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Recession and Bancassurance

The spotlight on the financial sector has shifted as the current global recession has brought bancassurance into focus. Banks have tightened their purse and are no longer lending. The world suddenly appear to have become risk averse; banks are not eager to lend and consumers are not eager to spend. Banks are now looking to bancassurance to feed them with fee income earned out of insurance cross-sales.

The Online News Journal
January 2009
Issue 1

Monthly Online Journal

Banks' looking to insurance at this hour of crisis is not unusual. The very foundation of bancassurance from banks' point of view has been to diversify risk, i.e. when core banking revenue from interest income dwindles, fee income from bancassurance would supplement. Unlike the core banking asset and liability products, the sale of bancassurance product does not have the side effects of NPL (non performing loans). Banks also don't have to worry about the cost of funds as they will always get their share of commission from the bancassurance product sales.

Insurance industry is pretending as if recession has bypassed them and that AIG was an abberation. They however must not forget that insurance cycle closely follows the general economic cycle and the recession is bound to hit them sooner than later. The intensity and severity however may not be as much, since they have had time to prepare themselves by working on alternative strategies.

Insurance industry and bancassurance actually can gain under this recessionary conditions. New products like job loss guarantee and GAP can actually help banks and automible dealers respectively to revamp their products and attract more customers who are currently looking the other way. Banks who took to bancassurance in the proper way before the recession set in, shall have advantage over their peers. Banks who thought bancassurance was unimportant to them, should rethink as fee income from insurance cross-sales can compensate at least in part for the loss of income from the interest bearing banking products.

Recession shall come and go but bancassurance is here to stay.

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