Unlocking bancassurance: challenges and opportunities in cross-selling insurance
In a nutshell
- As financial services companies double down on revenue-led strategies, adding a new distribution channel to cross-sell insurance seems like an easy win.
- But with a traditional bancassurance mindset, most banks have yet to truly execute it successfully.
- Part of the problem is a lack of data, digital-savvy people and increasing competition from retailers and ecommerce platforms.
- If financial services players are willing to rethink the way they approach bancassurance and put the user experience first, then they could foster a collaborative ecosystem where everyone benefits.
For many banks and financial services players, especially those already embedding insurance in their payment cards or subscription plans, cross-selling insurance seems like a logical next step.
After all, one of the benefits of bancassurance is that the cost is on the end user rather than the brand. So as financial services companies double down on revenue-led strategies, adding a new distribution channel seems like an easy win.
That is, if they actually manage to sell insurance contracts.
Incumbent banks might have the customer base and brand reputation to sell insurance, but without clear user transaction data, it’s tough to make it a seamless experience for end users.
In our recent webinar, we asked industry experts – Ruth Polyblank, Vice President and Partnerships Lead of Insurance at Mastercard, and Florian Graillot, insurtech thought leader, and Co-Founder and Partner at astorya.vc – to explore why exactly bancassurance is so hard to get right, and what banks and other financial services players can do to better position themselves on the market.
6 reasons why banks aren’t getting the most value out of their bancassurance
In the world of bancassurance, there are a couple of different ways to go about it.
One is to offer insurance as a standalone product, also referred to as a marketplace model, where users can choose from a range of different coverages (car, home, pet, etc.).
Another option is to cross-sell or upsell insurance at the right time and place based on user data: demographic data, transaction data (also known as transactional insurance) or banking events such as getting a loan or opening a joint account. We also refer to this as add-on embedded insurance, rather than a native component of an offering.
For banks and fintechs, one of the biggest benefits of cross-selling insurance is earning a commission on the contracts you sell.
But it’s exactly that one-track mindset that can get banks into trouble.
Here’s why having too much of a revenue focus, along with five other key challenges, can contribute to low bancassurance success.
1. Banks and insurers have the wrong mindset about bancassurance.
While there are a couple of bancassurance success stories, Ruth argues, those are exceptions rather than norm.
‘No one’s cracked it at scale,’ Ruth says, because banks tend to look at it as just another distribution channel, while insurers tend to look at it as a way to reuse existing products as opposed to designing new ones.
‘Bancassurance has not been successful in the past, so we need to break and rebuild it’, she adds. ‘If organisations are coming in with the same tech, mindset and expectations around commissions, then this is just another distribution channel. There’s nothing new there; it’s not going to work.’
If banks look at insurance beyond earning commission and revenue, they’ll get so much more.
‘Do you want 40 commission points on no uptake or do you want a much more reasonable percentage of something that scales, and builds customer engagement, proximity, brand, trust and retention?’ Ruth posits.
2. Regulation complicates bancassurance.
Insurance regulation is nuanced – to put it lightly – which means that non-insurance folks at financial services companies can easily get bogged down by it. And even when partnering with insurers, many of the big name carriers are inherently local, which makes it hard to launch cross-border insurance programs quickly and efficiently.
‘The very nature of selling insurance at scale through banking channels means there needs to be “glocalisation”’, Ruth says. Meaning, there needs to be some degree of product standardisation, while also tailoring it to local regulations and culture differences per country.
And when it comes to data, European regulation around privacy and user data means that it can be difficult to harness data in order to improve the product offering and overall experience (stay tuned as we discuss a few ways to work around this below).
3. Incumbent banks struggle to attract and retain the right talent.
Both Florian and Ruth agree that in order to make bancassurance a success, you need the right people.
'Incumbents struggle to attract and keep talent’, Florian says. ‘And to develop digital tech solutions, you need people first.’
This is another example of having the right mindset – in this case, a collaborative one.
‘This is about having the right people – which in insurance we do not – but also having a great collaborative mindset’, Ruth says. ‘Because it takes a lot of players to make this work. You need an ecosystem.’
4. Insurers suffer from a lack of data while banks have yet to fully harness the data they have.
‘Insurance companies have very limited [personal] data’, Florian explains. ‘On the other hand, banks have way more accurate data. They don’t know what you purchased, but at least they know where you purchased from. This data challenge puts different strengths on different players.’
Unfortunately transaction data can be vague, and therefore difficult to analyse in order to push insurance to users at the right time. And experience shows that the closer insurance is to a transaction or when the risk is top of mind, the better the chance for success.
In that sense, retailers and ecommerce platforms have a leg up.
5. Banks are competing with retailers to sell insurance.
More and more retailers and ecommerce platforms are offering insurance as an add-on to their products and services – such as an airline offering travel insurance – which means that users have more options for where they buy their coverage.
Retailers have a few things working in their favour, Florian explains: they’re tech-driven; they have regular touchpoints with a large customer base; and they have access to lots of data that can help them understand their customers and their behaviour better - all of which are extremely helpful to push the right coverage when customers are most likely to buy in.
‘I agree with Florian that those verticals have that proximity,’ Ruth says, ‘but they tend to be related to one area of an individual’s life. Banks supported by insurers have a broader view of an individual’s world, so they’re able to bring personalisation to insurance.’
‘That proximity across one’s whole life means that banks and insurers have an opportunity to create really great products that de-risk people’s worlds and are highly relevant’, Ruth continues ‘And if they deliver them in the right mechanism, then that would certainly be a way that people would want to consume insurance in the future.’
Ultimately, there is room for both players, Florian says – as long as each entity focuses on its strengths.
‘When it comes to developing tech or an algorithm, start-ups and platforms are probably more relevant than incumbents’, he says. ‘On the other hand, when it comes to dealing with the regulation and being big enough to carry the risk, you need to be a huge player, and that’s where I believe incumbents have a competitive edge … it doesn’t necessarily make sense for one player to do everything.’
6. Traditional bancassurance isn’t digital enough.
Bancassurance has typically relied heavily on distribution at physical branches.
Today, most incumbent banks – many of whom are trying to catch up to the digital-native fintechs – fail to provide the seamless digital experience that today’s consumers have come to expect.
After all, over half of consumers now prefer to buy their insurance online, and 52% feel that buying insurance through an app is the most secure way to do so.
‘Bank insurance is the best example of embedded insurance’, Florian says. ‘Nevertheless, what we’re talking about now is how to move the bank insurance from brick-and-mortar distribution – and highly related to mortgages – to this new digital era.’
3 ways to make bancassurance more successful
After fleshing out the challenges that bancassurance faces today, Florian and Ruth also shared some advice for how financial services companies can make their transactional insurance programs more successful.
1. Leverage the data you have and demonstrate how it will help your users.
As we already mentioned, transaction data can be difficult for banks and fintechs to harness, but it is still possible to leverage when done the right way and with the right goal in mind.
Asking for data doesn’t have to be creepy or intrusive, as long as it adds value for the user, Florian argues. After all, many of us already ‘trade’ our personal data to use services like Google for free.
‘You have to prove to customers that they’ll benefit from it’, he says. If you highlight that they’ll receive high-quality service and personalised products instead of random “spam” offers, then they’re more likely to share the data that will make that happen … start with the value prop and the data will follow.’
Another crucial component to the data problem is consent.
‘It has to be customer-led and absolutely consent-driven, and it has to bring about relevancy’, Ruth says. ‘This is about using data in a really positive and proactive way to de-risk people’s worlds and to deliver insurance in a frictionless way.’
Ultimately it’s about looking beyond the moment of acquisition and using data to inform a 360-degree customer experience.
One example is SME insurance. Banks can see how a business is being impacted based on their account history – and combined with both platform and public data available online, they could then propose business continuity or interruption cover at the right time. In this way, using an alternative data source is critical to building better products that make the customer experience more timely and intuitive.
‘We’re not looking for every single opportunity to cross sell an insurance product’, Ruth says. ‘We have to do it very respectfully.’
2. Dare to improve the user experience.
At the end of the day, leveraging data should be in service of improving the user experience – from relevant products to clear terms and conditions to a smooth claims process.
‘The critical thing is not to be married to the status quo,’ Ruth says. ‘To look at embedded and other opportunities with a new perspective and with the customer in mind … this needs to come from a place of transparency, personalisation and educating consumers’.
Complex terms and conditions are going to bring in customers who don’t understand the product. Insurers are too stuck in their ways of thinking and how they structure products, Ruth argues. They need to break down those barriers and ‘position [insurance] products as any other product on the market.’
‘The industry needs to design for purpose,’ Ruth says. ‘They need to really mean it; they need to work collaboratively; and they need to think about the customer. How can we prevent and intervene in these risk moments rather than just compensate after the event?’
That being said, the moment of truth in insurance is the claim.
‘It’s not enough to just focus on embedding insurance in a really relevant and intuitive way if, when that customer then comes to make a claim, we give them a really poor experience and don’t match their expectations’, Ruth explains. ‘Particularly in a world where the five-star review is king and customer acquisition cost is so high.’
And if customer reviews are the best way to measure better outcomes for end users, then there’s clearly a big gap in service between incumbent insurers and insurtechs.
Start-ups have a test and learn approach and are much quicker to innovate, Florian says. Which is why incumbents should focus on their strengths and partner when needed.
3. Complement your strengths through strategic partnerships.
‘There’s a complementary position between platforms or banks and insurance players’, Florian says. ‘The platforms want to generate additional revenue or margin, but they need to have tech that’s plug-and-play. That’s where embedded insurance players are highly relevant in the market to connect the two. This is a market where you have three players: the distributor, the infrastructure and the incumbent behind the scenes.’
‘You need to bring in the relevant tech to deliver all of this but also have people in-house that can understand and challenge that’, Ruth adds.
‘It takes a very unique and broad set of skills to execute embedded insurance. You need really talented marketing people and great technology. Realistically, the industry doesn’t have the pedigree and history of being able to develop that themselves, so you need to be able to collaborate and partner – and that’s not the domain of most insurance organisations.’
‘If we’re going to make this work, then there needs to be a roadmap and a vision and a focus – and an acceptance that they’re going to have to do things differently.’