Long-standing barriers to banks selling insurance have prevented the “bancassurance model” from taking off in North America like it has in Europe, and increasingly, Asia, Toronto-based DBRS Ltd. said Thursday.
In a new report, the credit rating agency finds that this distribution model enabling banks to sell insurance products is “strongly embedded in Europe”, and is growing in Asian markets, too, as both banks and insurance companies seek to diversify their revenues and expand distribution.
“The bancassurance distribution model is very attractive because it allows banks to diversify their revenue stream, which decreases their dependence on net interest income, particularly during times of interest rate compression,” DBRS says in a news release.
At the same time, insurance companies enjoy growing sales without major distribution costs, it says.
“Both sides of a typical bancassurance partnership can profit from diluting their fixed costs over a larger revenue base, which potentially improves profitability,” says DBRS, and bancassurance has outperformed other insurance distribution channels when it comes to selling life insurance in recent years.
Between 2011 and 2017, bancassurance sales of life insurance enjoyed a compound annual growth rate (CAGR) of 6%, compared with 3.7% for other channels, with bancassurance growing faster than other channels, “as more insurers seek to expand their distribution strategy.”.
Over the same period, the banassurance channel’s share of global premiums written (including both life and non-life insurance) grew from 15.% in 2011 to 16.5% in 2017, DBRS reports.
Despite the model’s growing popularity in Europe and Asia, DBRS finds that “regulatory intervention and market dynamics have constrained the expansion of bancassurance in North America.”
In Canada, there have long been regulatory barriers preventing banks from selling most insurance and banking products in the same location (except in Québec), DBRS notes.
In the U.S., despite legislative reforms to eliminate barriers against bank holding companies owning other financial institutions and selling insurance in their branches, the bancassurance distribution model still isn’t as popular there as it is in the rest of the world.