The marketing of pensions and investment bonds to customers is not as well established a business model for bancassurance in the UK as it is for life and general insurance products. The channel faces increasing regulatory pressures which will pose short-term challenges for the channel, but will also potentially be a long-term source of competitive advantage.

Features and benefits

• Plan your strategy effectively by having primary consumer insight to consumer attitudes towards using banks when seeking financial advice.
• Identify viable alternative channels to distribute long-term investment products.
• Access comprehensive analysis and strategic action points for the UK bancassurance market to drive new business.

Highlights

Datamonitor’s FSCI 2011 survey reveals that 37% of mass affluent pension holders utilized a workplace representative to open their pension scheme. Banks were not a channel commonly used by mass affluent consumers when opening a pension, with only 4% having doing so.

Banks suffer from a lack of conversion from the point of a discussion between a bank advisor and a customer through to the purchase of a long-term investment product. However, there is an opportunity for bank advisors to develop their relationship beyond the bank branch and into the workplace.

UK Bancassurance Market

Published:  February 2012
No.OF Pages: 58
Price: Single User License US$ 4495      Corporate User License US$ 11238

Table Of Contents

OVERVIEW

Catalyst
Summary

EXECUTIVE SUMMARY

Bancassurance is not a dominant channel for the distribution of long-term investment products
There is an increased regulatory focus on the sector but it will provide a competitive advantage in the long-term
For products such as pensions, consumers rely on workplace representatives and disregard bancassurers
However, consumers have future intentions to use their primary banks to seek financial advice
There is no single model for bancassurance, which ranges from a pure distribution agreement to a wholly owned subsidiary of the bank
A winning bancassurance formula hinges on essential operational components, customer-centric approaches, and effective cross-selling

MARKET CONTEXT

Introduction

Bancassurance sales of pensions and investment bonds have fallen drastically over the past five years
Bancassurers have lost market share in the UK pensions market from the 2007 peak
Bancassurers have seen increasing sales of personal pension products over other types of pensions
Bancassurers have maintained their market share over the past five years in the distribution of investment bonds
Unit trusts and open-ended investment companies form the basis for banks’ regular savings and investment products
The increased regulatory focus will be a short-term challenge but potentially a long-term source of competitive advantage
The RDR will change the size and shape of the UK bancassurance market going forward
The RDR is likely to create a reduction in the overall supply of investment advice
Bancassurers will look away from capital-intensive product lines as a result of challenges from Basel III and Solvency II
The impact of capital strain on banks may mean that insurance products will get higher priority over long-term investment vehicles
There is a need for banks to rebalance towards non-capital and non-risk bearing products
Solvency II will introduce consistent capital requirement measures
Basel III will lead to banks reassessing their insurance assets
Forecast sales through bancassurance show that the channel will maintain market share over the next five years
Bancassurers will not be able to gain market share away from IFAs in the distribution of pensions over the next five years
The sale of investment bonds will continue to be firmly focused through the IFA channel

CONSUMER ATTITUDES TO PENSIONS AND BANK ADVICE

Introduction

Datamonitor’s FSCI Survey reveals that 76% of UK mass affluent consumers hold a pension policy
Over a quarter of mass affluent non-pension holders intend to save for retirement but do not currently consider it a priority
The majority of mass affluent pension holders participate in an employer-sponsored scheme which the employer and employee both contribute to
Mass affluent pension holders utilize a workplace representative instead of going to a bank to open their pension policy
Bank advisors have the opportunity to approach workplaces and develop business banking relationships
Consumers use their primary bank when seeking financial advice and will continue doing so in the future

COMPETITOR DYNAMICS

Introduction

Current relationships with insurers show that there is no single model for bancassurance
The core operating models deployed for bancassurance range from distribution-only to fully owned insurance subsidiary
Barclays maintains its multi-tie arrangement with life providers, but its range has diminished over the years
Santander’s acquisition of Alliance & Leicester and Bradford & Bingley enhanced the group’s bancassurance commitment
Lloyds Banking Group is a bancassurance force for banking services in the mass market
However, the business model chosen is largely irrelevant to customers
Banks serve the same customers’ investment needs but how they do it varies
There are notable differences between lump sum investment products that are on offer through banks
Pension products offered through banks are almost exclusively stakeholder pensions
Banks have been responding to pressures under the Retail Distribution Review
Barclays has closed its Financial Planning arm as a strategic response to the Retail Distribution Review, while Santander and Royal Bank of Scotland have invested heavily in training branch advisors
However, The Co-operative Bank has partnered with AXA Wealth in the provision of financial advice to its retail banking customers
Online platforms can act as a key enabler to increase customer engagement with long-term investments
Banks can play a key role in increasing consumer engagement with long-term savings and investments products, through online investment platforms
Banks will face challenges in offering a wrap or online investment platform service but there is scope for growth
Barclays has recognized the importance of platforms by introducing Barclays Investments Online

STRATEGIC ACTION POINTS

Introduction

Workplace marketing offers lucrative potential for banks to target mass affluent consumers in distributing long-term investment products
The workplace can facilitate consumers’ search for more financial information, away from traditional avenues
Bancassurers have a ready pool of mass affluent clients in the “advice vacuum” left by IFAs shifting their focus upmarket due to the RDR
Workplace pensions reform will place greater emphasis on the importance of the workplace in providing financial advice and services
However, banks must target the right industries and consider the level of access they are able to achieve within each company for the distribution of long-term investment products
Offering a total-product suite in the workplace will give banks further cross-selling opportunities
Bancassurers have key areas where particular differentiation can be achieved for consumers
Banks must focus on building emotional ties with customers instead of marketing themselves purely on a commodity basis
Building customer relationships will offset the consumer mistrust created during the recession
Banks should look towards simplifying the purchasing process and improving the buying experience
A winning bancassurance model requires banks and insurers to assess key components of the operation
Risk appetite assessment must be undertaken by banks when determining a bancassurance model
The attitudes towards classes of business that banks should manufacture or distribute must be considered
Competitive advantage and differentiation must be established especially in distribution-only models
The desired level of profitability on the capital employed must be assessed to ascertain whether bancassurance should be adopted at all
Capital requirements will have a major impact on the chosen bancassurance model
Third-party product providers also need to be aware that distribution channels cannot be viewed independently of each other
Bancassurers must take advantage of cross-selling opportunities within their existing customer base
Banks should use their ability to cross-sell within branches as an opportunity to increase revenue
Careful segmentation is a necessity to target insurance cross-sales
Banks should also facilitate customer cross-buying and not just focus on cross-selling
Bancassurers have three options to address the problems posed by capital constraints through regulation
Banks may take the opportunity to reassess the option of divesting their insurance operations
Group capital structures can be enhanced and risk management undertaken to address regulatory proposals
Banks may undertake product rationalization and move to less capital-intensive distribution models

APPENDIX

Definitions
Annual premium (life)
Annuity
Annuity (pension annuity)
Bancassurance
Critical illness
Collective life
Department for Work and Pensions rebate
Direct sales forces
Distribution bonds
Employer-sponsored stakeholder pension
Endowment policy
Enhanced annuity
Fixed annuity
Flexible (or third-way) annuity
Free-standing additional voluntary contributions
Fund supermarket
Guaranteed annuity
Guaranteed equity bonds
Guaranteed income and growth bonds
Group personal pensions
Income drawdown
Income protection
Independent financial advisors
Index-linked annuity
Individual Savings Accounts
Investment bond
Life assurance
Life-based savings products
Long term care insurance
Multi-tie agents
New business
Other bonds
Personal pensions
Purchased life annuities
Regular premium
Self-invested personal pensions
Single premium
Stakeholder pensions
Term assurance
Tied agents
Unit-linked bond
Wrap platform/wrap accounts
Whole-of-life insurance
With-profits bond

Further reading

Ask the analyst

Disclaimer

List Of Tables

List of Figure