The Right Choice for Banks in Insurance

Banks, when transferring the right to use their distribution channel in non-life insurance to an insurance company, can reach more efficient results if they work through a panel in which at least three insurance companies are present in motor own damage insurance.

The non-life premium production was TL 11.958.051.653 in Turkish Insurance Sector as at end of September 2012.

TL 1.691.490.959 (14.5%) was produced through banks.

Source: TSB Statistics.

 In the meantime, while the motor own damage premium production under the branch “Land Vehicles” was TL 3.250.782.577, the share of banks in this LoB was limited to 8.15% at TL 265.050.951.

Whereas had they reached 14.15% in this branch too, they would have produced TL 460.000.000.

The average commission in this branch amounts to 15%.

This means that the banks lost at least TL 3 million in commission only in the first 9 months of this year.

It seems that banks can not reach the same sales success as other distribution channels of the insurance sector in the motor own damage branch, which constitutes 27.5% of the market.

Why?

Insurance companies price casco policies based on their own statistical pools and past track record. Even though many criteria is included in this pricing, all companies take the past loss/premium ratio in their own statistical data as the base.

Hence, companies offer very different prices to vehicles and customers.

Casco is the most well known and price sensitive insurance product. The customer always want to get a quote from more than one company and purchase the cheapest.

Banks, on the other hand, offer the “casco price” of only the insurance company with which they have an exclusivity agreement.

As a result, while they are producing 14.15% of the total production, they remain limitied to 8.15% of casco production.

Starting especially from 2007 onwards, many banks have sold their non-life insurance subsidiaries or the right to use their distribution channels. Very high figures were reached in terms of selling price.

· While it became an important gain to “work exclusively with the most efficient bank distribution channels in terms of personal and small business segments” from the perspective of new investors or insurance companies who own distribution channels,
· It was also equally important from banks to get a considerable upfront payment for the agreement period.

Besides, the banks continued to get commission payments for the insurance sales during the exclusivity period.

The only variable that does not work right in this formula is the “casco branch” due to the reasons I summarized above.

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