Capco, that’s not enough. He cites the relocation service a British bank is currently working on. “It won’t just provide customers with a mortgage but also help them look for the right area and the right property – and could then also provide home contents insurance for example,” he said. Another good idea, he said, was offering a center that allows customers to store their most important documents digitally.
This new kind of creativity could be crucial for banks in the long term. “It’s extremely important for banks to be able to retain customers in the digital eco-systems as long as possible,” said Mr. Rederer. As a rule, banking products are interchangeable: “In the end, money is only money.” If banks lose direct contact with their clients, that will increase the pressure on their margins. “So it’s important for banks that they are relevant to their clients beyond pure banking products.”
Yasmin Osman is a financial editor in Handelsblatt’s banking team in Frankfurt. To contact the author: firstname.lastname@example.org.