Financial markets/Financial markets : Bancassurance

Overview

• Bancassurance entails agreements between banks and insurance companies wherein an insurance company engages in the sale of insurance via banks to their customers. A bank, in turn, receives a commission – typically somewhere between 18-40 percent, depending on the type of policy – on the policies sold. Thai banks have shown great interest in bancassurance business as a means of generating non-interest income that has high growth potential without increasing the provisioning burdens associated with lending. Such income may also offset falling income in times of narrowing interest spreads or slower growth in loans. In addition, banks can offer insurance to their entire customer base, rather than only to those taking out loans.
• Formerly, banks mainly earned commissions from non-life insurance sales only on those policies required by the terms of bank loans, wherein assets held with banks are insured and banks becomes the first beneficiary. However, revenue generated from such transactions was not very high, since such insurance plans were limited to certain types of loans and were not compulsory for all customers. According to OIC data as of May 2012, the average direct premiums per month earned from bancassurance sales of non-life insurance stood at THB 2 billion, whereas the average monthly direct premiums from bancassurance sales of life insurance exceeded THB10 billion.