A new report by Toronto-based credit rating agency DBRS has found that the reason the “bancassurance” model – wherein banks are allowed to sell insurance – has never really caught on in North America, compared to the rest of the world, is because of longstanding barriers.
Advisor’s Edge reported on DBRS’s new paper published yesterday; the report comes nearly a year after Parliament passed Bill C-74. The bill, also referred to as the Budget Implementation Act, amended the Bank Act to subject fintech companies to the same restrictions as banks when it comes to retailing insurance or making referrals, thus reinforcing the separation of banking and insurance.
DBRS’s report found that the bancassurance model is “strongly embedded in Europe” and is even gaining traction in Asia, as both banks and insurance companies look to diversify their revenues and expand distribution.
“The bancassurance distribution model is very attractive because it allows banks to diversify their revenue stream, which decreases their dependence on net interest income, particularly during times of interest rate compression,” DBRS said in its release.
DBRS also noted that thanks to the distribution model, insurance companies enjoy growing sales without major distribution costs. The agency mentioned that both sides of a bancassurance partnership can profit from diluting their fixed costs over a larger revenue base, potentially improving profitability for all.
In addition, the report found that bancassurance has outperformed other insurance distribution channels when it came to selling life insurance in recent years.
The report found that while Europe and Asia have readily accepted the distribution model, “regulatory intervention and market dynamics have constrained the expansion of bancassurance in North America.”
Canada, in particular, has long-established regulatory barriers that prohibit banks from selling most insurance and banking products in the same location (the aforementioned Bank Act) – except in Quebec.
The situation in the US is a lot more complicated, however; despite reforms that have done away with laws restricting bank-holding companies from owning other financial institutions and/or selling insurance in their branches, bancassurance has yet to catch on in the region.