The Benefits to Banks of Bancassurance

Bancassurance is a partnership between an insurance company and a bank. The aim of bancassurance is to sell insurance products and services to bank customers. Tellers and bank employees become the main point of contact between the bank and the customer. Both parties gain. In exchange, the bank is able to grow as a business. Read on to learn more. The benefits to banks are numerous. Posted below are some of them. To get started with bancassurance, check out our guide.

Bank-owned insurance company

A bank-owned life insurance policy pays a tax-free death benefit to the policy owner, which is generally a high-paid executive. This type of policy is not available for individual purchase; instead, corporations purchase them for specific employees, usually their executives. Banks are increasingly using BOLI as a tax shelter and benefit vehicle, and purchasing policies for their executive officers and board members. These policies allow banks to cover high-value employees and board members while offsetting benefit programs.

The Royal Bank of Canada (RBC) is the largest bank in Canada, and also ranks as the largest company by market cap. RBC Insurance offers various products and services, including auto and home insurance, which are typically difficult to obtain through a bank. While this company has over five million clients in Canada, it may have the most interesting products. Despite its recent announcement, however, consumers may be unsure about the financial stability of the new company.

Partnership between a bank and an insurance company

A partnership between a bank and an insurance company, also known as bancassurance, allows banks to sell insurance products to their client base. Such partnerships are profitable for both companies, as banks can earn additional revenue from selling insurance while avoiding the cost of hiring more sales staff. Banks can also expand their client base without increasing their sales force, and insurance companies can increase their sales volume without paying agents commissions. A bank and an insurance company partnership has proven to be a successful distribution model in countries like Europe, Latin America, Asia, and the Middle East.

The benefits of a partnership between a bank and an insurance company are numerous. First, banks can tap into the existing network of bank branches. Second, a bank can leverage its branches to distribute insurance products. Moreover, banks can benefit from their extensive reach by offering insurance products and services in new ways. Third, a bank can leverage the reach and reputation of its network of bank branches. These partnerships have several advantages, including increased product and service value.

Multi-tied distribution model

The global bancassurance market is currently sizing up. With a 5.98% compound annual growth rate (CAGR) from 2014 to 2018, this channel is rapidly growing. As a result, banks and insurance companies are turning to this model to grow their businesses quickly and build their marketing channels more efficiently. To make the most of this opportunity, bank and insurers must first understand their target customer groups and then create products that meet those preferences.

The different types of bancassurance distribution models can be further classified based on the nature of their income. The integrated model is closely tied to the banking business while the advice-based model is loosely tied to it. The business model a bank chooses affects every aspect of its bancassurance activity: the company structure, sales and marketing, product design, and sales remuneration. In many countries, the development of this model was facilitated by a high degree of regulatory freedom and positive tax treatment in the 1990s. However, these tax advantages have since been phased out and the bank is now the insurer.

Benefits to banks

The main benefit of bancassurance for banks is the opportunity to extend their service offering beyond their core banking operations. In Europe, the concept is popular among major banks, including BNP Paribas and ABN AMRO. These financial institutions provide insurance companies with immediate access to millions of customers. According to recent data from the RBI, the industry is estimated to be worth $1.66 billion in 2018. Future forecasts indicate a growth of 6% per annum, mainly due to the increase in the number of insured people.

In many cases, bancassurance is the only way for a bank to sell insurance. However, this can offer a huge untapped opportunity for global expansion. Banks already have a relationship with their customers, making the opportunity to cross-sell insurance products an easy choice. And, because they already have a relationship with these customers, banks can leverage this existing relationship to create a new, risk-free income stream.

Challenges to banks

The current financial crisis has posed both structural and cyclical challenges to banks. For example, there are risks related to excessive risk-taking, which may degrade the health of a bank. For such challenges, banks may turn to more conservative and less risky measures, such as an employee stock option plan. Further, they may consider a multi-year remuneration scheme, which ties compensation to long-term results.

New technology advances are necessary to remain competitive in the current environment, but there are risks associated with their implementation. The pandemic of COVID-19 has highlighted weaknesses in bank business models and has disrupted growth strategies. In addition, banks must be agile in their cost management as the financial ramifications of COVID-19 may damage long-term value. However, these challenges can be managed by making targeted modifications to existing validation frameworks.