Rethinking the success of bancassurance EY survey identifies trends and challenges of this unique business model as it applies in Brazil
Contents 1 About the survey 2 Executive summary 4 Key theme 1 Bancassurance presents value for banks and insurers 6 Key theme 2 Banking customers see a demand for insurance products 12 Key theme 3 Challenges and implications of the bancassurance evolution 16 EY contacts Note: Figures throughout this report have been rounded to the closest 100%. ii Rethinking the success of bancassurance
About the survey 7 Brazilian cities 1,400 retail bank customers EY conducted a survey, focusing on insurance purchase and usage behavior of bank customers in different channels (banks, brokers and others). The research focused on two groups: 1. Banking clients with individual insurance quantitative research More than 1,400 banking clients were interviewed in seven cities in Brazil, ages 18 to 65, with monthly family income of R$900 to R$6,000, and different professions. The aim was to understand ownership and channels used for buying insurance, reasons for choosing a bank or other channel, satisfaction with the purchase and use of insurance in the bank and willingness to use digital channels and renew insurance or purchase new coverage in a bank. 2. Companies with established bancassurance operations in nationwide businesses qualitative research Interviews were conducted with key executives from the largest bancassurance operations in Brazil. The objective was to understand the relevance of the bancassurance business for the organization, product and solution strategies, customer experience, channel mix and direct or digital channels evolution, governance between banks and insurance companies, and technology and operational model challenges. Rethinking the success of bancassurance 1
Executive summary Bancassurance is an up-and-coming business model that enables insurance companies to sell their products through bank distribution channels. Banks benefit by enriching the customer s portfolio, insurers have access to customer databases and profiles and customers have an opportunity to purchase a broader range of products and services to meet their demanding needs. In Brazil, 15% to 30% of banks net income is the result of their participation in the insurance business. Bancassurance models may include 100% bank ownership of an insurance company, established long-term relationships between banks and insurance companies, and distribution deals to sell each other s products. EY surveyed 1,400 retail bank customers to identify trends and behavior for insurance purchase and usage by bank customers. In addition, interviews were conducted with key chief executives of the largest Brazilian bancassurance operations, focusing on relevance of the bancassurance business, product strategies and solutions, customer experience, governance, IT and operational model challenges. The goal was to understand what banks and insurance companies are doing to sustain bancassurance value. In this report, we identify three key current and future themes that emerge from our survey: 1 2 3 Bancassurance presents value for banks and insurers Banking customers perceive demand for insurance products Challenges and implications of the bancassurance evolution 2 Rethinking the success of bancassurance
Bancassurance is extremely relevant for banks in Brazil, bringing value to every participant. 51% 60% 80% 16% 39% of bank customers have insurance products. of customers are willing to acquire insurance through digital channels. purchase in the physical channel, while only 39% see value in personal relationships. cite convenience and manager relationship as two of the top five reasons to purchase insurance from a bank. look to bank employees to promote insurance products. Rethinking the success of bancassurance 3
Key theme Key theme 1Bancassurance presents value for banks and insurers 4 Rethinking the success of bancassurance
Key theme 1 Brazil has one of the world s highest rates of insurance sales through banking channels. Figure 1 Percentage of insurance sales using banking channel 1 Life Non-life Spain 75% Chile 24% This is similar to countries such as Spain and France, where these models have dominated and shown stability over the years. In Brazil, bancassurance accounts for 64% of all life insurance sales, as shown in Figure 1. Brazil France China Germany Mexico 24% 22% 39% 64% 64% China Brazil France Spain Mexico 13% 13% 11% 8% 22% Bancassurance is a common term that connects insurance companies with banks as a distribution channel for insurance products. In Brazil, banking customers are those who have any link with a bank through a checking account, credit card or consortium. The bancassurance model has been fundamental for large financial conglomerates that create value in several dimensions, such as commission Chile USA 10% 16% income, asset management revenue and profit sharing of insurance companies when integrated into the group. In some cases, the bancassurance model may represent one-third of the financial group value. United Kingdom Germany 8% 6% Looking to the future, the model in Figure 2 faces a new context that may affect its relevance; however, it also creates opportunities to sustain and expand its value. Figure 2 An inside view of the bancassurance business Technology What is the threat of FinTechs/InsurTechs and innovating technologies to this model? How to align priorities between the bank and the insurance company on IT agendas? Are insurance companies ready for massive data usage? Governance What governance models are required between banks and insurance companies? Are the existing agreements up to date with the market s changes? Products Is the model ready to incorporate more complex products? How to design the appropriate product/channel mix for lower income classes? Channels How do new channels and direct/digital operations impact the business? How does the digitization strategy affect insurance companies? What is the impact of branch network reduction? Does the existing customer service model favor different customer profiles? Customers What is the growth limit for the current model? Are we close? What is the potential for cross-selling and up-selling business generation? Will bank s brand confidence continue to be relevant for the channel? 1 Source: EY Data from 2014, based in publications of the insurance associations of each country and estimates from EY. Rethinking the success of bancassurance 5
Key theme 2Banking customers perceive demand for insurance products 6 Rethinking the the success of of bancassurance
Key theme 2 In the research, we identified four major findings about the behavior of banking customers who have individual insurance: 1 2 3 4 Customers have the potential to purchase more insurance through the bank channel. There are opportunities for business generation in the low-income segment and to increase the number of products a customer owns. Most purchases are through personal channels, but digital is gaining acceptance. Currently, personal channels are predominant for insurance sales; however, digital channels are growing digital acceptance varies according to age profile. Channel decision is based on convenience and price perception. Although each product is more common in one specific channel, convenience and price perception are the main factors that influence the channel decision. Customers are satisfied with service, yet do not show high loyalty. Customers who purchased insurance in the bank are satisfied, even though a large number are hesitant about buying new insurance coverage in a bank. Rethinking the success of bancassurance 7
Key theme 2 1 Customers have the potential to purchase more insurance through the bank channel. This fact drives the generation of more business in lower income segments and an increase for those who own insurance. As shown in Figure 3, the insurance industry still does not serve much of the low-income population. There is also a lack of business models in terms of channels and products structured specifically for this segment of the population (see Figure 4). Figure 3 Monthly family income distribution of banking customers with individual insurance 3% 5% Brazilian population 2 10% 15% 20% 25% Bank customers with insurance products 3 51% In addition, banks still do not fully exploit the potential for insurance sales associated with financial operations. In our interviews, 851 of the banking customers do not recall being offered insurance products when acquiring other financial services or products. 65% 60% 0 R$ 900 Between R$901 and 1,900 Between R$1,901 and R$6,000 39% 9% 1% Above R$6,000 Figure 4 Insurance ownership by product type Percentage of customers owning each insurance type Quantity of products for each Type of insurance held by customers with one product 4 or more Motor 77% 3 12% 5% 24% Life Life 42% 2 27% 3 64% 8% Residential Residential 27% 1 66% Motor 3% Pensions Pensions 13% Total average: 1.7 Average (excluding motor): 1.0 2 Source: EY, based on 2013 Pnad (IBGE). 3 Based on EY bank survey 1,400 interviews. 8 Rethinking the success of bancassurance
Key theme 2 2 Most purchases are made through personal channels, but digital is gaining acceptance. When it comes to habits, almost 80% of those interviewed purchase mainly through physical channels, in which there is personal contact, either via account manager or an insurance broker. However, when assessing this attribute - personal contact - with regard to other factors, it is not considered the most relevant aspect in choosing the channel to purchase insurance, even for older customers (see Figure 5) When viewing purchases by product, the banks still own the vast share of business in life, pensions and residential (see Figure 6). Motor insurance is still broker dominated. Furthermore, there is a clear willingness of customers to purchase via digital channels, which varies significantly according to age profiles (see Figure 7). Approximately 15% of customers say that they would only buy insurance through digital channels if they felt safe or trusted the channel, which implies a great concern for digital and cybersecurity issues. Figure 5 Percentage of customers (by age) who consider these factors very important 4 Timely response 18 34 83% Product information 87% Availability 72% Convenience 64% Relationship with 49% the salesforce Personal contact 44% Figure 6 General 37% 41% 35 44 37% 51% 53% 65% 62% 62% Channel breakdown for insurance purchasing Others Internet or mobile Dealers Call center Manager Broker 62% 45 54 63% 54% 49% 46% 47% 40% By product 67% 6% 55 64 68% 61% 47% 47% 51% 44% 7% 4% 5% 3% 4% 14% 10% 3% 5% 2% 3% 1% 4% 6% 10% 12% 14% 64% 18% 79% 10% General Motor Life Residential Pensions 65+ 63% 48% 45% 41% 63% 48% Others Internet or mobile Dealers Figure 7 Call center Manager Broker Percentage of customers willing to acquire insurance through digital channels General 60% 86% 66% By age 51% 39% 30% Comments 15% of customers affirmed that would not buy insurance on digital channels claiming safety issues There is a strong differentiation considering age of the customers: younger customers are much more willing to use this option than older ones Average 18 34 35 44 45 54 55 64 65+ 4 Elements related to the price or cost perception were excluded to better understand the relevance of non-monetary factors. Rethinking the success of bancassurance 9
Key theme 2 3 Channel decision is based on convenience and price perception. The convenience and the sales offer are the main reasons for customers to purchase insurance at the bank. Figure 8 shows how these preferences vary by age group. It is interesting to note that, of those customers who did not buy insurance through the bank, almost 90% say they were aware of the offer. Figure 8 Top five reasons for purchasing insurance at the bank 5 Total 18 34 Convenience 35% 42% Cost 20% 26% 35 44 45 54 27% 35% 18% 18% Brand reputation 10% 9% 11% 11% 55 64 28% 13% 12% 65+ 28% 8% 13% Moreover, bank employees play a relevant role in this context, since they appear to be the main source of promoting insurance sales by banks (see Figure 9). This is most striking in the 45 and older age group. Recommendation 7% 7% 8% 8% 5% 3% Figure 9 Communication channels used to make customers aware that banks sell insurance 6 Total 18 34 35 44 45 54 55 64 65+ Bank employees 39% 26% 38% 46% 45% 48% Advertising 18% 17% 17% 20% 18% 17% Internet 16% 23% 13% 17% 14% 8% Flyer distribution 10% 8% 9% 11% 16% 10% Call center Friends and relatives 6% 5% 8% 6% 7% 6% 4% 3% 5% 4% 5% 4% 5 Percentage of customers that mentioned this reason considering only those willing to purchase insurance products by a digital channel. 6 Percentage of customers that mentioned this channel. 10 Rethinking the success of bancassurance
Key theme 2 4 Customers are satisfied with service, yet do not show high loyalty. In general, customers are satisfied with key moments in their life cycle (acquisition and product utilization), as shown in Figure 10. However, a large number of those interviewed are hesitant about acquiring new insurance coverage through a bank. Despite the good relationship and service level, those factors do not guarantee that customers will buy a new insurance policy or renew their coverage at the bank. As shown in Figure 11, the proportion of undecided people is also high (34%) - even for those who bought insurance at the bank. Figure 10 Percentage of customers in each satisfaction category Friendliness and attention provided by bank employees at the purchase moment Bank s reputation Quality of information regarding payment notices Detailed explanation of insurance policy Detailed explanation of insurance benefits Cost of insurance and return of pensions ratios Appropriate compensation value Moment: Acquisition of insurance products 16% 14% 14% 14% 24% 32% 30% 62% 65% 63% 70% 62% 60% 62% 14% 16% 17% 10% 11% 6% 1% 1% 6% 1% 1% Very satisfied Satisfied Uncertain Unsatisfied Very unsatisfied 3% 6% 5% 7% 6% 1% 1% 1% 0% 0% Moment: Usage of insurance products Bank employees solve the after sales issues Appropriate value to charge or price Quality of information regarding payment notices Policy adjustments or endorsements Compensation or benefits quittance compliance 5% 9% 17% 16% 16% 38% 49% 44% 72% 67% 56% 34% 39% 16% 11% 4% 1% 1% 0% 3% 0% 2% 0% 2% 1% Very satisfied Satisfied Uncertain Unsatisfied Very unsatisfied Figure 11 Intent to renew or purchase a new insurance policy at a bank Percentage of customers by intention level to renew 630 2% 3% 23% Percentage of customers by intention level to purchase 630 770 6% 8% 34% 12% 17% 48% 25% General 43% 9% Bank channel 51% 1% 18% Nonbank channel Definitely not Probably not Maybe yes/maybe no Definitely yes Probably yes Rethinking the success of bancassurance 11
Key theme Key theme 3Challenges and implications of bancassurance evolution 12 Rethinking the success of bancassurance
Key theme 13 1. 2. 3. 4. 5. Service and attendance model Attraction and retention Product portfolio adjustment Governance across the board Operational and technology model Fewer customers in the branches and the preference to use digital channels varies according to customer profile. This requires specific customer service models for each group, based on their needs. The customer strategy provides different levels to increase bancassurance business value. This results in data management challenges and creates specific relationship offers and customer visions. There is a trend for a product portfolio to be customized for each segment, especially with the development of more premium products for the more affluent and affordable products for lower income classes. Most operations have an established formal governance model between the bank and the insurance company. However, this model may not be up to date with the current market context. The technological and operational models are complex, given the different architectures of the insurer and the bank. This implies the need for technological agenda control. Moreover, the threat of new models requires more agile and innovative upgrades. 1 Service and attendance model With more customers willing to use digital channels rather than visiting branch offices, it is important for banks to consider developing different models. Link insurance with mobile banking Develop a customer care model for lowincome individuals Build a specialized customer care model for affluent customers Align customer care model and bank branch strategy Establish an insurance operating model in mobile and internet banking where banks are investing Design communication and sales channels, which enable and attract customers of lower income mobile and payments as key elements Develop specialized teams to sell more customized solutions, combined with relationship managers (robot advisors, communication...) Define how to integrate insurance customer care in the new branch format more digital, business focused and specialized. Rethinking the success of bancassurance 13
Key theme 3 2 Attraction and retention The strategy to increase bancassurance business value requires finding new ways to attract and retain customers. Improve knowledge on customer care Align strategy and customer insights with the bank Create analytic models for process improvement Revise campaigns and offerings Improve quality and depth of customer data, leveraging bank sources, insurance companiesand others for further analysis Use design thinking models and others to build customer insight, aligned with the bank promoting cross-selling Use analytics models to improve the customer experience and purchase probability Use customer relationship management to incorporate real time operations based on new sales and financial events 3 Product portfolio adjustment There is a trend to tailor product portfolios for each customer segment developing premium products for the affluent and more affordable ones for lower income classes. Review product portfolios Create synergies to integrate commercial financial product portfolios Incorporate disruptive technologies Align with bank benefit programs Align detailed product portfolio analysis with the needs of various segments Reinforce the integration of insurance and commercial financial bank products (loans, credit card, consortiums, capitalization...) Create products that enable use of wearables, Internet of Things and telematics, integrated with bank and insurance digital channels Review the value proposition to bank and insurance customers through benefit programs, such as miles per insurance 14 Rethinking the success of bancassurance
Key theme 3 4 Governance across the board Most governance and partnership models were established within a different context than the current one. In line with new trends, it is now time to reflect on these new dimensions. Assess partnership model for the bank and insurer Design shared analytics programs Align segmentation models Establish an aligned vision of IT and operations Review partnership agreements, including rules and motivators to capture greater synergy and performance alignment Develop a shared analytics model, leveraging data synergies, technology and analytical skills Align insurance and bank segmentation, searching for a coherent and value-oriented solution Develop a common vision of IT governance, digital channels, architecture, tools and priorities, aiming for efficiency and customer views 5 Operational and technology model Technological and operational models are complex, given the different architectures of insurance companies and banks. This creates challenges in synergizing the technology agenda. In addition, the emergence of FinTechs/InsurTechs requires increasing agility and innovation. Use agile methodology and flexible architecture Design mobile first principle application Develop an open innovation model Use robotics in front and back office Improve agility with mixed teams of IT and business, flexibility in tools use, languages and modern platforms Prioritize mobile development as the main channel to support the demands of availability and usability Integrate with accelerators and digital innovation clusters for technology applications concepts Streamline by incorporating robotics process automation, with an aim toward efficiency and speed in development Rethinking the success of bancassurance 15
EY contacts For more information or to schedule a briefing, please reach out to the EY Insurance Customer & Growth teams: Gregory Gobetti EY FSO Advisory Lead Partner in Brazil +55 11 2573 3262 gregory.gobetti@br.ey.com Duarte Carvalho Principal Ernst & Young LLP +1 212 773 0255 duarte.carvalho@ey.com Nuno Vieira EY Insurance Advisory Lead Partner in Brazil +55 11 2573 3098 nuno.vieira@br.ey.com 16 Rethinking the success of bancassurance
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EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2017 EYGM Limited. All Rights Reserved. EYG no. 05507-174Gbl 1612-2134350 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com