The rise of bank-based distribution for many long-term insurance products led to the term ‘bancassurance'. But is bancassurance distribution ready for a rethink? Greg Becker investigates
Many have seen the obvious synergies between banking and insurance, and the potential for banks to become distributors of insurance products.
People interact with banks at key milestones in their life: for example, after a marriage, when a name is changed, a joint account is set up or when a house is being purchased.
At these milestones, a person's insurance need may change, and a needs-driven sales opportunity arises.
Banks have different ways of monetising this lead: some by selling other firms' products, some brand and sell a white-labelled product from a product provider, and others manufacture their own product range internally.
While banks have changed their distribution and product strategies since first launching insurance products, one thing has remained constant: their desire to maximize their share of the customer wallet.
On-sell and up-sell are almost certainly viable business strategies for financial services firms: the marginal cost of this form of distribution is often substantially cheaper due to reduced administration and distribution costs.
Firms can build targeted selling onto this, and can thus improve the customer profile, which can have important implications for insurance products where risk cost varies materially. UK banks invite us to purchase additional products at almost every opportunity:
■ The brochure stuffed into the letter from the bank
■ The ‘click here to buy' on their internet banking homepage
■ The ‘call back to activate the card' process that leads to a call-centre based tele-sales opportunity, or
■ The proactive bank teller who invites you to talk to a customer services person at every opportunity.
SHEDDING LIGHT ON A TURKISH DELIGHT
Many have learnt to decline these invitations as they are generally preceded by a wait, and the advice has been of questionable quality. Yet they do not approach us where we most frequently interact with the bank: the ATM.
Many middle aged, middle class and middle income people in the UK avoid bank branches, but use banking services regularly - branchless banking services.
People increasingly use the internet to view their latest account balance and to transfer money, while they use ATMs to withdraw cash.
This is good news for bankers as the costs of branchless transactions is significantly less than that of branch-based transactions.
However, it is bad news for insurance sales if potential customers are not being propositioned.
Garanti is a financial services company with Turkish origins. It describes "alternative distribution channels" as being one of its core competencies.
It has a focus on technological innovation and distribution, and this focus has led to a position where its Paramatiks (or ATMs) are able to serve more than 140 different products.
More than half of all Paramatik or ATM transactions do not involve cash withdrawals, and more than 250,000 banking products were sold through Paramatiks in 2010 alone.
Garanti has been the first in the Turkish sector to sell insurance via Paramatiks, and has sold nearly 400,000 insurance products in the past three years.
The group has innovated at every stage of the customer journey to make it as quick and painless as possible.
For example, by interacting through the Paramatik/ATM, and regarding the users' PIN as a signature substitute, the need for a wet signature is avoided. Garanti currently sells life insurance through push offers on Paramatiks, known as Garanti'li Yarinlar.
It has also reworked the underwriting and sales process as such that customers can buy a simple five-diseases CI cover by completing only two additional Paramatik/ATM screens.
There surely cannot be a less burdensome insurance product sales journey - and it is certainly faster than the journey that many of us last followed, which involved a 30-minute wait in the bank branch reception.
While this development may or may not be transferable to the UK, it is worth considering what can we do to improve the customer journey.
Greg Becker is product development actuary at RGA
