European bancassurance benchmark

European bancassurance benchmark

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Milliman Research ReportPrepared by:Corinne LegrandAugust 2008European bancassurance benchmark European bancassurance benchmarkCorinne LegrandAugust 2008European bancassurance benchmarkCorinne LegrandAugust 2008Milliman Research ReportContentsEx ECutivE Su MMaRy 2Report objective 2Methodology and structure of the report 2Key findings 2BaCKg Round data on Eu Rop Ean BanC aSS u RanCE 4Bancassurance: a major distribution channel in Europe 4Bancassurance: still seen as a key development opportunity in the European insurance industry 5BanC aSS u RERS Can B ui Ld on an E xCLuS ivE di StR iBution n EtwoRK B ut th E pRoduC tivity of th E BRanCh n EtwoRK vaR iES widELy 6average productivity per branch varies significantly across countries 6f actors driving these differences 6post office productivity 8BanC aSS u RERS havE a CCESS to a C aptivE CL iEnt BaSE B ut th E aB iLity to CRoSS-SELL in Su RanCE p RoduC tS to th E Ban K’S CLiEntS vaR iES widELy 9penetration rates 9how are these penetration rates achieved? 9how can penetration rates be improved? 10aCqui Sition E xp En SES 13Commissions 13analysis by type of commissions 13non-commission acquisition expenses 14adM ini StRation E xp En SES 15administration expenses ratio 15Staff ratio 16MEthodoL ogy 17LiSt of C oM pani ES anaL ySEd in th E Su RvEy 19Milliman Research Reporte xe Cutive summaryReport objectiveThe key success factors for European bancassurers are usually measured ...

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Milliman Research Report
Prepared by:
Corinne Legrand
August 2008
European
bancassurance
benchmark
European bancassurance benchmark
Corinne Legrand
August 2008European bancassurance benchmark
Corinne Legrand
August 2008Milliman
Research Report
Contents
Ex ECutivE Su MMaRy 2
Report objective 2
Methodology and structure of the report 2
Key findings 2
BaCKg Round data on Eu Rop Ean BanC aSS u RanCE 4
Bancassurance: a major distribution channel in Europe 4
Bancassurance: still seen as a key development opportunity in the European
insurance industry 5
BanC aSS u RERS Can B ui Ld on an E xCLuS ivE di StR iBution n EtwoRK B ut th E
pRoduC tivity of th E BRanCh n EtwoRK vaR iES widELy 6
average productivity per branch varies significantly across countries 6
f actors driving these differences 6
post office productivity 8
BanC aSS u RERS havE a CCESS to a C aptivE CL iEnt BaSE B ut th E aB iLity to
CRoSS-SELL in Su RanCE p RoduC tS to th E Ban K’S CLiEntS vaR iES widELy 9
penetration rates 9
how are these penetration rates achieved? 9
how can penetration rates be improved? 10
aCqui Sition E xp En SES 13
Commissions 13
analysis by type of commissions 13
non-commission acquisition expenses 14
adM ini StRation E xp En SES 15
administration expenses ratio 15
Staff ratio 16
MEthodoL ogy 17
LiSt of C oM pani ES anaL ySEd in th E Su RvEy 19Milliman
Research Report
e xe Cutive summary
Report objective
The key success factors for European bancassurers are usually measured by commercial efficiency
and low cost base.
t he objective of this Milliman The objective of this Milliman analysis is to set up a benchmark of commercial productivity and
analysis is to set up a expense levels across leading bancassurers in Europe. It focuses on bancassurance-dominated
benchmark of commercial markets — France, It aly, Spain, and Portugal, and selected pure bancassurers in Belgium, Germany,
productivity and expense and the United Kingdom.
levels across leading
bancassurers in Europe. Our analysis provides essential information to:
bancassurers present in these markets, to help them assess their performance and understand
how it can be improved
traditional insurers seeking to develop bancassurance distribution, to help them assess the
performance, development potential, and value of possible bancassurance targets
insurers in developing bancassurance markets around the world, to help them assess development
opportunities and set up performance benchmarks
In this report, we present a summary of the results of the Milliman benchmark analysis and explain the
main differences by country, by business model, and by business line.
Methodology and structure of the report
For this report, we analysed publicly available financial and commercial data for a sample of 35
bancassurers across Europe. The list of companies is shown in the appendix.
We then derived from this analysis a number of benchmark indicators:
productivity per branch
customer penetration
non-commission acquisition expenses as a percentage of new business Annual Premium
Equivalent (APE)
entry commissions as a percentage of new business APE
administration expenses as a percentage of reserves
Building on our in-depth knowledge of these bancassurance markets, we proceeded to an analysis
of these benchmark indicators to explain the main differences by country, business model, and
business line.
Key findings
Bancassurance commercial productivity, measured as premiums per branch, varies largely across
countries. The highest productivity levels are reached in mature life insurance markets in which
life insurance products are tax advantaged compared to other forms of savings products, e.g. in
France (€2.5 million per branch on average) and Belgium (€2.38 million). In countries such as Italy,
where life insurance products do not benefit from a favourable tax treatment compared to other
savings products, the commercial productivity depends largely on the level of priority assigned to
life insurance business by the bank and can vary from one to ten.
Reasonably successful bancassurers in mature life insurance markets can achieve penetration
rates of 15% to 25% of the bank’s customer base by selling fairly standardised products to
their mass-market customers and cross-selling life insurance risk products with loans and
mortgages. Bancassurers can further increase their penetration rate up to 35% and more by
expanding their life insurance product offerings to their affluent customers and by expanding
European bancassurance benchmark 2
Corinne Legrand
August 2008Milliman
Research Report
their insurance product range to new product lines, e.g. non-credit-related risk products and
non-life insurance products.
Commissions represent between 82% and 94% of acquisition expenses. Average commissions-
to-new-business APE ratios are around 35% in Italy, Spain, and Portugal, and significantly higher
in France (47%). The level of non-commission acquisition expenses varies largely by country —
from 1.9% of new business APE in Portugal to 7.7% in Italy. These differences can be driven by
different compliance requirements across countries and by different structures of sales support
implemented by companies.
The level of administration costs varies significantly across countries, from 0.08% of reserves in
France to 0.23% in Germany. This ratio is largely dependent on the size of companies and can
be as low as 0.04% for the largest bancassurers. The business model implemented — joint-
venture or fully owned companies — has limited impact, reflecting the fact that the level of IT and
administration integration between the bank and the insurance company is generally comparable
under both models.
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Corinne Legrand
August 2008Milliman
Research Report
BaC kground data on european BanCassuranCe
Bancassurance: a major distribution channel in Europe
Bancassurance is a major Bancassurance is a major distribution channel in Europe, accounting for over 60% of individual life
distribution channel in Europe, insurance premiums in France, Italy, Portugal, and Spain, and over 50% in Belgium. Bancassurance
accounting for over 60% is less developed in the United Kingdom and Germany.
of individual life insurance
premiums in f rance, italy,
portugal, and Spain. e xhi Bit 1: Ban Cassuran Ce in main e uropean i ndividal u life insuran Ce markets

250 80.00%
218.79
70.00%
200
60.00%
50.00%
150
125.9
40.00%
100
30.00%
63.27 60.37
20.00%
50
10.00%19.07 16.04
8.60
0 0.00%
United Kingdom France Italy Germany Spain Belgium Portugal
Individual premiums (€m) Bancassurance market share (%)
Source: Milliman analysis–2006 data
In France, Italy, Spain, Portugal, and Belgium, bancassurers operate under a fully integrated model
in which:
Bancassurance companies are fully or partly owned by a bank.
Bancassurance companies have an exclusive distribution agreement with their parent bank.
Bancassurance products are fully integrated in the bank’s product range and are sold by branch
staff along with banking products.
In Germany and the United Kingdom, bancassurance tends to be less integrated:
Fully owned bancassurance companies and joint ventures exist, but banks frequently operate
through pure distribution agreements.
Distribution agreements are often on an exclusive basis in Germany, but in the United Kingdom
multi-tied bancassurance distribution is developing.
Life insurance products are often not sold by branch staff directly, but are referred to insurance
specialists. In Germany, this can be because insurance products tend to be more complex than
in southern Europe. In the United Kingdom, this is due to the regulation under which investment
products can be sold only by qualified financial advisers.
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August 2008Milliman
Research Report
The main competitive advantages of bancassurance are often seen as:
the capacity to achieve high business volumes by cross-selling simple products to the bank’s
captive customer base
the marginal cost of distribution through an existing branch network
the operational cost efficiency of a close integration of systems and processes between the bank
and the insurance company
This report gives a view on these performance indicators and how they can vary by country and by
business model.
Bancassurance: still seen as a key development opportunity in the European
insurance industry
Bancassurance has generated a significant volume of mergers and acquisitions (M&A) activity in
Europe in 2007 and the first months of 2008. Both traditional insurers and bancassurers have
developed their bancassurance activity by acquiring 50% stakes in bancassurance companies
previously 100% owned by banks. By acquiring bancassurance ventures, traditional insurers gain
access to well-established distribution networks and customer bases, allowing them to gain market
share quickly.
Traditional insurers tend to expand into bancassurance for one of two reasons:
to diversifiy their distribution strategy and gain market share in the countries where they are already
present (This was the case with AXA with the acquisition of 50% of Montepaschi Vita in Italy in
2007, and Zurich Financial Services’ acquisition in Spain of 50% of Caixa Sabadell’s life insurance
subsidiary, CaixaSabadell Vida, in 2008.)
to expand internationally (This was the case with Groupama with the acquisition of 100% of OTP
Garancia in Hungary in 2007.)
Well-established bancassurers were also active in the M&A drive to develop internationally by
exporting their successful business model abroad. Credit Agricole, for example, acquired 50% and
management control of the life and non-life bancassurance subsidiaries of the Espirito Santo Group
in Portugal in 2006.
For the valuation of these bancassurance deals, understanding the development potential of the
bancassurance company is key. The ability to benchmark the company’s productivity per branch
and bank customer-base penetration against successful competitors is an element with which to
assess a global growth potential. Benchmarking the bancassurance business mix and profitability by
business line against competitors is also essential for the definition of the business plan.
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August 2008Milliman
Research Report
Ban Cassurers Can Build on an exClusive
distriBution network But the produCtivity of the
BranCh network varies widely
average productivity per branch varies significantly across countries
In the typical southern Europe bancassurance models, bancassurance companies are owned (fully or
partly) by a bank and have an exclusive distribution agreement with their parent bank. Bancassurance
companies thus have access to an established branch network and to a captive customer base.
The life insurance premiums per branch ratio is a good indicator of the commercial performance of
the branch network. Milliman analysis shows that this indicator varies widely across countries.
e xhi Bit 2: a verage life i nsuran Ce premiums per Bran Ch * (€ m)
3,00
2,51
2,50 2,38
2,00
1,73 1,66
1,50
1,00
0,450,50
0,32
0,00
France Belgium Italy Portugal Spain Germany
* excluding post office distribution
Source: Milliman analysis–2006 for f rance, Belgium, italy, Spain, and germany; 2007 for p ortugal
f actors driving these differences
The first factor explaining these differences is the general level of development of life insurance
in Spain, for example, the life markets and banking sectors in these countries. In Spain, for example, the life insurance market is
insurance market is relatively relatively underdeveloped compared to other European markets. At the same time, Spain has one of
underdeveloped compared to the highest bank-branch densities in Europe.
other European markets. at
the same time, Spain has one
of the highest bank-branch e xhi Bit 3: life i nsuran Ce d ensity and d ensity of Bank Bran Ch n etworks in fran Ce an d
densities in Europe. sainp
Country life insuranCe density Bank Bran Ch density (numBer of
(premiums per C a iapit n $us) B ran Ches per 1,000 inhaB ants) *it
s aipn 651.0 0.97
fran Ce 2,922.5 0.43
* excluding post office
Source: Sigma Swiss Re, Banque de f rance, and Banco de España–2006 data
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August 2008Milliman
Research Report
A second factor driving these differences is the nature of life insurance business. In France and
Belgium, individual life insurance products are basically tax-advantaged medium-term savings
products, benefiting from tax exemption on interest and capital gains when policies are held for a
minimum duration.
This means that life insurance products are by nature very similar to the investment and savings
products sold by banks and hence fairly easy for bank advisers to sell. Furthermore, the tax
advantages mean that bank advisers can encourage their clients to shift their money from other
savings products to life insurance products.
In France, for example, the 2006 market growth was strongly driven by substantial transfers from
Plans Epargne Logement (PEL), which are regulated savings products that allow savings for property
acquisition under favourable conditions. On 1 January 2006, the interest earned on PEL in force
for over 10 or 12 years became subject to income tax. As a consequence, a large number of PEL
holders transferred their PEL to life insurance policies. It is estimated that €11 billion were transferred
from PEL to life insurance products in 2006, generating a 9% life insurance market growth (out of a
total 17% market growth in 2006). These transfers benefited mainly the bancassurance distributors
because banks were able to target the PEL holders in their customer base.
The situation in Italy is different because life insurance does not benefit from any tax advantages over
other forms of saving products. The life insurance volumes produced by banks are therefore very
dependent on the commercial priorities defined by each bank. This results in large differences in the
commercial performance of banks. As shown in the graph below, the commercial performance of
banks varies much more in Italy — from €0.45 million to €4.32 million per branch per year — than in
France, Spain, or Portugal.
e xhi Bit 4: life i nsuran Ce premiums per Bran Ch for sample Ban Cassurers in fran Ce,
. yalit s aipn, and p ortugal ( €m)
5,00
4,50
4,00
3,50
3,00
2,50
France Italy
2,00
Portugal
1,50
1,00
Spain
0,50
0,00
France Italy Spain Portugal
Source: Milliman analysis–2006 for f rance, italy, and Spain; 2007 for portugal
The performance of Italian banks can also vary significantly year on year. In recent years, the
commercial priorities of banks and in particular their focus — or lack of focus — on bancassurance
may have been affected in a major way by M&A and restructuring activities. An example of this is a
bancassurer involved in restructuring the ownership of its bancassurance operation in 2006, which
saw the commercial performance per branch drop from €0.93 million per branch in 2005 to €0.58
million in 2006.
European bancassurance benchmark 7
Corinne Legrand
August 2008Milliman
Research Report
post office productivity
Finally, it is worth making a comment on post offices, which are more and more involved in the
distribution of financial and life insurance products.
Poste Vita ranked third in the Italian bancassurance market in 2006 and became the leading Italian
bancassurer in 2007.
La Banque Postale ranks second in the French bancassurance market behind Credit Agricole.
These distributors can build on extremely large branch networks but with a fairly low number of
bank advisers per branch and a less captive and often less wealthy customer base. As a result, the
productivity of post office branches is lower than the average productivity of retail banks and
savings banks.
e xhi Bit 5: life i nsuran Ce premiums per Bran Ch for p ost offi Ces in fran Ce and yalit
Country n um Ber of Bran Ches life i nsuran Ce premiums per Bran Ch (€ m)
fran Ce 17,000 0.71
y alit 11,800 0.51
Source: Milliman analysis–2006 data
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August 2008