Aug 1, 2007

The time is on for bancassurance in CEE

CEE economies have been enjoying tremendous momentum for the past decade and the path is likely to continue. Insurance markets have been following this path and will – applying correlations of insurance penetration and GDP per capita – expand their share in the overall economies.

Beyond this top line growth momentum, CEE insurance markets have undergone significant structural changes. With new regulatory schemes, fast product innovation cycles, market consolidation driven by international market entrants and with growing customer sophistication many markets have closed quite a bit of the development gap compared to mature insurance markets.

Distribution innovation is one of the key pillars of market change – and the time is now ‘on’ for bancassurance emerging as a strong force of top line growth and market restructuring, especially in life & pensions but to some extent also in non life insurance. Bancassurance’s share in the channel mix has been rising in most CEE markets, though from differing levels. For example, bancassurance share of life & pension new business in Poland has soared from 3% in 2000 to more than 14% in 2005. This gain in share, in an overall fast growing market, happens mainly at the expense of traditional direct sales forces and less professional tied agents’ networks. This is a pattern which we at Oliver Wyman have been observing many times in similar market situations, e.g. in Korea. Typically, regulatory changes drive professionalizing or convergence around financial planning offers new opportunities for banks.

While the macro perspective provides great opportunities for bancassurance we observe that bancassurance success is largely skewed between very effective models and many businesses not exploiting the opportunity. Productivities are even more skewed than in other channels and value chain functions.

Soul searching often starts with the strategic question: being a pure product specialist or working within a broader partnership or an integrated bancassurance operation does not necessarily explain success and failure. Neither are typical mono-dimensional hypotheses like distribution support, incentives, co-branding etc.

Instead, we identify that a consistent and strict structuring of bancassurance models into three product driven pillars – each with distinct characteristics and business design parameters – is the key to an effective bancassurance model:

§         Annex business comprises all insurance products which are sold embedded or linked with a carrier banking product. Full product and process integration is key for these and annex ratios of up to 100% are feasible for these. In many CEE markets we see this product pillar being focus at the moment. An example is KBC’s integrated annex model which achieves impressive annex ratios across CEE markets.

§         Transactional business comprises simple, often investment-oriented products sold ‘over-the-counter by bank tellers ideally in a short single-step process. These products often use tax incentives, are often single premium and switch assets from liquidity or other savings into a life insurance product. A typical productivity metrics we apply for this business is # of contracts per sales staff. Examples of successful transactional businesses include Aviva and Citibank

§         Advisory business finally is the most difficult and complex sales process. It requires specialist expertise and therefore often a multi-step process around retirement planning, investments and savings. The selling process may include referrals and largely depends on sophisticated customer selection, transparent advice and good customer relationships.

Why are these models in our opinion so important for the beginning dynamics in CEE? The reason is quite simple: Bancassurance is emerging and developing now. Embedding best practices from day one can make the difference – as can adversely do ineffective selling approaches and business models.

Be it as product specialist seeking multiple bank partners, as a strategic partner or as an integrated bancassurance operation – the new channel emerging is powerful, provides opportunity and will gain further relevance in CEE life & pension. Building state-of-the-art business models in bancassurance will be the key to fully tap into this new opportunity.  

Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm works with clients to deliver sustained shareholder value growth. The firm has more than 35 years experience serving Global 1000 clients with a staff of 2,500 operating from offices in more than 40 cities in 16 countries.