Bancassurance and Assure Bank

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-Written by Seunghye Shin

Hello, this is Frank. Today, I’m going to introduce two important financial terms: bancassurance and assure bank.
Are you interested in financial transactions such as installment savings, funds, stocks, and so forth? Among various types of financial transactions, bancassurance and assure bank are becoming more and more important as capital market is integrated.

bancassurance 개념

This diagram describes the relationship between bancassurance and assure bank. Basically, both terms indicate the association between a bank and an insurance company. Here’s the difference: if the bank sells the affiliated insurance company’s products to its clients, we call it bancassurance. Conversely, if its banking services are provided through the insurance company, it becomes assure bank. These are not just a simple combination of a bank and an insurance company, but create synergies between the two.
Bancassurance, a concept first introduced from Germany, was devised as a way for major insurance companies to enhance their efficiency and convenience in selling their products by securing bank sales channels. It was then spread throughout Europe and the United States and it has been a successful model especially in the European countries contributing 35% of premium income in the European life insurance market. On the other hand, Korea first introduced bancassurance in August 2003 only in the form of saving insurance. Then in August 2007, it was completely open for the whole transaction areas. However, assure bank was allowed due to some considered negative impacts on the finance industry. In Korea, subsidiaries of major companies lead the insurance market, so if assure bank system is introduced, those major companies might encroach on the bank industry through insurance business. However, it has been a controversial issue since it is deemed unfair to the insurance companies; they cannot benefit from assure bank compared with banks benefiting from bancassurance.

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Then, what are their merits? Let’s take bancassurnace for example. The biggest advantage for insurance companies is to expand their customer base. Also, they can maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank employees as well. For banks, they can earn additional revenues such as commission fee and insurance premium. Customers are able to have a wide selection of financial products and efficient risk management by combining those products.
On the other hand, drawbacks also exist. Under the system, basically, insurance products are offered to customers by bank staffs. However, they do not fully understand the products and customers’ needs. Also, enough explanation cannot be offered to customers as well. Moreover, if insurance companies keep using the sales channel of banks, they will be subordinated to the bank industry some day and financial services industry which will ultimately bring unbalance to the industry.
It’s true that these concepts are fairly new to Korea compared to other countries. It is necessary that efforts be made to fit these concepts into Korea’s unique business environment.
-Seunghye Shin (seunghye312@gmail.com)

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