Bancassurance emerges as the lucrative field of competition

Greek banks may still count on retail loan growth to propel their earnings to new highs this year and next. They should realize, however, they need fresh revenue sources to maintain the momentum – and bancassurance appears to be one of them. Strong volume growth in consumer, mortgage loans and credit cards has generated a strong rise in net interest and commission income, which along with the containment of operating costs, has been behind the double-digit growth in profits for a number of years. Sensing the Greek market is small and retail banking is maturing fast, large banks have set their sights abroad and gone on a buying spree to ensure a relatively large component of their future earnings will come from the underdeveloped and therefore more promising markets in neighboring countries and beyond. However, this does not mean they have given up on the home market where they can still find some pockets of unexploited growth opportunities. Bancassurance, a French term referring to the distribution of insurance policies through a bank’s branch network and other channels, is one of them. The entry of AXA, a large French insurance and financial protection group with a global reach, into the Greek market via the acquisition of Alpha Insurance Company, a subsidiary of Alpha Bank, and the long-term bancassurance it reached with the latter for 255 million euros reminded many people of the potential of the Greek insurance market and bancassurance in particular. The AXA Group is not alone among the large insurance groups to set foot in the Greek insurance market. Eureko is here after the acquisition of Interamerican, along with Alico, Allianz, ING, Generali and others. But nowhere do things seem to be moving faster than in bancassurance where banks have become more aggressive in including insurance policies in their mix of cross-selling. Following the success of Eurolife Group, a member of Eurobank EFG, other banks have also moved or preparing to do the same. National Bank of Greece made its presence felt for the first time this year; Alpha Bank is joining forces with AXA; Piraeus Bank has been cooperating with ING and Emporiki Bank has set up Emporiki Life, a joint subsidiary with Predica, Credit Agricole’s insurance arm. Not insurance conscious This is not surprising. After all, insurance premiums account for about 2 percent of GDP (gross domestic product) in Greece compared to an average 8.0 percent in the old EU-15. It is self-explanatory that the potential revision of the Greek GDP by Eurostat will drive the ratio lower. What may be surprising is the fact it took them too long to realize the unexploited potential of bancassurance in Greece and to make a move. The disagreements between bankers and executives of insurance companies, often within the same group, over who is better suited to sell insurance policies may offer an explanation. «I discovered they were mistrustful of each other and rarely talked about insurance. This has now changed but it was tough at the beginning when we tried to make everybody understand they need not be competitors,» says the No. 2 executive at one of the top three Greek banks. This does not mean executives at other insurance companies have compromised on their views. An example those in the business often like to bring up is the sale of insurer Travelers by Citigroup to MetLife, the second largest life insurance company in the USA. Citicorp merged with Travelers in 1998, in a move signaling the consolidation of the banking and insurance industries. However, things did not apparently work out well and Citigroup, as it is called nowadays, started selling pieces of Travelers in pieces and got out with the sale of the last one, Travelers Life & Annuity, sold to MetLife for $11.5 billion in 2002. They like to point out the failure of bancassurance in the USA or Northern Europe but fail to mention the success of the same model in Southern Europe, namely France, Italy, Portugal and others. It is known that the failure of bancassurance in the USA and elsewhere was more due to the existence already of a well developed insurance industry when banks entered for the first time rather than anything else. Inadequate training Most insurance company executives also feel bank tellers are not properly trained and lack the proper financial incentives to sell life insurance policies to their clients, in contrast to insurance agents who know better the products and work on bonuses. They say banks sometimes force insurance policies on people who take out loans for the first time and this results in a high rate of cancellations after the first year. The also say the insurance industry could pay dearly for the short-term success of bancassurance in the future when life insurance policy holders come back after a couple of years and learn they are entitled to less than the money they had paid so far. But bankers dismiss these claims as groundless, saying intensive training of bank personnel is being undertaken and financial incentives are being provided. Moreover, they say the kind of pension or other policies being sold are relatively simple to understand and bank staff will explain to buyers that they are long-term products. To them, bancassurance provides a boost to the insurance industry by providing easy access to simple insurance policies for hundreds of thousands of ordinary people who are bank clients and does not constitute any threat to the rest of the industry. Whatever the case, bancassurance has started to generate handsome fees for the pioneering local banks and this has not gone unnoticed by their competitors who either have entered or plan to enter the business. At a time that fees from commission on loans or other products and services appear to be suffering from growth fatigue, bancassurance seems to hold great promise. In a country where the vast majority of the population does not have any kind of private insurance and the pay-as-you-go system is ailing, banks may have succeeded in tapping a new, huge source of revenues.