A new study, Putting It Together: Convergence Strategies for Banking, Insurance, and Investments conducted jointly by the Bank Administration Institute (BAI) and The Boston Consulting Group (BCG) has concluded that U.S. banks must imitate their European counterparts by integrating insurance products into retail business lines and target those products to mass-market bank customers.

In the face of rapidly eroding "share of wallet" and retail banking profitability, insurance presents a window of opportunity to cement and increase profitable relationships with market segments that trust and patronize banks and would be most willing to purchase life and other types of insurance from local branches, according to the study. Further, existing bank infrastructure enables banks to sell and service insurance policies at a cost lower than traditional insurers do.

The study also suggests that the increased focus on the distribution of investment vehicles such as mutual funds at the branch level will continue to be important, yet banks should view investment products primarily as a defensive strategy aimed at keeping customers and generating incremental revenue.

"Major segments of consumers who use banks chiefly for deposit and credit products are under-insured and considered unprofitable by traditional insurance companies. If banks simplify insurance products and effectively train branch salespeople, these segments can be lucrative insurance customers for banks. If banks don't act quickly, other providers that have made inroads with mutual funds and other financial products will win the untapped insurance business first," said Thomas P. Johnson, president and chief executive officer of BAI. "Insurance and, to some degree, investments represent new frontiers for banking, but timing is key."

"While many banks have already entered these new product markets, most have achieved only limited success because they've made half-hearted commitments," said John Garabedian, one of the BCG vice presidents who oversaw the study. "For instance, in insurance, they've either `rented' their customer lists to insurers in return for a small commission or have simply duplicated traditional, high-cost insurance distribution. Banks need to make a commitment to improving the consumer insurance experience and leveraging elements of their existing administrative, marketing and distribution infrastructure to provide these products at a lower cost and with wider margins. By using their own networks efficiently, banks have the potential to double their profit per customer."

According to the report, if banks made a major commitment to insurance and a more narrowly targeted commitment to investments, within five years banks could increase retail revenues by nearly fifty percent.

The European model, known as "bancassurance," has increased profitability by fully integrating insurance and investment products with traditional retail banking products.

"Bancassurance has been extremely successful, and it provides a compelling model for retail bankers in the U.S.," said BCG vice president Robert Morette. "Bank sales of life and pension insurance is outpacing overall insurance sales in all major European countries. In France, banks own 50% of the country's life and pension markets, and in Spain, the banks have a 30% share. In the U.S., commercial banks have less than 1% ownership of the insurance market."


The entire study can be ordered via the BAI's website at www.bai.org or at 1-800-224-9889. 

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