Tony Grosso, SVP of EIS
With the increased demand for digital experiences, digital ‘neo-banks’ are projected to transcend traditional banking in the very near future. Banks, in turn, are looking to diversify their services to provide easily accessible, digital solutions. One of these solutions is bancassurance, which is becoming an increasingly important digital distribution channel of insurance products.
To put it into context, the global bancassurance market was valued at $1.2 trillion in 2020, and is forecast to reach $1.7 trillion by 2026. In Europe, Italy attributes bancassurance as the distribution method for 75% of gross written premiums for life insurance. Across the channel however, the UK is still a fledgling when it comes to capitalizing on the bancassurance market, with less than 10% of insurance lines being sold via banks or building societies.
Banks and insurers are providing increasingly consumer-centric products and services to large customer bases through these partnerships. British banks and insurers should not ignore the economic potential of bancassurance, which has already been proven in Europe.
Why bancassurance?
Bancassurance partnerships represent an opportunity for banks to generate additional revenue with limited liabilities. From an initial capital light investment, since the set up and running costs fall to the insurer, a bank or building society would be able to offer insurance products to customers tailored to their needs. The only catch of a bancassurance partnership is reputation, since the reputation of the insurer could impact that of the bank’s.
The key upside to the bancassurance model is the insights and analytics that both bank and insurer could leverage to offer relevant, customer-centric insurance products. Access to a bank’s client-base enables a more empirical approach to sales, as personal data ensures that the right policy reaches the right customer when they need it most. For example, offering home insurance to a customer if they are in the process of taking out a mortgage. This also has the added benefit of generating accurate risk profiles, benefitting the consumer by avoiding paying extra fees due to inaccurate or generalized risk assessments.
Capitalizing on digital
To enter a successful bancassurance partnership, both banks and insurers need to ramp up their digital transformation strategies. Outdated legacy systems are ineffective in responding to changing customer demand. Many of them still rely on custom and time-consuming processes built to support archaic internal workflows, which lack the ability to integrate with other systems. This is a huge barrier to progress since better technology is already available to provide more accurate pricing data and insights in response to changing customer demand.
Those that wish to enter bancassurance partnerships should be ready to embrace change when it comes to legacy systems. Since digital channels are becoming increasingly important to commercial success, the right technology is essential to shift from product-centric to consumer-centric insurance.
Why APIs and ‘low-code’ tech matter
To create a successful bancassurance channel, both bank and insurer’s technology needs to effectively integrate. This allows both parties to leverage data and analytics to create better, more customer-focused insurance products, giving the bancassurance partners the capability to react swiftly and effectively to market conditions.
APIs (application programming interfaces) are the mechanism in which computers communicate with each other. They are vital to integrate an insurer and bank’s core systems, and by moving the emphasis from system development to configuration, they make system integration more simple. This shift reduces the startup costs of a bancassurance partnership as systems are configured via APIs, also cutting down the IT burden of integrating and managing insurance products.
To enable fast consumer-centric product rollout, banks and insurers should use APIs along with low-code solutions. Low-code technology is set to dominate product development in the future by avoiding the traditional, inflexible hardcoding of products..
Through the use of APIs and low-code platforms, insurers can cut development cycles from months to weeks, also reducing development costs. Strings of code are assembled layer by layer to create an insurance product, as opposed to being built from scratch. This means product development can involve non-IT trained professionals to take part in developing new insurance products. However, to overcome legacy system constraints, insurers will need to leverage a coretech approach that enables them to take advantage of these and other cloud-native, ecosystem-enabling technologies.
What’s next?
APIs coupled with low-code technology contribute to the overall digital transformation of bancassurance and a future where businesses can create consumer-centric insurance products. Coretech is an emerging category of cloud-native architecture and applications focused on providing multi-line insurance products and enhanced digital customer journeys. In bancassurance partnerships, coretech can bypass the proprietary tech associated with legacy systems and enable banks and insurers to launch products quickly fine-tuned to market feedback. By leveraging this technology, banks and insurers have a chance to shift the emphasis from ‘pricing’ to ‘value’. Through a bancassurance partnership, banks and insurers could provide the same ‘value’, which is a win-win for bank, insurer and customer. If the rest of Europe has realized it’s potential, why haven’t we?
