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Presentation Overview
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Bancassurance Models – overview
Structural models
Financial models
Distribution and Operational Sales models
Regulatory models and impact
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China and Indonesia
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© LL Global, Inc.SM
Bancassurance models - overview
Bancassurance Models
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Bancassurance Models
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Structural models – respective roles
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Financial models
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Distribution and Operational Sales models
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Distribution channels used
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Sales people banks and insurers
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Product models related to channels
Regulatory models
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related to the structural models
Regulators driving
Market models
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© LL Global, Inc.SM
Usually driven by regulatory, with local market condition variations
Typical Structural Models
The various bancassurance structures
 The decision as to which model and therefore partner to adopt can be likened to the
way a typical relationship might develop over time….
Distribution Agreement
“Playing the field”
Strategic Alliance
“Going steady”
Model 1 can be likened to the early days of youth
when it is normal to have a number of different
partners and relationships.
Loyalty is pretty low and long term commitment
rarely a consideration.
Temptation to switch partners for a “prettier” one
Having played the field for a while, it is likely that
one partner will demonstrate the best ‘fit” in terms
of commitment, attention, behaviour and attitude.
The relationship develops to a point where each
understands the other a little better and both start
to consider the others’ needs and aspirations.
Loyalty sets in and plans for the longer term
begin.
Joint Venture
“Moving in”
Financial Services Group
“Go alone”
Once “courting” has been going on for a while, it
is natural to settle down with one partner and start
enjoying an even closer relationship.
Both partners get to know each other intimately
and a relationship of mutual trust and respect
develops. Any problems or difficulties are resolved
jointly and amicably.
Marriage brings about a whole raft of new
responsibilities and a relationship that should be
built on a secure foundation.
Both partners look for ways to get more out of
each other and to contribute to a long and
prosperous relationship.
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© LL Global, Inc.SM
Model 1: Distribution Agreement
 Bancassurance model 1 is a product provider model where simple products are sold
by the bank (either by bank/insurance staff in-branch or by Direct and Tele
Marketing)
 Can be a single or multiple provider relationship. Can develop into a single Strategic
Alliance and/or beyond
 This model is simple, low risk for the bank and creates value through commission/fee
income on sales
Product Range
Sales Channel
Corporate Structure
& Ownership
Ordinary products can be phased
after the bank staff have been
through the learning curve
Automatic
Credit Life
MRTA
Simple
Products
Term
PA
Bank
Bank Staff
Bank Sales
Channel
Telemarketing
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Fees &
Commissions
Insurer A
Commission
Insurer B
Bank
Model 2: Strategic Alliance
 This is similar to model 1, but with greater commitment from the insurer e.g. special
product development, customised service proposition (own helpline, documentation
etc) and closer collaboration over areas such as sales management.
 Bank will have some involvement in channel management.
 Will usually relate to one exclusive arrangement. Term of alliance can be fixed.
 This model is also low risk and creates value for the bank through commission/fee
income on sales and a potential “profit” share
Product Range
Sales Channel
Corporate Structure
& Ownership
Ordinary products can be phased
after the bank staff have been
through the learning curve
Bundled
Products
Automatic
Products
Simple
Products
Term
PA
Bank
Bank Staff
Bank Sales
Channel
Telemarketing
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© LL Global, Inc.SM
Fees &
Commissions
Insurer
Bank
Commission
plus profit share
Model 3: Joint Venture Company
 A Joint Venture company better aligns interest / commitment from both the bank and
the insurer and hence can often provide more optimal returns.
 Favoured by major international insurers due to the level of commitment and control.
 The bank would have to bear some of the insurance risk, but will get a share of the
embedded value arising from the business. This requires the injection of significant
levels of capital
Product Range
Automatic
Sales Channel
Ordinary
Protection
Savings
Pensions etc
Fees &
Commissions
Bank Staff
Credit Life
MRTA
Simple
Products
Term
PA
Corporate Structure
& Ownership
Insurer
Bank
Insurer
Bank
JV Life
Company
Telemarketing
X%
Share
Y%
Share
Joint
Venture
Company
JV Financial
Advisor
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Depending on share in the JV
insurance company, both the
insurer and the bank get to
partake in the distribution and
underwriting profit arising from
the JV insurance operation
Model 4: Wholly-owned subsidiary
 A more integrated model where the bank acquires/sets up an insurance company (or
an insurance company acquires a bank).
 For maximum benefit (in terms of cross-customer access etc) this would often be
established under a Financial Services Group – in theory should produce the most
benefit and value for a bank.
Product Range
Automatic
Sales Channel
Corporate Structure
& Ownership
Bank Staff
Bank
Credit Life
MRTA
Simple
Products
Term
PA
Ordinary
Protection
Savings
Pensions etc
Fees &
Commissions
Bank
100%
owned
Life
Company
Telemarketing
100% owned
insurance
subsidiary
JV Financial
Advisor
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© LL Global, Inc.SM
Bank gets a full share of the
distribution and underwriting
profit (embedded value arising
from the business).
Bancassurance models – impact on commitment
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Commitment of both parties is one of the most key CSFs since
without high levels of commitment the operation is destined to fail
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Relationship also key to success and should be closer as the model
develops
High level of commitment to
bancassurance
Bank
Own
Company
Wholly
owned
Joint
Venture
Marketing
agreements
Merger
Distribution
agreements
Low level of commitment to
bancassurance
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Bancassurance models – pros and cons (Bank)
ADVANTAGES
DISTRIBUTIO
N
AGREEMENT
JOINT
VENTURE
DISADVANTAGES
 Ease of tying up with insurance partner(s)
 No investment required
 Open to other partnership options
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

Ease of exit – can lose hard won relationship
Lack of commitment from Insurer/s
No share of underwriting profits
Tendency to sell only “compulsory” products
 Financial and management commitment
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


Greater investment needed
Potential conflict with core business
Not easy to find a ‘best fit’ insurance partner
Culture differences/difficulties
Need to ‘open up’ customer base to insurer
Risk of brand damage if insurer does not
deliver
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




from Insurer
A share of underwriting profits
Access to expertise of Insurer
Risks are shared by Insurance partner
Clear definition of responsibilities
Greater penetration of customer wallet
Can drive reciprocal business agreements
 Financial commitment and management
MERGER




OWN
OPERATION
from Insurer
A share of underwriting profits
Access to unique expertise of Insurer
Ease of entry to a new market – especially
if partner is a well-respected institution
Take over of partner’s assets and existing
business (including any goodwill)
 Retain of profits within own organisation
 Full control of operation
© LL Global, Inc.SM
 Difficult to find a ‘best fit’ partner to merge




with
Loss of independence
Potential difficulties in post-merger
integration
Merger integration could delay or stall
business initiative or existing operation
Take over of partner’s existing liabilities
 All risks retained within own operation
 Lack of external/insurance expertise
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Bancassurance models – pros and cons (Insurer)
ADVANTAGES
DISTRIBUTIO
N
AGREEMENT
 Ease of tying up with bank partner(s)
 Lower investment required
 Open to other bank partnership options
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Ease of exit – can lose relationship
Low commitment from bank
Other potential insurer relationships/conflicts
Lack of control over bank’s leads
Limited access to bank customers or database
 Financial and management commitment
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Greater investment needed
Potential conflicts with main channels
Partner relationship issues/management
Not easy to find a ‘best fit’ bank partner
Do not retain full underwriting profits
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JOINT
VENTURE
DISADVANTAGES
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


from Bank
Bank needs to ‘share’ customer base –
greater access to bank customers
More control over lead generation
Risks are shared by Bank partner
Clear definition of responsibilities
Ease of entry to new market – especially
if partner is a well-respected institution
 Financial and management commitment
MERGER
OWN
OPERATION
from Bank
 Ease of entry to new market – especially
if partner is a well-respected institution
 Take over of partner’s assets and existing
business (including any goodwill)
 Retain of profits within own organisation
 Full control of operation
Difficult to find a ‘best fit’ partner to merge with
Loss of independence
Potential difficulties in post-merger integration
Merger integration could delay or stall
business initiative or existing operation
 Take over of partner’s existing liabilities
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 All risks retained within own operation
 Lack of external expertise
 Limited opportunity if existing banking
operation within own operation is small
© LL Global, Inc.SM
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Typical Financial models
Financial model – cash flows to the bank
Very important to have a good understanding of the magnitude of the cash
flows that arise from the different models
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An UP FRONT PAYMENT
from insurer to enter into
relationship
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A COMMISSION STREAM
for distributing products
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CAPITAL INJECTIONS
to support the
underwriting model
Illustrative cash flows
1500.0
1000.0
500.0
0.0
1
2
3
4
(500.0)
5
6
7
8
Year
Commission to bank
Capital
UpFrontPayment
Embedded value
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10
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Growth in EMBEDDED
VALUE OR PROFIT
SHARE from participation
in underwriting profit
Key considerations – fee income/value creation
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 Understanding the
source of profit and
the likely financial
impact on each party
of each model is very
important as part of
the business planning
process.
•
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Joint venture/Wholly
owned
Distribution only
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% of
banks 10
earnings5
Strategic Alliance
0
1
2
3
4
5
6
7
8
9
10
-5
Important to know and understand the trade off between commissions and the
growth in embedded value;
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the higher the commission, the lower the growth in embedded value
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A distrbution agreement (and/or broker model) focuses the bank on commission
income
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A Strategic Alliance is usually exclusive, and almost always includes an element of
profit sharing
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A joint venture, or wholly owned operation should focus the bank on generating value
as this can significantly outweigh commission income.
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Creates a culture of “value creation”, eg selling profitable products (as opposed
to less profitable single premium plans)
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A need for the bank and insurer ©toLL Global,
jointly
Inc. design and price products
SM
Distribution and Operational sales models
Multi tiered distribution model
Product Categories
Distribution Channels
High
Insurance
Specialists
(FP)
Financial Services
Consultants (FSC)
(employed by insurance co)
Specialist advice, with tailored
bancassurance products &
financial planning solutions
Wealth
Management &
Estate Planning
Needs-based, advice driven.
Range of savings, investment &
protection
Savings &
Investment
Loan & credit-related products,
mortgages & protection
Packaged
Products
Deposit Type
Customers
Relationship
Managers (RM)
(employed by bank)
Referrals
and/or
Level of
Sales
Training
(endowments, term, PA, ADD)
Over-the-counter
Tellers / Customer
Services Officer
(OTC)
Lead generation & referrals to FPs & RMs
Simple products & Credit Insurance
(tick box, guaranteed issue)
Direct Marketing
(DM)
Simple products.
(Refund of Premium type)
Low
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© LL Global, Inc.SM
Simplified
Underwriting
Products
Distribution Channel model - potentials
Seminar
Sales
Other group of linked
companies
Outbound telemarketing
Inbound telemarketing
Direct
specialised
sales force
Group business to
Corporate clients
Direct mail
Elegant advice
(wealth management)
Internet, e comm
based
BANK
Worksite marketing to staff
of corporate clients
(including seminar selling)
Moderate advice
Mobile Forces
(market dependant)
Low advice face to face
Creditor, packaged, loan channel
No advice
(commoditised products,
OTC)
Creates leads here too
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© LL Global, Inc.SM
Sales Model example
Bank
Customers
Channels
Financial Planners
In branch
financial
planners
Creditor Business
Mortgage
redemption and
collateral
insurance
Direct Mail
Telemarketing
Mail-shots to the
bank’s various
databases
Carefully
planned
telemarketing
campaigns
Worksite Marketing
Marketing to the
employees of the
bank’s corporate
customers
Product Propositions
LIFE
INSURANCE
HEALTH
INSURANCE
Protection
NON-LIFE
PENSIONS /
INSURANCE RETIREMENT
INVESTMENTS /
MUTUAL FUNDS
Asset Accumulation
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© LL Global, Inc.SM
SAVINGS /
DEPOSITS
LOANS /
CREDIT
MORTGAGES
CASH /
CHECKING
Lending & Transactions
Regulatory models and impact
China
and
Indonesia
China – Initial regulatory reforms, Nov 2010
Regulatory measures
Implications
In-branch
sales
• Life insurer's agents/sales are not allowed
to be stationed in bank branches
• Only bank staff with license are allowed to
sell bancassurance products
• Bancassurance premium is likely to
drop in the near term
• Better training for branch staff is
required to enhance sales capabilities
Products
• Each bank branch can only source products
from up to 3 insurers
• Banks and insurers are encouraged to offer
protection and long-term saving products
• Banks will be more selective in
choosing insurance partners
• Long-term products with higher value
(e.g. regular payment) are likely to grow
• Insurers are forbidden to pay banks
incentive other than reported commission,
which should be between headquarters,
provincial branches or tier-2 branches
• Commission payment between insurers
and banks will become more
transparent with lower hidden cost for
insurers
Incentives
Stronger and more dedicated partnerships between
banks and insurers are expected in the long run
Source: CIRC, BCG analysis
© LL Global, Inc.SM
Impact of Regulations (1)
"With all sales performed by
banks, customers will come to
banks for all disputes, policy
changes, surrenders, etc. Risk
is being transferred to banks and
will challenge post-sale
services."
"Bancassurance products are
becoming more complex, especially
regular premium products, but
training is falling behind., as well as
capabilities"
“Most banks and their sales
people don’t have the capability
to sell regular premium products
so the push to sell more regular
premium could stall"
"With insurance reps standing by
at outlets, each sale will take 20
to 30 minutes to finish. Now
they are all gone, there will be
more pressure for OTC sales."
Source; BCG interviews
© LL Global, Inc.SM
Impact of regulations (2)
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Mixed messages from banking and insurance regulators puts industry at standstill
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Large insurers may benefit from existing relationships with large banks, with more to
seek exclusive relationships
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Small players will need to reconsider dependency on bancassurance, and may need to
move towards multi-channel
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More investment in training as training plays roles in facilitation rather than direct
execution“
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OTC sales push will be replaced by sales at bank's wealth management (or VIP) center,
as bank financial planners replace insurance agents as key sales force
Balance of power between banking and insurance regulators
© LL Global, Inc.SM
Bancassurance sector still faces
Issues
Descriptions
Impact
Product structure
• Dominated by SP savings substitutes
• Little attention to protection products
• Unable to meet customer needs
Moving away from
"basics"
Value creation
• Very low or negative profit margin
• Excessive cost loading in general
• Missed opportunities in value creation
Lower embedded
value and profitability
Compliance
• Misselling and misrepresentation
• Off-book commission kick-backs
• Consumer complaints and lawsuits
Reputational risks for
banks and insurers
Sales training
• Sales process management is weak
• Sales staff trainings not systematic
• Sales force qualification not strict
Poor lead generation
and low productivity
Operating model
• Many-to-many without exclusivity
• Bank and insurer not on equal footing
• Lack of innovation in product & distribution
Focus on size rather
than quality
© LL Global, Inc.SM
Changes going forward
Industry players
Gear towards "new bancassurance world"
• Move towards regular premium products with mixed results
• Improving training for sales force, focusing on sales support for
banks, rather than sales training for insurance reps
• Smaller companies difficult to survive
• Immediate drop in volume in Q1 2011, recovering
Increasing number of bank and insurance partnerships
• Approved pilots
• New JV proposals: ICBC, China Construction Bank, Agriculture
Bank of China
© LL Global, Inc.SM
Bancassurance – sales operating models
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There are 3 primary branch sales operating models in Indonesia:
1.
2.
3.
In branch specialists selling (either from JV or insurer)
Bank staff selling and supported by insurer “wholesalers/FSCs”
Bank staff referring to outside insurer staff
Sales Operating
Model
In branch specialists
selling (either from
JV or insurer)
Partnership
Typical performance metrics
AXA Mandiri
Financial Services
Over 2,000 Financial Advisers operating in 882 branches. At peak, 7.8
cases per month, now down to around 6. Focus on RP unit linked.
Bank BNI
Tried several times to replicate AMFS, now restarted and apparently
performing better.
CIMB Sun Life
Bank staff selling and
supported by insurer
“wholesalers/ FSCs”
BII and Prudential
Bank staff referring
to outside insurer
staff
Permata Bank and
Prudential
Allianz and
Danamon (soon to
be replaced by
Manulife)
Relatively recent, and with a higher net worth branch segment focus
Usually around 3 policies a month. Premium varies depending on bank
customer profile but several quote around 3 cases per branch per month.
This model now becoming out of favour due to the change in legislation,
and Manulife will use FSC model
Prudential has established its usual “Standard Chartered” model of
Financial Execs feeding off leads from the bank staff. In some instances,
they are also located and selling in branch.
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Indonesia – impact of one regulatory change
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Open architecture
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Competitive market – all targetting bank distribution
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Investment products (within small limitations) to be sold by insurance company
staff – end 2010
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Most products fall into this category
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Applies to all banks
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Impact:
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Model – Expenses - Product set - Sales practices
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Varies by bank segment
May have a positive impact on product mix – but not for the original intentions
– control of sales switches towards insurer
© LL Global, Inc.SM
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