The rise of financial technology, or fintech, has not disrupted banks to the extent that many predicted it would. What it has done, however, is chip away at the number of services a given customer will seek from their bank. Instead of using their banking app to check balances and transfer funds, many use third party personal budgeting tools like Mint and peer-to-peer (P2P) payment apps like Venmo. Instead of seeking credit at their local branch, many consumers are turning to online lenders like SoFi. As customers spend less and less time engaging with their banks, brand loyalty is at risk, which is at a higher premium in today’s market.
So how can banks recapture engagement or retain loyalty? Adding an insurance offering could be an option for creating a new touchpoint with bank customers. To many bankers, this is not a new idea. The concept of bancassurance—where a bank serves as an insurance broker and directly offers products to its customers—has been around for a long time. But there is a wave of technological transformation taking place in the insurance space that could breathe new life into bank/insurance partnerships: insurtech.
Insurtech is very similar to fintech. At the core, these firms are about utilizing technology and data to shake up an incumbent industry. The end goal of insurtech is offering more targeted, consumer-centric insurance products and ways of accessing those products. Insurtech is still in the early stages of development but, according to customer experience technology firm, Quadient, most incumbent insurance firms now have a “strong plan or strategy for how they will deal with onboarding innovative technologies and channels” that they did not have just two or three years ago.
Banks utilize a few key models for incorporating insurance into their customer offerings:
Building a marketplace: The marketplace model is being pioneered by many digital-only challenger banks. For example, U.K.-based challenger banks Starling Bank and Monzo have rolled out in-app marketplaces that augment their basic checking accounts by linking customers to a bevy of outside partners, from insurance and pension providers to mortgage lenders. While it’s possible to generate referral fee income from this type of arrangement, this model has not proven to be a major revenue driver, as the banks have yet to see a month without losses.
The marketplace model does allow digital banks to offer services beyond their basic online consumer accounts without the stress of integrations and new partnerships, but that’s a challenge that most traditional banks do not face because they can typically offer payment transfers, loans, and more. While a marketplace would move incumbents closer to the Amazon-like platform model in vogue today, it doesn’t seem to offer a major value add for traditional banks.
Using white-label products: Taking the idea of an insurance marketplace a bit further, banks can also consider incorporating white-label products to help consumers access insurance or compare policies in the bank’s existing online platform. Fidor Bank, a digital institution out of Germany, created an online marketplace that allows customers to access curated fintech and insurtech products. The Fidor product, FinanceBay, is now available as a white-label product to other banks.
Many digital-first insurance providers offer ready-made affinity programs with white-label capability as well. With this increased connection between the bank and the third party insurance providers, though, liability becomes a much larger concern.
“Bancassurance,” or partnering to establish an insurance brokerage: A step even further than incorporating a white-label product to help customers find insurance would be to engage in a bancassurance model, where the bank would serve as an insurance broker actively selling insurance products to its banking clients. This form of partnership has been utilized heavily in countries such as France and Spain.
When Glass Steagal was repealed in 1999, those bank/nonbank commerce barriers were largely removed, but regulations, complicated corporate structuring questions and mixed results have largely kept the model out of the U.S. However, the recent partnership announced between Germany’s largest bank, Deutsche, and Berlin-based Friendsurance is bringing interest in this model back to the forefront.
By mid-2018, Deutsche plans to offer coverage from over 170 German insurers through its in-app insurance manager function, according to Insurance Journal. Friendsurance uses artificial intelligence to evaluate potential plans based not only on price but also on “the question of how financially stable the insurer is or how good its customer service is,” Friendsurance co-founder Tim Kunde told Handelsblatt Global in January. Deutsche will be establishing its own insurance brokerage firm run by Friendsurance as opposed to a simple referral program or marketplace tool. This differentiation, the bank hopes, will reinvigorate the bancassurance concept thanks to the added value the insurtech brings to the insurance buying experience.
However a bank/insurtech partnership takes shape, liability is a looming issue. The more deeply engrained a partnership is, the more complicated the liability analysis becomes. As with all major technology partnerships, banks should bring their regulators into the conversation early on if they’re considering a partnership with an insurtech provider.
Insurtech is a fast-growing sector, and the distribution of insurance products is becoming more prolific among retailers, utilities, lifestyle brands and more. If banks don’t begin to explore insurance partnership models, they may lose out on yet another opportunity to service their customers.