Blog
Bancassurance is back
Bancassurance in the era of embedded finance.
25 May 2023
In a nutshell
Banks have made various attempts over the years to effectively cross-sell insurance to their customers – a combination also known as ‘Bancassurance’. However, often they failed, causing them to reverse course.
The issue wasn’t the logic, which was sound – banks, after all, are in a trusted position to offer insurance. It was the execution. The insurance was too standard for specific sub-segments and combined with poorly integrated onboarding. The result: low conversion rates, as the ‘experience’ basically turned out to be a redirection to an insurance partner’s website, with little value-add.
But times have changed: third-party financial products can now be directly integrated into existing consumer user journeys, including insurance. It opens up the possibility for banks to bundle their own offerings with highly personalised and relevant insurance products for their customers.
As a result, Bancassurance is back, but this time it’s embedded, and the products are user-centric. That’s why it will work this time: with fit-for-purpose products that create user demand, transforming the Bancassurance proposition from push to pull.
Why Bancassurance didn’t work before
The market opportunity for hybrid bank-and-insurance services under one umbrella – also known as Bancassurance – had always existed, but was blocked by regulation. When regulations relaxed in Europe, it quickly became popular in the 1980s and then spread to other markets as they followed suit with regulatory reform. The most common model was a partnership where a bank sold an insurer’s products – an offline offering that severely limited the options for a product tailored to the needs of a bank’s customers.
As a result, the products were highly standardised, and frankly not that great. So Bancassurance withered, but largely because of product limitations rather than a lack of customer demand or banks’ willingness to fulfil that demand. Banks as channels for insurance distribution therefore remained fairly low.
Now, that situation is changing. Embedded finance is allowing banks to offer better tailored third-party products, like insurance. And they can offer these products from their long-standing insurance partners (and from others) fully integrated in their own, digital customer journey.
Two reasons why it will work now
1. From a Product Perspective
Bancassurance is more likely to work now from a product perspective because of new technology, which now allows seamless integration. That basically means that insurance products are embedded, complete with their user-friendly onboarding and workflow, within a bank’s application.
This type of integration is only possible because of modern software services. Prior to the internet and even in its early days, Bancassurance was delivered through offline partnerships and offered generic functionality. Services couldn’t be linked together seamlessly, let alone offer real-time data exchanges, or support the bank’s desired features and branding.
Now, companies can provide user interfaces that are customised and adapted to bundle customer-centric products & services from different insurance providers in one, convenient place. This, in turn, can then be rebranded and embedded in bank apps and websites, for a collaboration that’s both seamless and convenient.
The possibility to customise and combine multiple offerings in one place, and embed them into banks’ environments is what makes the new and improved proposition of Bancassurance superior compared to its predecessor, from both a product and technology perspective.
2. From a Business Perspective
From a business perspective, Bancassurance is more likely to thrive now as re-bundling is back as an overall trend among fintechs and banks. Now, multiple products and services are combined again for cross-selling purposes, including (but not limited to) insurance. Before, unbundling was a common feature of the first wave of fintech & insurtech, as lucrative or old-fashioned products were picked off and digital versions of them were created by startups. Unbundling brought products to customers that were simpler, quicker and cheaper, but it led to a situation where consumers were saturated with suppliers and products. And while the products were an improvement on what came before, this oversaturation meant that no single supplier or app had a big enough customer base to come out on top. So as a result, these apps didn’t become very profitable, and couldn’t keep investments up.
Now we’re in a cycle of re-bundling, as fintechs & insurtechs expand either:
by offering different services (for example Transferwise currency transfer becoming Wise, a multi-product company)
by offering their service to be embedded within someone else’s (like Currency Cloud enabling Revolut to embed currency transfer services).
If you thought of modern Bancassurance when reading this second category, you’re on the right track.
Example of rebundling: embedded bancassurance with neobank Knab
Why (neo)banks are perfect aggregators
So we know fintechs and insurtechs have tremendously improved their technology and products, and rebundling is trendy again. The question remains, though: why does it make sense for banks to be aggregators of these third-party financial services? The answer is multifold:
they have their customers’ trust,
they have strong incentives to make these services work, and
they’re in tune with many big moments in their customers’ lives.
Trust is key – and they already have it
Insurance, like any financial product, is underpinned by trust. People want to buy insurance products that
are simple and clearly explained and
they want to know that their claims will be paid.
That’s a distinguishing advantage that banks possess: their customers’ trust. And while the Silicon Valley Bank episode showed that trust can evaporate quickly, most banks still enjoy strong customer trust. This puts them in a strong position to help their customers to make better financial and commercial decisions.
It opens up (profitable) doors
Besides that, both incumbents and neobanks are incentivised to offer insurance. For neobanks, adding new products without additional customer acquisition costs will boost customer lifetime value and bring much-needed profitability. For incumbents, offering relevant insurance, demonstrates their (growing) customer centricity and reduces the risk of attrition while they’re able to better service the segments they have struggled to serve profitability in the past, like freelancers and SMEs.
They already know when to jump in
Banks are present at many of their customers’ important life moments. For a freelancer, this may be the opening of a bank account for their business. For a retail consumer, this might be buying a home. In these situations, their bank is in the perfect position to offer embedded insurance that fits the customer’s personal needs in those situations.
Thanks to their trust, strong economic incentives and extensive knowledge, banks are the perfect aggregators for services like Bancassurance.
In summary
Bancassurance was the bundling of banking and insurance into a one-stop-shop for financial services. Originally, it was only possible via standard partnering rather than customized embedding, and the products weren’t great as a result. So ultimately, Bancassurance withered.
But times have changed for the better. Embedded insurance makes it possible to offer highly personalised, sought after products via non-insurance channels. Finally, bundling can be done the way it was intended to.
And banks remain in the best position to cross-sell insurance. Consumers want companies to bring together fragmented purchasing journeys and smoothen the process. With trust, strong economic incentives and essential knowledge already in hand, banks are the perfect aggregator to do it right.
In short,
bancassurance is back.
