Bancassurance- The Price of Persistence is Partnership!

My travels this week took me back to the Middle East where I happily traded a UK Bank Holiday for a seat at a Bancassurance conference organised by the Middle East Insurance Review.

I have been involved in bancassurance projects for a dozen years now and have seen active service in UK, Southern Europe and the emerging markets of CEE. I have attended many Bancassurance conferences as a delegate or speaker and gave the keynote address at a conference in Vienna a couple of years ago. On Tuesday, one of the early speakers- Debo Ajayi of Milliman, asked for a show of hands to determine the representation of banks and insurance companies. The result was depressingly familiar: the insurers outnumbered the bankers by a factor of 10:1, re-inforcing a view I used to hold that bancassurance is more attractive to the insurer as a channel than it is to the banker as a revenue stream. Such analysis is superficial though, especially when you consider that in many bancassurance deals today, the banks are taking the lion’s share of the profit. In addition, in recent years the degree of “churn” has increased, most often caused by the banks as they seek to drive up commissions at renewal time.

In short, the bancassurance sector is littered with failure and there is often disappointment on both sides of the deal. The insurer’s goal of Persistence is simply not being realised in many cases, making it a hugely expensive exercise. The banks also are often experiencing disappointment however, even though they have rarely had a greater appetite to earn fee-based income.

While there are usually a number of factors causing such mutual disappointment and each bancassurance case needs to be evaluated on its own merits, I believe one reason is very often at the root of the problem: it is also a reason that rarely gets uncovered in the analysis. I am going to invent a title for it- lets call it the “Sweet Spot Syndrome”. My theory goes like this: banks have large customer bases; insurance products (designed on risk demographics) typically appeal to segments of the market- put the two together and you have a product which might appeal to 5-10% of the banks customers. To parody Mr Micawber, there you have a recipe for unhappiness. Banks are disappointed with lead conversion ratios and the whole relationship with the insurer becomes purely tactical, thus higher churn rates.

As a technologist, the solution is for insurers to offer the banks a range of products which extend the appeal to a greater audience within the banks customer base. A one decimal point rating tweak can make a motor product more appealing to lady drivers; another tweak and it is a product for Over 50s etc etc- in Unirisx we have such technology and could deliver these products in less than an hour! The problem for insurers though is that today, many are severely constrained by legacy technology. One of the presenters at the conference, Saurabh Saran of ADNIC, in a refreshingly candid assessment said that in his opinion insurers were about 5 years behind banks in their use of technology (a subject I will return to in a future blog). So there you have it: insurers are locked into sweet spots and their technology is preventing them from extending their coverage.

Innovative, low cost technology is available today which would unlock the insurer restrictions, allowing them to enter into partnerships with banks based on continuous innovation through rapid product development and launch. A partnership relationship becomes more strategic, enabling a tighter integration with banks systems and processes and so facilitating more sales and Persistency.

I think Mr Micawber would have described it as Happiness.

You know, sometimes it feels like I am holding a wand…