What ING's Insurance Divestment Means to the Bancassurance Model

In late October Amsterdam-based financial services giant ING announced that it would divest its insurance operations. In effect the move set ING -- in many ways the archetype of the bancassurance (banking-insurance hybrid) business model -- down a path that leads out of the bancassurance market.

ING CEO Jan Hommen said that splitting the company's insurance and banking operations was not a decision ING took lightly. "The combination provided us with advantages of scale, capital efficiency and earnings stability through a diversified portfolio of businesses," Hommen said in a press release. "However, the financial crisis has diminished these benefits. Now, the widespread demand for greater simplicity, reliability and transparency has made a split the optimal course of action."

Of course in many ways it wasn't ING's decision at all. The split was part of a restructuring agreement among ING (US$1.8 trillion), the Dutch government and the European Commission (EC) under which the company plans to repay a US$14.9 billion bailout. All of ING's insurance and investment management operations will be divested over time as part of the required restructuring plan, which was approved in mid-November.

ING will also divest its US-based Internet bank, ING Direct, as part of the restructuring. To receive EC approval on the plan, ING needs to divest ING Direct USA by 2013 and the company says it will take until then to complete such a divestment.

"A little over one year ago, ING began to experience the direct impact of the financial crisis, resulting in two instances of government support to strengthen our capital position and to mitigate risk," Hommen stated in the release. "Over the last six months, we have worked tirelessly -- both inside ING and with the Dutch government and the European Commission -- to devise a plan that will enable us to pay back the Dutch State, address the EC's requirements for viability and fair competition, and return our focus to the business and what matters most to our customers."

Immediately following the news of ING's plan, some observers suggested that the agreement marked the beginning of the end for the bancassurance movement. "In retrospect, you have to wonder whether all the reasons used to flog the hybrid idea as the epitome of capital and consumer efficiency were bogus," wrote Eric Reguly in The Globe and Mail, a national Canadian English language newspaper. "Maybe they were just another excuse for egomaniac bank and insurance bosses to super-size their companies and their pay packages."

Bancassurance Not Dead Yet

But while some aspects of bancassurance most surely will disappear -- such as the kind of double-leverage that Reguly singled out for criticism in his column -- the concept as a whole may live on. After all, many banks that are just banks and insurance companies that are just insurance companies also were crippled by the economic crisis. Clearly, the problem isn't specific to bank-insurance hybrids.

To some in the industry, ING's divestiture of its insurance business isn't the move that makes the most sense. Ellen Carney, a Forrester Research senior analyst who covers both the banking and insurance industries, says she understands the move from a "too big to fail" perspective, but not from a value perspective. "It was kind of surprising to me, just from the standpoint that the insurance business was actually showing better performance," Carney explains.

Nonetheless Carney acknowledges that the bancassurance model likely will become less popular in the near future, noting that the model never took off in North America as it did in Europe. The bancassurance challenge is, in part, a CRM issue, she contends. "Here in the U.S. market, you have a relationship with your insurance agent and it's a different relationship than what you have with your bank," Carney says. "For most banks, it's all about -- for the frontline folks in the branch -- moving people through and processing transactions. They miss a lot of opportunities to position other services. This might have been just too big a leap for a lot of bank folks to be able to sell."

That said, Carney does not agree that the ING move signifies the death of the banking-insurance hybrid concept. It could be a very valuable business model, she says, if banks -- perhaps especially smaller, community banks -- took advantage of their high levels of customer engagement to capitalize on the cross-sell and up-sell opportunities that bancassurance presents.

"If you think about the relationship that we should have with our banks, as our financial advisers, wouldn't it make perfect sense then to be able to buy an insurance package that protects our financial assets?" Carney asks. "Wouldn't you want to buy it all in the same place?"