Life Is Better Under the Banks
Prior to the crisis, bank-led insurance companies mainly offered their clients finance-related policies that differed from the products marketed by other insurers, either because of their reduced exposure to demographic risk or their higher exposure to asset price volatility in financial markets. As a result of the crisis, the composition of the product portfolio has changed rapidly, becoming more similar to that of traditional insurers, presumably in response to the reduction in customers' propensity to risk caused by losses experienced on financial investment. In addition, since the crisis, insurance companies controlled by banks have proved able to recover market positions in investing technical reserves and own funds: before 2008 returns on this activity were worse than those of traditional insurers, in spite of similar portfolio composition, but performance significantly improved in relative terms in the following years.
This is some of the empirical evidence emerging from "Bank affiliation influence on life insurers' performance", a research paper in which two colleagues and I have tested the hypothesis that control of a life insurance company by a bank is a a factor that influences the company's performance. To carry out the analysis, we considered the economic data related to the life insurance business of all companies operating in the industry in Italy in the 2003-2013 period.
The results we obtained suggest that the ability to adapt in a difficult market context, and to consolidate market positions at the expense of traditional competitors, have allowed bank-controlled companies to change skin during the crisis, and still obtain good performance with a product mix different from the one offered before 2008.
Banking affiliation seems to play a role, even beyond the obvious advantage that selling policies at the counter through branches leads to lower costs with respect to marketing through your own agent networks. Certainly, the ability of banks to leverage their fiduciary relationship with the customer to direct their demand toward products having a higher margin is crucial in determining the good performance of controlled companies, and explains the positive effect of bank affiliation. Furthermore, what's striking is the speed with which banks have been able to redesign their offer to meet new customer needs, and close the gap with traditional insurers already in the market.
The shift towards multi-purpose insurance products we are currently witnessing is another testimony to the positioning ability of bank-controlled insurers. Such insurance policies are in fact hybrid financial products that, besides guaranteeing a minimum return on a portion of the investment, imply investors' exposure to price fluctuations in financial assets. This allows insurers to transfer part of the risk of investing the premium to policyholders, as is the case with finance-related insurance, while at the same time facilitating the marketing of their product. In a context of very low interest rates, this is a compromise solution that allows insurers to keep their accounts in order. Whether this also benefits customers, however, is far from clear.