Financial services have been grouped together for a long time. Packaging similar kinds of products together makes sense, but strict regulations and oversight from financial authorities have led the bancassurance market to waver in recent years. The UK in particular has seen the withdrawal of several policies from packaged bank accounts after complaints were made about age discrimination and a lack of comprehensive cover for pre-existing medical conditions.
Nonetheless, there are undeniable drivers that are going to push the bancassurance sector forwards in other markets.
Bancassurance is expected to grow over the coming years
According to a 2021 report from Research & Markets, for instance, the value of the global bancassurance market will reach almost US$1.7 billion by 2026, with a combined annual growth rate of almost six per cent. That kind of growth is difficult to imagine in many lines of insurance, so what are the driving forces behind this predicted growth?
Firstly, the world’s ageing population means that more people will need health and life insurance. Retirement ages are increasing, so the globally mobile workforce will be ageing and needing comprehensive health insurance for longer, and quite possibly for more chronic conditions. Demand will increase as this workforce retires but wishes to keep the benefits of health insurance that they have enjoyed for so long.
Increasing economic growth in developing economies is further contributing to the growth of the market. “For instance, the MetLife India Insurance Company in India entered into a strategic partnership with Punjab National Bank in 2011. MetLife got access to over 78 million bank customers in India, whereas Punjab National Bank acquired 30 per cent stakes in the company,” states Research & Markets.
“Banks form a significant distribution channel for travel insurance in a number of countries around the world,” commented David Bowles from Finaccord, “even though they remain a minor force when compared to the travel trade and specialist insurance brands.” Finaccord has published several reports on both travel insurance and bancassurance that draw on its consumer surveys and analysis of the insurance products distributed by banks, and which provide answers as to why banks see travel insurance as a viable and valuable product.
Tom Bishop, Head of Travel Insurance for Direct Line Group/UK Insurance, which partners with several banks in the UK market, agrees that banks are a ‘significant’ distribution channel for general insurance products, and are becoming more so for more specific kinds of cover such as vehicle breakdown and mobile phone. He added: “Travel insurance has been a primary feature of what were initially known as added-value accounts but are now more commonly known as ‘packaged bank accounts’ since the turn of the millennium. Several million families in the UK receive their travel insurance cover through their bank of choice, with their cover remaining in force for the duration that their bank account remains active, usually on payment of a monthly account fee.”
Adding value to accounts and core services
Banks sell travel insurance for two main reasons: to cross-sell a product thus earning commission income, and to add value to their core services. Bowles explained: “Stand-alone travel insurance policies are sold primarily for the first of these reasons, though customer retention is generally also improved by cross-selling, since the more products a customer holds from a company, the more likely they are to stay with them.”
It’s worth comparing travel insurance with motor and home insurance. The following chart shows the percentage of banks that offered each of motor, home and travel insurance to their personal customers as stand-alone policies, from a sample of 332 of the leading banks across these ten countries. As it shows, home insurance was offered most often, chiefly because it has the strongest overlap with one of the core products of retail banking, namely mortgages. As an average of these ten countries, 53 per cent of banks sold home insurance, while 43 per cent sold motor insurance.
And while the provision rates for motor and home insurance were fairly similar in each country, the pattern for travel insurance was often very different. The provision rates for travel insurance in France, Germany, Italy, and the US were all below seven per cent, far below the rates for motor and home insurance, while in Canada and China banks were actually more likely to offer travel insurance than motor or home cover. Across all these countries, the average provision rate for travel insurance was 26 per cent.
In the UK, the travel insurance products distributed by banks and building societies tend to provide relatively comprehensive cover, in that they provide a low-effort means of remaining covered without the need to go through an annual renewal cycle for most customers. They can often provide cover for elderly customers with a relatively broad risk appetite for covering pre-existing medical conditions, where such cover might be less attainable or affordable other than through specialist providers in the retail market. Bishop pointed out key limitations of the policies: hitting the upper age limit. Although even then, certain providers are able to offer cover: “Certain packaged bank providers will offer rolling cover to customers of any age on payment of a small additional premium once the customer reaches a certain age threshold, whereas those customers are likely to only be able to access single trip policies through the direct travel insurance market. Greater flexibility also exists regarding the duration of trip that packaged bank products cover – it is not uncommon to be able to purchase a cover for trips of up to 90 or 180 days through packaged bank schemes on payment of an additional premium.”
How insurance is sold depends on local cultural norms
Finaccord’s research showed that in certain countries, banks concentrate on packaged insurance, which is primarily intended to make their core banking services more attractive to customers than to generate additional commission income. “In France and the US in particular, banks sell relatively little stand-alone travel insurance, while a lot of credit cards come with some sort of travel insurance or assistance benefit,” noted Bowles. “This is especially true of premium cards and is one of the main ways that a bank can differentiate their premium cards from ordinary cards.” Finaccord found that 96 per cent of premium credit cards in France came with comprehensive travel insurance compared to just seven per cent of standard credit cards (data from 2016). In the US, credit cards rarely include health insurance because of the high costs that could potentially arise; instead, they offer travel inconvenience and travel accident insurance plus travel assistance. Analysis from 2018 found that 60 per cent or more of premium cards carried at least one of these benefits, compared to 21 per cent or less for standard credit cards.
The provision of travel insurance packaged with credit cards is lowest in Brazil, China and the UK, though the UK is unique amongst these ten countries for the way that travel insurance is included as a benefit of packaged bank accounts rather than with credit cards. Out of a total of 25 packaged accounts examined by Finaccord, 23 featured comprehensive travel insurance (data from 2016).
In Brazil, China and the US, packaged cover was rarely comprehensive insurance. Instead, customers received lower-value cover, in particular travel accident insurance and travel assistance. So, for example, customers in difficulty abroad could phone a 24-hour helpline courtesy of their credit card provider to request assistance, but they would have to pay for the costs of, say, medical treatment or lost luggage themselves.
Annual vs stand-alone insurance
For stand-alone travel insurance, banks succeed most where annual policies are important, according to Finaccord’s data. They are most successful in Canada and the UK, where annual policies made up 33 per cent and 41 per cent of the total of stand-alone policies in these countries, and where banks (and similar institutions such as credit unions and building societies) held nine per cent and 12 per cent of these stand-alone sales respectively. At the other end of the scale, meanwhile, they accounted for three per cent or less of stand-alone policies sold in China, Spain and the US (data from 2017).
“Banks in Canada and the UK also have the largest markets for packaged travel insurance and assistance, largely because of the size of their overall travel insurance markets and because most packaged policies are for comprehensive cover,” said Bowles. Finaccord estimates that stand-alone travel insurance sold by banks in Canada was worth about US$180 million in gross written premiums in 2019, plus a similar amount from packaged insurance. For the UK, the equivalent figures are about $150 million and $165 million. Banks in Brazil had the smallest travel insurance and assistance market sizes, at about $25 million, split between two-thirds coming from packaged policies and one-third from stand-alone insurance.
New relevance for bancassurance in the digital era
A 2021 survey commissioned by Cover Genius asked customers how they would react if their banks monitored their purchases and were able to offer insurance as a result of what they were buying. So they can see you’ve bought flights and hotel accommodation, and offer you travel insurance, for instance. All through your banking app. Privacy concerns aside, it sounds ideal, and customers agreed.
According to the survey results, 71 per cent per cent of British digital bank customers would be interested in receiving these kinds of offers based on transaction data, and the figure is only slightly lower (64 per cent) for traditional bank customers. The primary reason they are interested? Convenience. Insurance is seldom fun or glamourous, so why not make it just another part of the in-app functionality? Daniel Poole, Head of Strategic Partnerships EMEA for Cover Genius, pointed out that Covid has already massively boosted online interactions between customers and banks, so why not take it a step further? “Banks, neobanks and financial institutions have an opportunity to better serve their customers with embedded offers by adding value to major purchases with a tailored, convenient insurance offer.”
The survey showed that 28 per cent of respondents would be interested specifically in travel insurance products offered through their banking app. However, it is worth noting that 80 per cent of Britons surveyed who chose a traditional insurance company or broker for their last insurance purchase in the previous year would prefer a bank-embedded offer next time.
Asia-Pacific digitisation will see bancassurance boom
An accelerated pace of digitalisation in the financial sector across the Asia-Pacific region due to the Covid-19 pandemic is expected to support the growth of online life bancassurance, according to GlobalData. The company’s October 2021 report found that a prolonged period of low interest rates, aggravated by lacklustre credit growth due to the pandemic, highlighted the need for banks to diversify their revenue options. GlobalData said: “As a result, banks and insurers are leveraging technologies such as artificial intelligence, robotic process automation, open finance and blockchain to understand customers preference and provide personalised solutions in real-time. Consequently, the digital accessibility of insurance services gained traction as social distancing norms restricted functioning of traditional distribution channels like brokers and agents, which was mostly face-to-face.”
Covid-19's impact on bancassurance partnerships
The long-term impact of Covid-19 on the travel insurance market as a whole is currently unpredictable; the dust has yet to settle. This is true for distribution through banks as well as other channels. “Naturally,” Bowles pointed out, “banks will have been impacted along with other channels by a fall in single-trip policy sales in 2020 and 2021, due to the collapse in foreign travel. The impact on annual policies is likely to have been less severe, as insurers have offered rebates to encourage people to renew their policies, and as previously noted, banks are especially suited to distribute annual cover rather than single-trip policies.”
As travel recovers, one likely impact is increased awareness of travel risks and thus uptake of travel insurance. Finaccord plans to analyse this effect is in its next round of consumer research on insurance buying habits. Insurers and their banking partners will also need to respond to customer demand in terms of the risks covered: Covid-19 will continue to be a factor, as will fears of future pandemics, meaning that insurers will need to find a way to address pandemic risks and potentially increasing demand for ‘any reason’ cancellation coverage, which naturally tends to push up the price of cover.
Deblina Mitra, Senior Insurance Analyst at GlobalData, commented that overcoming the impact of Covid-19 will be driven in part by banks adopting a digital and omnichannel approach to diversify their reach. She continued: “Digitalisation in the insurance value chain to improve operational efficiencies gained momentum during the last five years. This, in turn, has provided an impetus to the online bancassurance sales. With banks being at the forefront of digital developments such as app-based services and contactless payment, they are at an advantageous position to leverage their digital infrastructure to further capture the growing online insurance business.”
With thanks to Finaccord for their contribution to this article.