Transcript Paper
The Future of Bancassurance
Rebuilding Confidence
International Insurance Society Annual Seminar
June 07, 2010
Oscar Zimmerman
SVP & Managing Director, Corporate Insurance
The Bank of Nova Scotia
Agenda
• Bancassurance
•
Customer Needs
•
Opportunities
•
Challenges
• Scotiabank Strategy
• Key Success Factors
• Operational Results
• Closing
2
Definition
BANCASSURANCE
Distribution of any insurance product through Bank channels
Products - Bank Owned Insurer
Branch Officers
Insurance Agents
Telemarketing
3
Products – Other Insurers
Internet
External Sales Forces
Mailing
Types of Products
BANCASSURANCE
• Risk Protection
• Life and health insurance
• Automobile and home insurance
Creditor Insurance
Optional Insurance
• Wealth Accumulation
• Savings with an insurance component
• Accumulation and payout annuities
• Pensions
4
Universal Life
Annuities
Retail Banking Products
CUSTOMER NEEDS
• Choice
• Simple, easy to understand and purchase
• Convenience
• Service
• Trust the “promise to pay”
• Price competitive
Bancassurers are uniquely positioned to offer
an integrated value proposition to meet
customer needs at various life stages.
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Life Stages
CUSTOMER NEEDS
Typical Changes in Life Stage
New
Family
Couple
Established
Family
• Buy Home
• Acquire Goods
• Protect Income
• Save for
Education
• Reduce Debt
• Buy Home
• Start Saving
• Acquire Goods
Single
• Buy Car
• First Job
• Start Saving
PreRetirement
• Plan to Retire
• Accumulate
• Plan Estate
Independent
• Plan to retire
• Buy home
• Plan estate
Retired
• Disburse
Savings
• Plan Estate
It is easier to cross sell insurance to existing relationships
6
How Does Bancassurance Help Retail Banks?
RETAIL BANK OPPORTUNITY
• Protects credit insurance
• Improves loyalty and cost utilization
• Additional fee income boosts shareholder ROE
• Insurance risk taking is less correlated to the credit cycle
• Approved borrowers tend to be better insurance risks
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Cultural Differences Between Financial Sectors
BANCASSURANCE CHALLENGES
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BANKING
INSURANCE
Consumer Brand
Distributor Brand
Transactions
Sales &
Relationship-based
Fixed cost
Variable cost
Liquidity, credit
& financial risk
management
Mortality, morbidity,
property & financial
risk management
Short Term
Focus
Long Term
Focus
Deconsolidated
capital ratio test
Deconsolidated
capital ratio test
Chief Risk Officer
(CRO)
Appointed Actuary
(AA)
Closing the Cultural Gaps
Protect Bank Reputation
Focus on Retail
Understand and manage
insurance risk volatility
Enhance ROE with stable
recurring income
Regulatory Framework
BANCASSURANCE CHALLENGES
• Bank and Insurance sectors separately regulated
• Outdated regulations
• Limits of regulatory restrictions
• International insurance regulation vary
9
Strength of Canada & Canadian Financial System
SCOTIABANK STRATEGY
•
Strong Canadian Financial System
•
Sound Canadian Banking System
•
World Economic Forum
Relative bank share price performance
30
Data to May 3, 2010
25
20
5-Year CAGR
10-Year CAGR
15
10
5
0
-5
-10
-15
-20
-25
Canada
* As of April 30, 2010.
Source: Bloomberg; Scotia Capital.
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Australia
U.S.
Switzerland
U.K.*
Japan*
Scotiabank Around The World
SCOTIABANK STRATEGY
•
14.6 million customer in some 50 countries
•
68,000 employees worldwide (32,000 in Canada)
•
Personal, Commercial, Corporate and Investment Banking
•
2700 + Branches and Offices, 5800 ABMs
•
Diversified Business Lines: Canadian Banking, International
Banking, Scotia Capital
•
Market Cap. Circa $50 billion, USD (Top 25)
•
Tier 1 capital ratio 11.2%, S & P AA-
•
Net Income 2009 Full Year $C3.5 billion ROE 16.7%
2010 Half Year $C2.1 billion ROE 18.7%
11
Top Tier ROE Versus Global Peer Group
SCOTIABANK STRATEGY
2009 Return on Equity (Reported)
Canada
12
U.S.
International
Scotia
16.7%
Wells Fargo
9.9%
Credit Suisse
18.3%
Royal
11.9
US Bancorp
8.2
BBVA
16.0
15.8
BMO
9.9
JPMorgan
6.0
Commonwealth
Bank
of Australia
CIBC
9.4
Bank of
America
n/m
Deutsche
14.6
TD
8.4
Citibank
n/m
HSBC
5.1
Global Priorities
SCOTIABANK STRATEGY
• Sustainable revenue growth
• Capital management
• Leadership
• Prudent risk management and appetite
• Efficiency and expense management
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Scotiabank Mission
SCOTIABANK STRATEGY
To be the best at helping customers become financially
better off by finding relevant solutions to meet their
unique needs.
Four Cornerstone Strategy
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Bancassurance Strategy
SCOTIABANK STRATEGY
• Focus on helping customers protect their assets
• Leverage Bank distribution and servicing capabilities,
financial strength and brand awareness
• Assume retail insurance risks
• Assume 3rd party reinsurance risks that are less
correlated with traditional bank risk
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Insurance Footprint
SCOTIABANK STRATEGY
Direct Writing Subsidiaries
Canada (L & H)
Dominican Republic (L & H)
El Salvador (L & H / P & C)
Jamaica (L & H)
Trinidad (L & H)
Insurance Brokerages
Canada
Chile
Costa Rica
Dominican Republic
Puerto Rico
Reinsurance Subsidiary
Barbados (L & H / P & C)
Insurance Fee Income
Caribbean
Central America
Mexico
Peru
Joint Venture
El Salvador (Auto)
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Key Success Factors in Bancassurance
KEY SUCCESS FACTORS
•
Identify profit zone in retail value chain
•
Integrated sales processes
•
Sales Management
•
Optimize corporate structure and risk taking business model
•
Manage adverse earnings volatility
Teamwork is critical to strategy execution
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Identify Profit Zone in the Retail Value Chain
KEY SUCCESS FACTORS
Retail Banking
Products
Retail Consumers
Protection Needs
Retail Banking Sales &
Service Platforms
Value Proposition Differs By Customer Segment
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Integrated Sales Processes
KEY SUCCESS FACTORS
Simple
product portfolio
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Streamlined
sales process
Systematic
sales
management
Leverage
Information
Technology
Systems and
Customer Data
Low product
complexity
Comprehensive
sales support
Attractive
packaging
Bundled sales
Integrated Sales
Management
Simplified
underwriting
Systematic sales
guidance
Rigorous Market
conduct
compliance
Sales Management
KEY SUCCESS FACTORS
• Measurable bank channel sales targets
• Appropriate incentives impacting bonus compensation
• Fully automated and simple sales process
• Provide continuous product and sales training
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Optimize Business Model
KEY SUCCESS FACTORS
Decision Criteria:
• Local Market Structure
• Underwriting Subsidiary
• Insurer Financial Strength
• Pure Distribution
• Regulatory Environment
• Distribution/Reinsurance
• Retained Risk Appetite
• Joint Venture
• Management Capacity
• Speed to Market
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Choices:
Manage Adverse Earnings Volatility
KEY SUCCESS FACTORS
• Insurance Oversight Committee
• External Appointed Actuaries for Subsidiaries
• Follow Canadian Insurance Prudential Standards
• Pre-Approval of limits for catastrophic events
22
Operational Results
23
•
Protect Bank Reputation
•
Focus on Retail
•
Understand and manage insurance risk
•
Enhanced ROE, Stable Recurring Income
Closing Observations
• Insurance profits held firm during financial crisis
• Bank colleagues were very appreciative
24
Thank You
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