Insurance for the future
The demographic shift in Europe is creating new possibilities for banks to break into the retirement fund business. This creates new pressures for large insurance companies, who are increasingly creating cooperative schemes to stay ahead of the game.
With an aging population, financial products for retirement provision are currently one of the most important growth drivers for insurance companies, banks and capital investment funds across Europe. Yet regulatory measures to open up the European insurance market and the removal of many tax breaks – e.g. for single-premium payment schemes in Austria – are weakening the strategic position of insurance companies. Further competition in the sector comes from banks and other independent channels, which are increasingly selling comparable products. Alliances can offer insurers a way forward, but there are pitfalls to be avoided. This situation makes cooperation management the crucial success factor for European life insurers.
The market for retirement products will again outstrip GDP growth over the next few years, set to grow more than twice as fast as GDP in Austria and even more strongly in Eastern Europe. "The drivers behind this trend are the reforms to state pension systems across Europe and the associated benefit cuts. Banks, insurance companies and investment funds are all trying to fill the gaps," explains Hendrik Bremer, financial services expert and Partner at Roland Berger's Vienna office.
The removal of tax advantages weakens insurers
While their position was once strongly enhanced by the tax advantages they could promise – for instance under the single-premium payment schemes in Austria or the tax-efficient Riester and company pension schemes in Germany - insurers are now being weakened in many European markets by the slow but inexorable abolition of these privileges. "We have seen a convergence in the types of products offered by banks and insurance companies. They are becoming increasingly interchangeable. Competition is also increasing between the two industries, which were once kept apart by financial regulations," says Ralf Widtmann, financial services expert at Roland Berger.
With an aging population, financial products for retirement provision are currently one of the most important growth drivers for insurance companies, banks and capital investment funds across Europe. Yet regulatory measures to open up the European insurance market and the removal of many tax breaks – e.g. for single-premium payment schemes in Austria – are weakening the strategic position of insurance companies. Further competition in the sector comes from banks and other independent channels, which are increasingly selling comparable products. Alliances can offer insurers a way forward, but there are pitfalls to be avoided. This situation makes cooperation management the crucial success factor for European life insurers.
The market for retirement products will again outstrip GDP growth over the next few years, set to grow more than twice as fast as GDP in Austria and even more strongly in Eastern Europe. "The drivers behind this trend are the reforms to state pension systems across Europe and the associated benefit cuts. Banks, insurance companies and investment funds are all trying to fill the gaps," explains Hendrik Bremer, financial services expert and Partner at Roland Berger's Vienna office.
The removal of tax advantages weakens insurers
While their position was once strongly enhanced by the tax advantages they could promise – for instance under the single-premium payment schemes in Austria or the tax-efficient Riester and company pension schemes in Germany - insurers are now being weakened in many European markets by the slow but inexorable abolition of these privileges. "We have seen a convergence in the types of products offered by banks and insurance companies. They are becoming increasingly interchangeable. Competition is also increasing between the two industries, which were once kept apart by financial regulations," says Ralf Widtmann, financial services expert at Roland Berger.
Banks increasingly selling life insurance policies
Life insurance policies are increasingly being sold by banks, and banks plan to play a much bigger role in the marketing of retirement products. In all the European markets there will be a sharp rise in sales through these distribution channels. They already account for more than 25 percent of business almost everywhere, and in Spain, for example, this figure is set to rise to over 60 percent. As Widtmann points out, "banks can build on their regular contact with customers. They have a trust advantage in terms of respectability and quality of advice." Sales through independent brokers and independent networks are also growing in importance, while sales by insurance agents are on the decline.
As business shifts increasingly to new sales models, European insurers are facing some new problems. They are losing the direct contact with their customers. This trend, in turn, makes them more dependent on their sales partners.
Befriending the enemy
Insurance companies are reacting to this trend either by creating a bank themselves – as in the case with the AXA Bank or the Generali Bank – or by cooperating with a partner from the banking sector. Examples of such close partnerships, which can even extend to cross shareholdings tied to long-term sales distribution agreements, include the French insurer Groupama with the Hungarian OTP Bank in several Central and Eastern European countries, BAWAG with Generali in Austria or the very recently launched alliance between Erste Bank and the Vienna Insurance Group.
For the insurers, the biggest danger posed by such partnerships is the loss of contact with customers. This means companies can become interchangeable with their competitors. They may also find that some of the products in their range compete with those offered by the bank. "The contractual design of the cooperation agreement and the long-term joint investments, which are also advantageous to the bank, play a decisive role in determining the long-run viability of these partnerships." Despite the risks, Widtmann believes that strategic cooperation with banks is generally a positive move for insurers: "Cooperation gives the insurance companies access to large groups of new customers at relatively low administrative costs. The banks, too, generate additional income streams at only marginal cost increases. And, unlike integrated bank assurance strategies, such alliances also allow the partners to stay focused on their core competencies."
Life insurance policies are increasingly being sold by banks, and banks plan to play a much bigger role in the marketing of retirement products. In all the European markets there will be a sharp rise in sales through these distribution channels. They already account for more than 25 percent of business almost everywhere, and in Spain, for example, this figure is set to rise to over 60 percent. As Widtmann points out, "banks can build on their regular contact with customers. They have a trust advantage in terms of respectability and quality of advice." Sales through independent brokers and independent networks are also growing in importance, while sales by insurance agents are on the decline.
As business shifts increasingly to new sales models, European insurers are facing some new problems. They are losing the direct contact with their customers. This trend, in turn, makes them more dependent on their sales partners.
Befriending the enemy
Insurance companies are reacting to this trend either by creating a bank themselves – as in the case with the AXA Bank or the Generali Bank – or by cooperating with a partner from the banking sector. Examples of such close partnerships, which can even extend to cross shareholdings tied to long-term sales distribution agreements, include the French insurer Groupama with the Hungarian OTP Bank in several Central and Eastern European countries, BAWAG with Generali in Austria or the very recently launched alliance between Erste Bank and the Vienna Insurance Group.
For the insurers, the biggest danger posed by such partnerships is the loss of contact with customers. This means companies can become interchangeable with their competitors. They may also find that some of the products in their range compete with those offered by the bank. "The contractual design of the cooperation agreement and the long-term joint investments, which are also advantageous to the bank, play a decisive role in determining the long-run viability of these partnerships." Despite the risks, Widtmann believes that strategic cooperation with banks is generally a positive move for insurers: "Cooperation gives the insurance companies access to large groups of new customers at relatively low administrative costs. The banks, too, generate additional income streams at only marginal cost increases. And, unlike integrated bank assurance strategies, such alliances also allow the partners to stay focused on their core competencies."
Cooperation management has high priority
Cooperation management is becoming the crucial factor for a successful insurance company. "Cooperation management has high priority. In light of the relevant objectives, it must be dealt with at board level," Bremer demands. Looking to the future, the challenge for top management is to think in terms of partnerships: "Traditionally, most attention has been given to controlling and optimizing the company's own distribution channels. After all, there's plenty of scope here for making changes, especially in the short term. But cooperation with an equal or stronger partner requires different and, above all, more sustained strategies." Cooperation management must also be rooted in the company's organization, possibly by creating a dedicated department. Its function is to secure and actively manage sales channels over the long term.
If you have questions or comments, please do not hesitate to contact us:
Cooperation management is becoming the crucial factor for a successful insurance company. "Cooperation management has high priority. In light of the relevant objectives, it must be dealt with at board level," Bremer demands. Looking to the future, the challenge for top management is to think in terms of partnerships: "Traditionally, most attention has been given to controlling and optimizing the company's own distribution channels. After all, there's plenty of scope here for making changes, especially in the short term. But cooperation with an equal or stronger partner requires different and, above all, more sustained strategies." Cooperation management must also be rooted in the company's organization, possibly by creating a dedicated department. Its function is to secure and actively manage sales channels over the long term.
If you have questions or comments, please do not hesitate to contact us:
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