European bancassurance benchmark

Corinne Legrand

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• Langue: English

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Milliman Research Report
Prepared by:
Corinne Legrand
August 2008
European
bancassurance
benchmark
European bancassurance benchmark
Corinne Legrand
August 2008European bancassurance benchmark
Corinne Legrand
August 2008Milliman
Research Report
Contents
Ex ECutivE Su MMaRy 2
Report objective 2
Methodology and structure of the report 2
Key findings 2
BaCKg Round data on Eu Rop Ean BanC aSS u RanCE 4
Bancassurance: a major distribution channel in Europe 4
Bancassurance: still seen as a key development opportunity in the European
insurance industry 5
BanC aSS u RERS Can B ui Ld on an E xCLuS ivE di StR iBution n EtwoRK B ut th E
pRoduC tivity of th E BRanCh n EtwoRK vaR iES widELy 6
average productivity per branch varies significantly across countries 6
f actors driving these differences 6
post office productivity 8
BanC aSS u RERS havE a CCESS to a C aptivE CL iEnt BaSE B ut th E aB iLity to
CRoSS-SELL in Su RanCE p RoduC tS to th E Ban K’S CLiEntS vaR iES widELy 9
penetration rates 9
how are these penetration rates achieved? 9
how can penetration rates be improved? 10
aCqui Sition E xp En SES 13
Commissions 13
analysis by type of commissions 13
non-commission acquisition expenses 14
adM ini StRation E xp En SES 15
administration expenses ratio 15
Staff ratio 16
MEthodoL ogy 17
LiSt of C oM pani ES anaL ySEd in th E Su RvEy 19Milliman
Research Report
e xe Cutive summary
Report objective
The key success factors for European bancassurers are usually measured by commercial efficiency
and low cost base.
t he objective of this Milliman The objective of this Milliman analysis is to set up a benchmark of commercial productivity and
analysis is to set up a expense levels across leading bancassurers in Europe. It focuses on bancassurance-dominated
benchmark of commercial markets — France, It aly, Spain, and Portugal, and selected pure bancassurers in Belgium, Germany,
productivity and expense and the United Kingdom.
levels across leading
bancassurers in Europe. Our analysis provides essential information to:
bancassurers present in these markets, to help them assess their performance and understand
how it can be improved
traditional insurers seeking to develop bancassurance distribution, to help them assess the
performance, development potential, and value of possible bancassurance targets
insurers in developing bancassurance markets around the world, to help them assess development
opportunities and set up performance benchmarks
In this report, we present a summary of the results of the Milliman benchmark analysis and explain the
main differences by country, by business model, and by business line.
Methodology and structure of the report
For this report, we analysed publicly available financial and commercial data for a sample of 35
bancassurers across Europe. The list of companies is shown in the appendix.
We then derived from this analysis a number of benchmark indicators:
productivity per branch
customer penetration
non-commission acquisition expenses as a percentage of new business Annual Premium
Equivalent (APE)
entry commissions as a percentage of new business APE
administration expenses as a percentage of reserves
Building on our in-depth knowledge of these bancassurance markets, we proceeded to an analysis
of these benchmark indicators to explain the main differences by country, business model, and
business line.
Key findings
Bancassurance commercial productivity, measured as premiums per branch, varies largely across
countries. The highest productivity levels are reached in mature life insurance markets in which
life insurance products are tax advantaged compared to other forms of savings products, e.g. in
France (€2.5 million per branch on average) and Belgium (€2.38 million). In countries such as Italy,
where life insurance products do not benefit from a favourable tax treatment compared to other
savings products, the commercial productivity depends largely on the level of priority assigned to
life insurance business by the bank and can vary from one to ten.
Reasonably successful bancassurers in mature life insurance markets can achieve penetration
rates of 15% to 25% of the bank’s customer base by selling fairly standardised products to
their mass-market customers and cross-selling life insurance risk products with loans and
mortgages. Bancassurers can further increase their penetration rate up to 35% and more by
expanding their life insurance product offerings to their affluent customers and by expanding
European bancassurance benchmark 2
Corinne Legrand
August 2008Milliman
Research Report
their insurance product range to new product lines, e.g. non-credit-related risk products and
non-life insurance products.
Commissions represent between 82% and 94% of acquisition expenses. Average commissions-
to-new-business APE ratios are around 35% in Italy, Spain, and Portugal, and significantly higher
in France (47%). The level of non-commission acquisition expenses varies largely by country —
from 1.9% of new business APE in Portugal to 7.7% in Italy. These differences can be driven by
different compliance requirements across countries and by different structures of sales support
implemented by companies.
The level of administration costs varies significantly across countries, from 0.08% of reserves in
France to 0.23% in Germany. This ratio is largely dependent on the size of companies and can
be as low as 0.04% for the largest bancassurers. The business model implemented — joint-
venture or fully owned companies — has limited impact, reflecting the fact that the level of IT and
administration integration between the bank and the insurance company is generally comparable
under both models.
European bancassurance benchmark 3
Corinne Legrand
August 2008Milliman
Research Report
BaC kground data on european BanCassuranCe
Bancassurance: a major distribution channel in Europe
Bancassurance is a major Bancassurance is a major distribution channel in Europe, accounting for over 60% of individual life
distribution channel in Europe, insurance premiums in France, Italy, Portugal, and Spain, and over 50% in Belgium. Bancassurance
accounting for over 60% is less developed in the United Kingdom and Germany.
of individual life insurance
premiums in f rance, italy,
portugal, and Spain. e xhi Bit 1: Ban Cassuran Ce in main e uropean i ndividal u life insuran Ce markets

250 80.00%
218.79
70.00%
200
60.00%
50.00%
150
125.9
40.00%
100
30.00%
63.27 60.37
20.00%
50
10.00%19.07 16.04
8.60
0 0.00%
United Kingdom France Italy Germany Spain Belgium Portugal
Individual premiums (€m) Bancassurance market share (%)
Source: Milliman analysis–2006 data
In France, Italy, Spain, Portugal, and Belgium, bancassurers operate under a fully integrated model
in which:
Bancassurance companies are fully or partly owned by a bank.
Bancassurance companies have an exclusive distribution agreement with their parent bank.
Bancassurance products are fully integrated in the bank’s product range and are sold by branch
staff along with banking products.
In Germany and the United Kingdom, bancassurance tends to be less integrated:
Fully owned bancassurance companies and joint ventures exist, but banks frequently operate
through pure distribution agreements.
Distribution agreements are often on an exclusive basis in Germany, but in the United Kingdom
multi-tied bancassurance distribution is developing.
Life insurance products are often not sold by branch staff directly, but are referred to insurance
specialists. In Germany, this can be because insurance products tend to be more complex than
in southern Europe. In the United Kingdom, this is due to the regulation under which investment
products can be sold only by qualified financial advisers.
European bancassurance benchmark 4
Corinne Legrand
August 2008Milliman
Research Report
The main competitive advantages of bancassurance are often seen as:
the capacity to achieve high business volumes by cross-selling simple products to the bank’s
captive customer base
the marginal cost of distribution through an existing branch network
the operational cost efficiency of a close integration of systems and processes between the bank
and the insurance company
This report gives a view on these performance indicators and how they can vary by country and by
business model.
Bancassurance: still seen as a key development opportunity in the European
insurance industry
Bancassurance has generated a significant volume of mergers and acquisitions (M&A) activity in
Europe in 2007 and the first months of 2008. Both traditional insurers and bancassurers have
developed their bancassurance activity by acquiring 50% stakes in bancassurance companies
previously 100% owned by banks. By acquiring bancassurance ventures, traditional insurers gain
access to well-established distribution networks and customer bases, allowing them to gain market
share quickly.
Traditional insurers tend to expand into bancassurance for one of two reasons:
to diversifiy their distribution strateg