Bancassurance, the arrangement between a bank and an insurance firm wherein the bank can earn additional revenue by selling the products of the insurance company, is forecast to reach $1.7trillion globally by 2026, with customers looking for digital solutions to meet their insurance needs.
Digitisation and the influx of application programming interfaces (APIs) with ‘low-code’ tech represent a significant opportunity for both insurers and banks to capitalise on the booming bancassurance market, says EIS – a digital platform provider for insurers.
Anthony Grosso, senior vice president of EIS, has more than 25 years of experience leading innovation, business development, product and marketing across all sectors of the insurance industry. Having been at EIS for more than seven years, Grosso helped drive the company’s expansion into group and worksite insurance markets.
Here he shares his thoughts on why banks and insurers need to adopt the right tech to enable fast and tailored product rollout.
The consumer need for more digital experiences was exacerbated by the pandemic, and in response banks shifted their focus to delivering more – and different – online services. Banks have partnered with insurers to provide bancassurance, and it’s becoming an increasingly important and popular channel for the distribution of insurance products which will benefit from the new digital engagement models.
In context, the global bancassurance market was valued at $1.2trillion in 2020, and is forecast to reach $1.7trillion by 2026. In fact, it is the predominant line of life insurance distribution in Europe; in Italy, 75 per cent of gross written premiums for life insurance is distributed through the bancassurance channel.
In comparison, bancassurance is yet to mature in the UK with less than 10 per cent of insurance lines being sold via banks or building societies. This leaves a gap in the market which banks and insurers would be remiss to ignore. By taking advantage of digital solutions, both banks and insurers can provide necessary and customer-centric products and services to larger customer bases.
The bancassurance benefit
For banks, bancassurance partnerships can generate additional revenues from an initial capital-light investment with limited liabilities in terms of running costs. It also allows the bank or building society to offer a wider range of products that their customers may need. The only catch is picking the right bancassurance partner, as any change in the reputation of the partner insurer would ultimately impact that of the bank’s.
The bancassurance model of distribution can help insurers go from laggard to leader by capitalising on insights and analytics. These partnerships allow insurers to tap into a bank’s customer base to offer relevant insurance products. For up and coming insurance companies, tapping into a bank’s large customer base has many advantages, including the ability to generate accurate risk profiles. As such, the onus to build the bancassurance channel, along with the initial setup and running costs, falls on the insurer. With the right technology implemented, the bancassurance channel becomes a win-win opportunity for both sides of the coin.
The missing digital link
In the wider context of digitisation, the right technology can help insurers bypass outdated legacy systems that cannot participate in digital ecosystems. More often than not, legacy systems still rely on manual processes and require custom, time-intensive and expensive developments to enable bancassurance partnerships.
Both legacy systems and ‘modern legacy systems’ – only ‘modern’ in name – are flawed as they are unable to effectively meet contemporary customer demand. They are often product-centric and not made to support business models that take advantage of emerging trends. They were designed and built to make internal processes efficient, meaning most are siloed and lack the capability to integrate with third parties. A recent poll by Insurance Times branded legacy technology as the main barrier to insurance digitalisation. It’s no surprise as the ability to integrate with other systems is essential for those wanting to innovate such as through bancassurance partnerships.
APIs are the future of integration
To be successful in the bancassurance space, insurers need technology that enables them to be agile in forming partnerships and offering consumer-centric lines of insurance. On one hand, this tech needs to integrate with foreign systems, and needs to utilise the data and analytics from a bank’s core system that avoids infringing on each partner’s proprietary data. On the other, the tech must enable insurers to react quickly to market conditions and develop relevant insurance products. What insurers need to capitalise on bancassurance partnerships are, as a result, low-code, API-first solutions.
From a technology perspective, the new generation of APIs (application programming interfaces) built to support cloud-native applications allow banks and insurers to integrate efficiently, creating a digital ecosystem that empowers insurers to meet market demand. They are the method in which machines communicate with one another, in the way an insurer’s technology would communicate with a bank’s core system.
APIs simplify and accelerate integration, and shift the balance to system configuration instead of development . This avoids high startup costs and improves an insurer’s risk profile when entering the bancassurance partnerships. New digital systems therefore reduce IT burden and operating costs, with the ability to create custom offers to bancassurance partners.
The rise of ‘low-code’ systems
Coupled with emerging ‘low-code’ technology, predicted to dominate product development in the coming years, insurers are in a fortunate position to shrink product development time, and cost. Low-code systems in essence accelerate product development by avoiding traditional hardcoding. With a ‘low-code’ system, products are assembled rather than created from the ground up. This approach enables insurers to place new products whilst the iron is hot – but only if they have the right coretech in place to bridge their legacy systems with modern technology.
Digitisation and the influx of APIs with ‘low-code’ tech therefore represent a significant opportunity for both insurers and banks to capitalise on the booming bancassurance market. Coupled with the data and analytics that insurers can leverage from their partner’s customer database, insurers can move from being product-centred to being customer-centred. It’s a win-win for all sides, and UK banks and insurers would be foolish to ignore its potential.