Latest research from DBRS suggests that large French banks have developed substantial bancassurance businesses, with strong market shares in the domestic insurance market, especially in life insurance and this has made a steady contribution to the growth of the banks’ profits in recent years.
Based on DBRS calculations, the contribution of insurance activities to the consolidated parent banking institutions’ earnings has been very stable, representing on average around 14% of operating divisions’ pre-tax profits. In addition, DBRS estimates that the aggregate pre-tax profit from insurance activities in 2017 was EUR 6.3 billion, having grown at an annual average rate of 5% since 2013. The positive trend in French banks’ insurance profits has been underpinned by the overall growth in the French insurance market over the last five years.
DBRS expects this trend to continue. Strong positions in life insurance complement the banks’ savings offerings for customers. In addition, insurance represents substantial opportunities for cross selling, especially taking into account French banks’ strong domestic and international position in financing services such as home lending, consumer lending or vehicle finance, where insurance is sold as a complementary product. Insurance can also support growth through increased penetration of existing customer bases or through new partnerships.
DBRS notes that the insurance activity also reduces French banks’ reliance on net interest income, and as a result French banks are relatively less dependent on net interest income than many of their European and global peers. However, DBRS also notes that the current low interest rate environment has reduced life insurance profits.
FRENCH LIFE INSURANCE SECTOR – MATURING NICELY
In line with other developed markets, life insurance accounts for the majority of total insurance premiums in France. The French life insurance market is large and mature with around EUR 2.2 trillion in assets under management. The business is heavily
concentrated on savings and investment products. Insurance products account for a high 40% of French households’ financial assets, compared with 31% for securities, 23% for cash and 6% for contractual savings.
The popularity of life insurance reflects advantages in taxation compared with other forms of saving. Furthermore, in recent years, the average rates of return on the two main categories of savings and investment products, euro products and unit-linked products were in excess of those offered by other saving alternatives, Livret A and home savings plans.
TRADITIONAL CORPORATE BUSINESS MODEL
Bancassurers have a significant presence in the French life insurance industry with an over 60% market share. The bancassurance model in France has its origins in the early 1970s when some banks began to offer creditor insurance products to their own banking clients. However, the bancassurance model got a boost from legal changes introduced by the French government, which allowed banks to widen their insurance product offerings while savings instruments offered through insurance companies started to benefit from a more favourable tax treatment versus traditional banking products. Since then, French bancassurance companies have expanded into savings (retirement and life insurance), planning (accident and disability), health (complementary coverage) and, on a
more reduced scale, general insurance (personal auto and home).
Although there are variations of the bancassurance model depending on each country’s regulations and local customers’ preference, the French model is characterized by the following: (1) Bancassurance companies are fully or partly owned by a bank. (2) Bancassurance companies have an exclusive distribution agreement with their
parent bank. (3) Bancassurance products are fully integrated in the bank’s product range and are sold by branch staff along with traditional banking products.