Potential of bankassurance in Greece still has to be tested

The sale of insurer Travelers by Citigroup to MetLife made the headlines in the local press, but not the vindication felt by many top executives in Greek insurance firms. According to them, Citigroup’s exit from the insurance business was more than just a big US corporate deal. It was a deal with international ramifications in the sense that banks were not well suited to sell insurance policies and products. So, it is no surprise that the same executives feel bankassurance will not turn out to be the kind of future revenue growth source for banks some analysts and bankers believe it will be. Back in October 1998, Citicorp’s merger with big insurer company Travelers was greeted with enthusiasm by many who believed the merger deal signaled the beginning of consolidation of banking and insurance industries. Unfortunately, it did not work this way. Having sold Travelers’ property and casualty business in pieces in 2002, what is now known as Citigroup announced on January 31 it was selling Travelers Life & Annuity to MetLife, the second largest life insurer in the US, for $11.5 billion in cash and stock. «It (the deal) proves what we have been saying all along. Banks are not suited to sell insurance products through their branches, especially the more complex ones. Unlike insurance agents, bankers are not good sellers of insurance products,» says a top executive at one of Greece’s listed private sector insurance companies. «They may be able to sell a good number of very simple products provided the government gives generous tax breaks for the savings part of the products.» Strangely enough, his views are shared by former top bankers who feel bankassurance has failed to live up to their earlier expectations. Wishful thinking? «I kept on hearing about the potential benefits of bankassurance for years but did not see them. I think it is more wishful thinking than anything else,» says a former top executive at a large state-controlled bank. Commercial banks can either undertake the distribution of insurance policies as an agent of insurance companies on a fee basis, invest in an insurance company for providing infrastructure and services support, or set up a joint venture company for undertaking insurance business with risk participation. Bankassurance is basically a European term referring to synergies between banking and insurance which can be exploited through the form of a package of financial services offered at the same time and at the same place. Of course, others such as analysts, bankers and even executives at insurance firms associated with banks, disagree with the pessimistic assessment of bankassurance in Greece. Although they admit that bankers and insurance agents differ in many respects, with the latter being more aggressive and knowledgeable of insurance products working on commission-based incentives, they say bank branch staff can turn into effective sellers if provided with the right training, incentives and right products. Growth potential With cross-selling of different types of services and products being high on the agenda of many local banks seeking to extract greater revenues per employee, the failure to sell insurance products massively through the distribution of their branch networks would be an unwelcome development. This would especially be so given the penetration of life and non-life insurance policies in Greece, which has long been the lowest in the EU15 as measured by insurance premiums as a percentage of GDP. It is the realization of how relatively underdeveloped the insurance market is in Greece, which has given credence, among other things, to forecasts for high growth rates in the future. Nevertheless, growth rates have been disappointing so far this decade after posting double-digit growth in the second half of the 1990s aided by the boom of unit-linked products on the back of steep gains on the Athens Stock Exchange. The optimists on the prospects of bankassurance business in Greece do admit that this model has failed in Northern Europe and the USA. They readily point out, however, that it has had more success in southern European countries in the last 10 to 20 years. France, Italy and Portugal are frequently mentioned in this context. «One may have to look at the stage of development of the insurance market, especially life insurance, in northern Europe before the banks entered. These insurance markets were well developed, which goes some way to explain why the model of bankassurance did not work there,» adds a high-level banker. «The contrary is true in Greece and in other southern European countries. This means banks have a significant role to play in selling insurance products provided, of course, they take some steps to train their personnel, give financial and non-financial incentives and a good deal of simple insurance products to sell.» He believes the bankassurance model would have turned out to be a greater and more immediate success if the government had provided generous tax breaks for long-term policies, designed to boost the country’s savings ratio and deal with the ailing social security problem. Although everybody shares the belief that generous tax breaks to individuals and groups for pension policies would do wonders in boosting the insurance industry, they do little to convince the pessimists about the eventual fate of bankassurance in Greece. So, who is right and who is wrong? It is difficult to tell. Definitely, Citigroup’s exit from the insurance market does not send the kind of signal some would have hoped for. Nevertheless, the low penetration rates of insurance products in the Greek market and the more upbeat experience of other southern European countries sends a more optimistic message. At the end of the day though, the success or not of the bankassurance model in Greece will depend on the ability of banks to train and give the right incentives and products to their personnel to sell as well as the willingness of the Greek State to provide substantial tax breaks to buyers of such products.

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