UK Bancassurance 2009

Introduction

With the UK bancassurance sector operating in an environment with changing regulatory proposals and challenging market conditions, Datamonitor assesses the attractiveness of the bancassurance channel, and concludes that while bancassurers will struggle to maintain their share of the life and pensions market, the Retail Distribution Review presents opportunities for the sector.

Scope

*Comprehensive analyses of key consumer behaviors, product and regulatory trends affecting the UK bancassurance industry in 2009.

*Examines the current shape of the bancassurance market and explores factors that are currently limiting banks' ability to sell investment products.

*Assesses the key changes to differing bancassurance business models that are needed for future success in the bancassurance market.

Highlights

The recent failures of the financial industry, along with losses many policy holders have suffered to their savings and investment portfolios and pensions, have highlighted the diminishing trust between consumers and their banks.

With results from Datamonitor's Financial Services Consumer Insight (FSCI) survey revealing that public trust in banks is high compared to insurers and financial advisors or brokers, bancassurers have a clear opportunity to make inroads into the market share of independent advisors.

Reasons to Purchase

*Access Datamonitor's consumer insight and detailed analysis of the complexities of the current bancassurance market.

*Identify the current changes taking place in the distribution landscape, and the issues and developments facing the bancassurance channel.

*Understand the future of the market and the way in which the bancassurance channel is likely to develop over the next five years.


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Table of Contents 3
Table of figures 4
Table of tables 5
The Impact of RDR on Bancassurers 6
Bancassurers have the opportunity to provide advice to orphaned IFA clients in the post-RDR landscape 6
Higher qualification requirements will intensify competitive pressure on IFAs 8
The proposed remuneration structure may cause investors to switch from the IFA route to bancassurance 9
New independence requirement for advisors will produce orphaned clients for bancassurers to serve 10
The RDR demonstrates clarity of offering and value to bancassurance customers 12
The overall focus of regulation should be on meeting customers' needs and demands 13
The opportunity for the bancassurance sector lies in the number of consumers who go to their bank for advice 14
Bancassurers have consumers who will go to their bank for advice but have not take out a more complex product than a basic savings account 14
Co-operative Bank has the highest cross-selling rate for life insurance to their customers 16
Changing the consumer mindset will be a challenge as consumers are unwilling to pay for advice 17
The financial stability of banks is important to consumers when making financial decisions 18
Money Guidance may provide banks with a viable mass-market solution 18
NatWest introduces a campaign to improve the financial knowledge of UK consumers 19
The Bancassurance Opportunity 20
Bancassurers' greatest opportunity stems from the lack of trust consumers have in insurers and advisors 20
Public trust in banks is higher compared to insurers and financial advisors 20
Within the banking community, trust is higher among smaller banks and building societies, as well as online specialists 21
Non-traditional players and building societies have the highest consumer trust levels 22
Banks should stop marketing themselves purely on a commodity basis, and instead focus on building emotional ties 23
Banks should engage in building customer relationships to offset consumer cynicism 24
Face-to-face interactions are fundamental to business 24
Banks should also look towards simplifying the purchasing process and improving the buying experience 24
Bancassurers must take advantage of cross-selling opportunities within their existing customer base 25
Banks should use their ability to cross-sell within branches as an opportunity to increase revenue 25
Banks should also facilitate customer cross-buying and not just focus on cross-selling 26
Bancassurers can push for the successful application of technology to their wider client base 26
Technology is a key enabler for bancassurers 26
Banks can improve their in-branch experience 27
Market Dynamics 28
There is no single model for bancassurance with each company's strategy being different 28
The merger of Lloyds TSB and HBOS created a bancassurance heavyweight for banking services in the mass market 29
Barclays was the first to launch a large multi-tie panel 29
Abbey's bancassurance commitment was enhanced by Santander's acquisitions of Alliance & Leicester and Bradford & Bingley 30
The business model chosen is largely irrelevant to customers 31
A winning bancassurance model requires banks and insurers to rethink their relationship 32
Bancassurers are not challenging IFAs' share of the life and pensions market 32
Bancassurers' mix of life and pensions business has not gained momentum over the past five years 32
However, bancassurers may still lack the focus to challenge the IFA channel 34
Bancassurers' single premium life business is dominated by unit-linked and guaranteed bonds 34
Unit-linked bond products complement the bancassurance model with their simplicity 35
Bancassurance is no longer a strong contender in guaranteed bonds, fuelled by investors' withdrawal from equity investments 36
Regular life premiums have declined slightly by a compound annual rate of 2% over the last five years 37
Savings-related and mortgage-related term assurance through bancassurance have seen a resurgence in 2008 37
IP and CII account for a very small percentage of bancassurers' regular life business, although sales of IP are improving 38
Bancassurers have not been able to gain market share in the pensions business 40
Single premium pensions have been helped by SIPPS 40
Stakeholder pensions dominate the bancassurers' single and regular premium pensions income 42
Forecasts at the product level show sustained growth for bancassurance 44
Guaranteed bonds are forecast to further increase in popularity for single premium life income after 2009 44
The RDR will address concerns of high commissions and poor quality of advice in the investment bond market 44
There is a misconception in the market that bonds are a no- or low-risk investment 44
However, poor quality service does exist in the bond market 45
Bancassurance will continue to be dominated by term assurance for regular premium life sales 47
Future sales of mortgage-related term will be impacted by the current pessimistic housing market 47
Sales of savings-related term are expected to rise as customers grow more cautious over their finances 49
Stakeholder pensions, including employer-sponsored forms, will be the most popular pension products 50
However, the introduction of Personal Accounts in 2012 poses a threat to private stakeholder pensions 50
APPENDIX 54
Product definitions 54
Life-based savings products 54
Life assurance 54
Single premium life 54
With-profit bond 55
Unit-linked bond 55
Income and growth bonds 55
Guaranteed equity bonds 55
Distribution bonds 55
Purchased life annuities 55
Other bonds 55
Annual premium life 55
Endowment policy 56
Whole of life insurance 56
Term assurance 56
Income protection 56
Critical illness 56
Collective life 56
ISAs 56
Personal pensions 57
Stakeholder pensions 57
Group personal pensions 57
DWP rebates 57
Employer-sponsored stakeholder (ESS) pension 57
Self-invested personal pensions (SIPPs) 57
Free-standing additional voluntary contributions (FSAVCs) 57
ABI definitions of distribution channels 58
Independent financial advisors (IFAs) 58
Direct sales forces 58
Tied agents 58
Multi-tied agents 58
Bancassurance 58
Direct marketing 58
Telesales 58
Other 58
Methodology 59
Further reading 59
Ask the analyst 59
Datamonitor consulting 59
Disclaimer 59
List of Tables
Table 1: Percentage of customers holding other financial products within their primary bank 17
Table 2: Life and pensions new business by distribution channel, £m APE 34
Table 3: Single premium life new business through bancassurance 2004-08, £m APE 36
Table 4: Regular premium life new business through bancassurance 2004-08, £m APE 39
Table 5: Single premium pensions new business through bancassurance 2004-08, £m APE 42
Table 6: Regular premium pensions new business through bancassurance 2004-08, £m APE 43
Table 7: Forecast single premium life new business through bancassurance 2009-13, £m APE 46
Table 8: Forecast gross advances under the Datamonitor view, 2009-13 48
Table 9: Forecast regular premium life new business through bancassurance 2009-13, £m APE 50
Table 10: Forecast single premium pensions new business through bancassurance 2009-13, £m APE 51
Table 11: Forecast regular premium pensions new business through bancassurance 2009-13, £m APE 53
List of Figures
Figure 1: The RDR creates three key challenges for the bancassurance model 7
Figure 2: The requirement for higher professional qualifications will have a significant impact on the bancassurance model 8
Figure 3: The new remuneration proposals will come to pass but will have a relatively low impact on bancassurers 10
Figure 4: The RDR proposals for better-defined advice have a low likelihood of challenging the bancassurance model 11
Figure 5: The RDR proposes a three way split for advice 13
Figure 6: Consumers are not willing to pay up front for professional financial advice 15
Figure 7: Most customers do not hold life insurance and pension products with their primary bank 16
Figure 8: Consumers place more trust in banks than insurers and financial advisors 21
Figure 9: Internet bank 'Smile' receives the highest level of trust from consumers 22
Figure 10: Recent Nationwide advertising campaign emphasizing its trustworthy values 23
Figure 11: The bancassurance sector illustrates a confusing web of distribution statuses between banks and providers 28
Figure 12: Distribution status of top banks and building societies have been affected by large-scale mergers and acquisitions 31
Figure 13: Bancassurers have struggled to gain market share in the life and pensions industry 33
Figure 14: Unit-linked bonds and guaranteed bonds earn bancassurers the most single premium life income 35
Figure 15: Term assurance dominates regular premium life sales in bancassurance 38
Figure 16: Bancassurers have not been able to gain market share in pensions business 40
Figure 17: SIPPs have helped bancassurers gain in single premium pensions income 41
Figure 18: Stakeholder pensions dominate bancassurers' regular pensions premiums 43
Figure 19: Guaranteed and unit-linked bonds are forecast to dominate bancassurers' single premium life sales 46
Figure 20: The Datamonitor view is that gross lending will recover gradually to a level of £220 billion in 2013 48
Figure 21: Term assurance will continue to dominate regular premium life sales in bancassurance 49
Figure 22: Stakeholder pensions will continue to dominate single premium pensions income 51
Figure 23: Regular premium pensions income for bancassurers will also be dominated by stakeholder pensions 52

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List of Tables
Table 1: Percentage of customers holding other financial products within their primary bank 17
Table 2: Life and pensions new business by distribution channel, £m APE 34
Table 3: Single premium life new business through bancassurance 2004-08, £m APE 36
Table 4: Regular premium life new business through bancassurance 2004-08, £m APE 39
Table 5: Single premium pensions new business through bancassurance 2004-08, £m APE 42
Table 6: Regular premium pensions new business through bancassurance 2004-08, £m APE 43
Table 7: Forecast single premium life new business through bancassurance 2009-13, £m APE 46
Table 8: Forecast gross advances under the Datamonitor view, 2009-13 48
Table 9: Forecast regular premium life new business through bancassurance 2009-13, £m APE 50
Table 10: Forecast single premium pensions new business through bancassurance 2009-13, £m APE 51
Table 11: Forecast regular premium pensions new business through bancassurance 2009-13, £m APE 53

List of Figures
Figure 1: The RDR creates three key challenges for the bancassurance model 7
Figure 2: The requirement for higher professional qualifications will have a significant impact on the bancassurance model 8
Figure 3: The new remuneration proposals will come to pass but will have a relatively low impact on bancassurers 10
Figure 4: The RDR proposals for better-defined advice have a low likelihood of challenging the bancassurance model 11
Figure 5: The RDR proposes a three way split for advice 13
Figure 6: Consumers are not willing to pay up front for professional financial advice 15
Figure 7: Most customers do not hold life insurance and pension products with their primary bank 16
Figure 8: Consumers place more trust in banks than insurers and financial advisors 21
Figure 9: Internet bank 'Smile' receives the highest level of trust from consumers 22
Figure 10: Recent Nationwide advertising campaign emphasizing its trustworthy values 23
Figure 11: The bancassurance sector illustrates a confusing web of distribution statuses between banks and providers 28
Figure 12: Distribution status of top banks and building societies have been affected by large-scale mergers and acquisitions 31
Figure 13: Bancassurers have struggled to gain market share in the life and pensions industry 33
Figure 14: Unit-linked bonds and guaranteed bonds earn bancassurers the most single premium life income 35
Figure 15: Term assurance dominates regular premium life sales in bancassurance 38
Figure 16: Bancassurers have not been able to gain market share in pensions business 40
Figure 17: SIPPs have helped bancassurers gain in single premium pensions income 41
Figure 18: Stakeholder pensions dominate bancassurers' regular pensions premiums 43
Figure 19: Guaranteed and unit-linked bonds are forecast to dominate bancassurers' single premium life sales 46
Figure 20: The Datamonitor view is that gross lending will recover gradually to a level of £220 billion in 2013 48
Figure 21: Term assurance will continue to dominate regular premium life sales in bancassurance 49
Figure 22: Stakeholder pensions will continue to dominate single premium pensions income 51
Figure 23: Regular premium pensions income for bancassurers will also be dominated by stakeholder pensions 52
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