Rethinking the success of bancassurance - EYFILE/ey-rethinking-bancassurance-brazil.pdf · In...

Rethinking the success of bancassuranceEY survey identifies trends and challenges of this unique business model as it applies in Brazil

ii | Rethinking the success of bancassurance

ContentsAbout the survey

Executive summary

Key theme 1 Bancassurance presents value for banks and insurers

Key theme 2 Banking customers see a demand for insurance products

Key theme 3 Challenges and implications of the bancassurance evolution

EY contacts

1

2

6

12

16

4

Note: Figures throughout this report have been rounded to the closest 100%.

1Rethinking the success of bancassurance |

About the survey

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.

Note: Figures throughout this report have been rounded to the closest 100%.

7 Brazilian cities 1,400

retail bank customers

2 | Rethinking the success of bancassurance

Executive summary

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.

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.

1 2 3Bancassurance presents value for banks and insurers

Banking customers perceive demand for insurance products

Challenges and implications of the bancassurance evolution

In this report, we identify three key current and future themes that emerge from our survey:

Executive summary Bancassurance is extremely relevant for banks in Brazil, bringing value to every participant.

39% look to bank employees to promote insurance products.

16%

51%

60% of customers are willing to acquire insurance through digital channels.

80%


cite convenience and manager relationship as two of the top five reasons to purchase insurance from a bank.

purchase in the physical channel, while only 39% see value in personal relationships.

of bank customers have insurance products.

Key theme


Key theme

1Bancassurance presents value for banks and insurers


1Key theme

Key theme

Brazil has one of the world’s highest rates of insurance sales through banking channels.

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.

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

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.

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.

75%

64%

39%

24%

22%

16%

10%

64%

Spain

Brazil

France

China

Germany

Mexico

Chile

USA

Chile

China

Brazil

France

Spain

Mexico

United Kingdom

Germany

Life Non-life24%

22%

13%

13%

11%

8%

8%

6%

Figure 1

Percentage of insurance sales using banking channel1

Technology

Governance

Products

• 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?

• What governance models are required between banks and insurance companies?

• Are the existing agreements up to date with the market’s changes?

• 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?

Figure 2

An inside view of the bancassurance business

Key theme

1 Source: EY Data from 2014, based in publications of the insurance associations of each country and estimates from EY.


Key theme

2Banking customers perceive demand for insurance products



2Key themeKey theme

In the research, we identified four major findings about the behavior of banking customers who have individual insurance:

Customers have the potential to purchase more insurance through the bank channel.

1

Most purchases are through personal channels, but digital is gaining acceptance.

2Channel decision is based on convenience and price perception.

3Customers are satisfied with service, yet do not show high loyalty.

4

There are opportunities for business generation in the low-income segment and to increase the number of products a customer owns.

Currently, personal channels are predominant for insurance sales; however, digital channels are growing — digital acceptance varies according to age profile.

Although each product is more common in one specific channel, convenience and price perception are the main factors that influence the channel decision.

Customers who purchased insurance in the bank are satisfied, even though a large number are hesitant about buying new insurance coverage in a bank.


2Key theme

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).

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.

Brazilian population2

10%–15%

51%

39%

9%1%

3%–5%

20%–25%

65%–60%

0–R$ 900Between R$901 and 1,900Between R$1,901 and R$6,000Above R$6,000

Bank customers withinsurance products3

Percentage of customers owning each insurance type Quantity of products for each Type of insurance held by

customers with one product

77%

1

2

3

3

4 or more5%Motor

Life

Life

Pensions

ResidentialMotor

Pensions

Residential42%

Total average: 1.7Average (excluding motor): 1.0

27%

13%

12%

27%

66%

24%

8%

3%

64%

Figure 3

Figure 4

Monthly family income distribution of banking customers with individual insurance

Insurance ownership by product type

2 Source: EY, based on 2013 Pnad (IBGE).3 Based on EY bank survey – 1,400 interviews.

9

2Key theme

Rethinking the success of bancassurance |

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.

83%

18–34

Timely response

Product information 87%

72%

64%

49%

44%

35–44

65%

62%

51%

53%

62%

37%

45–54

63%

54%

49%

46%

47%

40%

55–64

68%

61%

47%

47%

51%

44%

65+

63%

48%

45%

41%

63%

48%

Availability

Convenience

Relationship with the salesforce

Personal contact

Figure 5

2 Most purchases are made through personal channels, but digital is gaining acceptance.

General By product

41%

62%

6%18%

10%

37%

14%

67%

79%64%

10% 12%6%5%

3%

Motor LifeGeneral Residential Pensions

Broker

Manager

Call center

Dealers

Internet or mobile

Others3%

7% 4% 5%3%2%

4%1%

10%14%4%

BrokerManagerCall center

DealersInternet or mobileOthers

Figure 6

General

60%

86%

18—34Average 35—44 45—54 55—64 65+

66%

39%51%

30%

By age

Figure 7

Percentage of customers (by age) who consider these factors “very important”4

Channel breakdown for insurance purchasing

Percentage of customers willing to acquire insurance through digital channels

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

4 Elements related to the price or cost perception were excluded to better understand the relevance of non-monetary factors.


2Key theme

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.

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.

3 Channel decision is based on convenience and price perception.

35%

18–34Total

Convenience

Cost 20%

10%

7%

35–44

42%

26%

9%

7%

45–54

27%

18%

11%

8%

55–64

35%

18%

11%

8%

65+

28%

13%

12%

5%

28%

8%

13%

3%

Brand reputation

Recommendation

Figure 8

39%Bank employees

Total 45 —5435 —4418 —34 55 —64 65+

Advertising 18%

16%

10%

6%

5%

26%

17%

23%

8%

8%

6%

38%

17%

13%

9%

7%

6%

46%

20%

17%

11%

4%

3%

45%

18%

14%

16%

5%

4%

48%

17%

8%

10%

5%

4%

Internet

Flyer distribution

Call center

Friends and relatives

Figure 9

Top five reasons for purchasing insurance at the bank5

Communication channels used to make customers aware that banks sell insurance6

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.


2Key theme

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.

1%

1%

1%

1%

1%

0%

0%

Moment: Acquisition of insurance products

Bank’s reputation

Quality of informationregarding payment notices

Detailed explanation of insurance policy

Detailed explanation of insurance benefits

Cost of insurance and return of pensions ratios

Friendliness and attention provided bybank employees at the purchase moment

Appropriate compensation value

32%

16%

14%

14%

14%

24%

30%

60%

65%

70%

62%

63%

62%

62%

6%

14%

11%

17%

16%

10%

6%

1%

6%

5%

6%

7%

3%

1%

Very satisfied Satisfied Uncertain Unsatisfied Very unsatisfied

Figure 10

Moment: Usage of insurance products

Appropriate value to charge or price

Quality of information regarding payment notices

Policy adjustments or endorsements

Compensation or benefits quittance compliance

Bank employees solve theafter sales issues 17%

9%

5%

16%

16%

44%

49%

38%

67%

72%

34%

39%

56%

16%

11%

Very satisfied Satisfied Uncertain Unsatisfied Very unsatisfied

1%

0%

1%

0%

0%

2%

2%

3%

1%

4%

4 Customers are satisfied with service, yet do not show high loyalty.

630

Percentage of customers by intention level to renew

Percentage of customers by intention level to purchase

23% 8%6%

9%

43%

34%

12%17%

1% 18%

51%48%

2%3%

25%

770630

General Bank channel

Maybe yes/maybe noDefinitely notDefinitely yesProbably yes

Probably not

Nonbank channel

Figure 11

Percentage of customers in each satisfaction category

Intent to renew or purchase a new insurance policy at a bank


Key theme

3Challenges and implications of bancassurance evolution

Key theme



1Key theme

Key theme

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 • Establish an insurance operating model in mobile and internet banking — where banks are investing

Develop a customer care model for low- income individuals • Design communication and sales channels, which

enable and attract customers of lower income — mobile and payments as key elements

Build a specialized customer care model for affluent customers • Develop specialized teams to sell more

customized solutions, combined with relationship managers (robot advisors, communication ...)

Align customer care model and bank branch strategy • Define how to integrate insurance customer

care in the new branch format — more digital, business focused and specialized.

3Key themeKey theme


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 • Improve quality and depth of customer data, leveraging bank sources, insurance companies- and others for further analysis

Align strategy and customer insights with the bank • Use “design thinking” models and others to

build customer insight, aligned with the bank —promoting cross-selling

Create analytic models for process improvement • Use analytics models to improve the customer

experience and purchase probability

Revise campaigns and offerings • 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 • Align detailed product portfolio analysis with the needs of various segments

Create synergies to integrate commercial financial product portfolios • Reinforce the integration of insurance and

commercial financial bank products (loans, credit card, consortiums, capitalization ...)

Incorporate disruptive technologies • Create products that enable use of wearables, Internet of Things and telematics, integrated with bank and insurance digital channels

Align with bank benefit programs • Review the value proposition to bank and insurance customers through benefit programs, such as miles per insurance


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 • Review partnership agreements, including rules

and motivators to capture greater synergy and performance alignment

Design shared analytics programs • Develop a shared analytics model, leveraging data synergies, technology and analytical skills

Align segmentation models • Align insurance and bank segmentation, searching for a coherent and value-oriented solution

Establish an aligned vision of IT and operations • 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 • Improve agility with mixed teams of IT and

business, flexibility in tools use, languages and modern platforms

Design mobile first principle application • Prioritize mobile development as the main channel to support the demands of availability and usability

Develop an open innovation model • Integrate with accelerators and digital innovation clusters for technology applications concepts

Use robotics in front and back office • Streamline by incorporating robotics process automation, with an aim toward efficiency and speed in development


EY contactsFor 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 [email protected]

Duarte Carvalho PrincipalErnst & Young LLP +1 212 773 [email protected]

Nuno Vieira EY Insurance Advisory Lead Partner in Brazil +55 11 2573 3098 [email protected]

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