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Analysis and Prospects of the French Bancassurance Market

By Yanick BONNET, IA, Managing director GEMA Pierre ARNAL, IA, Senior partner, ACTUARIS

BANCASSURANCE 1

OUTLINE

The French life insurance market description

Lessons to be drawn from bancassurance expansion

From bancassurance to financial conglomerates

BANCASSURANCE 2

French Life Insurance Market Description

Background

First Bancassurer in the 70's Real starting point : 1984 banking regulation changes Rapid expansion:

39% market share (premium income) in 1990 61% market share (premium income) in 1997

BANCASSURANCE 3

French Life Insurance Market Description

Background

French life insurance market 1990-2000 (premium income)

1990 Intermediaries: Banks desks: Direct sales: 57% 39% 4%

1995 38% 56% 6%

2000 33% 61% 6%

BANCASSURANCE 4

French Life Insurance Market Description

Credit institutions:

Background

market shares proportional to agency networks size

Drive life insurance product designs

low acquisition and administration cost

favorable taxation

BANCASSURANCE 5

French Life Insurance Market Description

Bancassurers' strategy :

Present situation

life insurance success

non life business still limited: 5 to 6% market share in 2000

next targets: health, car and household insurance

BANCASSURANCE 6

Lessons to be drawn from bancassurance expansion

Bancassurers` definitions :

Concept

insurance products distribution by banks

combination of banking and insurance activities

french banks have created insurance subsidiaries

BANCASSURANCE 7

Lessons to be drawn from bancassurance expansion

Main bancassurers' structure :

Concept

the bank controls the insurer

bank and insurer create a new company

distribution agreement with crossed shareholding

BANCASSURANCE 8

Lessons to be drawn from bancassurance expansion

bancassurers' business approach :

objectives : to amortize fixed costs life insurance : a related activity to bank saving products

Distribution network

improving profitability of their distribution networks

networks composed of bank agencies computerization : reduces administrative tasks increase commercial and customer management staff

frequent contacts between bank agencies and clients

BANCASSURANCE 9

Lessons to be drawn from bancassurance expansion

bancassurers' business approach :

Clients

clients : offered a diversified portfolio for their financial estate needs

industrial strategy :

simple and standardized products low prices (charges) new clients with middle or small estate

marketing strategy:

saturate consumer 's needs use cross selling improve client loyalty

BANCASSURANCE 10

Lessons to be drawn from bancassurance expansion

bancassurers` financial approach :

synergies between banks and insurance companies:

Financial approach

reversed production cycle different products service life (asset duration) different impacts resulting from interest rate variations

increased asset management LT assets brings steady income

BANCASSURANCE 11

From Bancassurance to Financial Conglomerates

European commission approach :

bancassurers and insurbankers: a natural evolution

EU regulation

financial conglomerates : the next step ?

Improve financial savings market competition

All players with a unique regulation

BANCASSURANCE 12

From Bancassurance to Financial Conglomerates

EU regulation

European commission approach :

steady increase of intra-group transactions avoid double equity gearing evaluate consolidated solvency of composite financial groups

European commission solutions :

insurance groups directive of 1998 financial conglomerates directive (first draft)

BANCASSURANCE 13

From Bancassurance to Financial Conglomerates

EU regulation

European commission conglomerate definition (proposal) :

homogeneous financial group : one activity prevails financial conglomerate :

made up of : bank, insurance and investment companies high level activity in each business

mixed financial company : holding company not only financial

BANCASSURANCE 14

From Bancassurance to Financial Conglomerates

Basle agreement

Banks solvency rules versus insurance solvency rules :

new basle agreement international system 3 categories of risks: credit, market, and operational risks self regulation takes a significant part bancassurers have competitive advantages :

optimize requirements of solvency margin important intra-group transactions

BANCASSURANCE 15

Information

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