Bancassurance is eating into IFAs' market share, but the latter will maintain their dominant position in the UK life and pensions market. IFAs still dominate the market with more than two thirds of total life and pensions sales, and, as such, remain the most influential distribution channel for life and pensions products in the UK.
However, multi-tie financial advisors are estimated to have taken 2% of the IFAs market and competition is growing from the bancassurance sector. Bancassurers have gradually increased their market share in the last five years, from 12.5% in 2001 to almost 18% in 2005, based on a compound annual growth rate of more than 9%. Overall, sales of life products via bancassurance are on the increase, while pensions business is stagnating. UK bancassurers have seen more growth in single premium life than regular premium life sales in the last two years.
However, bancassurers' market share is forecast to remain almost unchanged by 2010, reaching about 18.5%.
In 2005, HBOS group, consisting of Halifax and Bank of Scotland, was by far the largest bancassurer, followed by Lloyds TSB, Barclays, HSBC, Royal Bank of Scotland, Abbey and Nationwide.
Depolarization had a limited effect
Depolarization is not catching on as fast as originally anticipated, with only a few distributors having applied full multi-tie status. Most banks decided to stick to their existing business models, while some applied a gap-filling approach, which means they started to offer third-party products when it was economically not feasible to develop in-house or due to lack of expertise.
Only a handful of banks adopted the multi-tie approach, including Barclays, HSBC and the two NAB subsidiaries Yorkshire Bank and Clydesdale Bank. Post-depolarization developments indicate a rather gradual transition to a new model which will eventually result in a new segmentation of the market. In the longer term, it is expected that more banks will choose the multi-tie distribution model.
Can lessons be learnt from continental Europe?
Bancassurance is the prevalent distribution channel in other European countries such as Portugal, Italy, France and Spain. Italy, for example, has seen strong growth in bancassurance in recent years, with new business via this distribution channel accounting for more than 83% of total individual life insurance in 2004, according to the Comite Europeen des Assurances.
The success experienced by bancassurers in Belgium, France, Italy and Spain can be attributed to a number of factors, including a favorable tax regime for certain types of savings vehicles in these countries. The insurance products offered in these countries also tend to be simple and are a natural fit with banks' existing banking products.
It is doubtful that the UK will see a 'European-like' model, with a stronger bancassurance sector, in the future. Only a few banks in the UK have put a significant amount of effort into bancassurance and this situation is unlikely to change in the forseeable future.
One of the main reasons for this is the fact that a successful bancassurance model requires cheap and simple products combined with a high volume of sales. This is something a large financial group such as HBOS, for example, is able to achieve but which is much more difficult for smaller competitors. In addition, increased competition puts pressure on rates, which makes bancassurance less attractive and inefficient.