How much do banks make from selling insurance?

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Bancassurance brings a lucrative revenue stream for banks.

The “hundred million dollar” handshakes

The cooperation in cross-selling insurance products through banking channels (bancassurance) is a partnership that brings benefits to both parties. While insurance companies have access to a larger number of customers, banks are also able to diversify their service ecosystems and bring in significant revenues. Therefore, this activity has become more and more active in recent years.

For example, Prudential Vietnam Insurance Company Limited and Vietnam Maritime Commercial Joint Stock Bank (MSB) started to cooperate in 2013 and have successfully built a banking business strategy, contributing to insurance premium revenue with a compound annual growth rate of 34% from 2014 to 2020.

MSB's insurance sales are always in the top 10 of the bancassurance market, net revenue from life insurance in 2020 grew more than double compared to 2019. The two sides recently officially extended their strategic cooperation relationship to distribute insurance through banks for 15 years. This new agreement expands insurance distribution to the North, where MSB is located. At the same time, Prudential Vietnam became the sole partner of MSB nationwide.

At the end of 2020, two major bancassurance deals were successfully signed – VietinBank signed an exclusive 16-year cooperation agreement on insurance distribution of Manulife Vietnam Company and ACB Bank signed exclusive distribution rights with Sunlife insurance company.

Previously, Vietcombank also signed an exclusive agreement to distribute insurance with FWD Group. According to analysts' calculations, these deals are expected to bring banks a revenue of up to hundreds of millions of dollars.

The experts of VCBS Securities Company estimated that the prepayment fee that VietinBank received from the exclusive insurance distribution agreement with Manulife is about US$250 million and will be recognized in four years. At the same time, bancassurance income of this bank will increase 30-50% over the same period in the next five years.

With ACB, the exclusive contract with Sunlife has a prepayment fee of up to US$370 million (VND8,500 billion), much higher than the fee that banks with equivalent asset size receive from a co-operative insurance contract.

According to VCBS Securities Company, ACB will record prepaid fees spread evenly over the 15-year period, equivalent to a profit of VND560 billion / year starting from 2021.

Meanwhile, 2020 is the first year Vietcombank starts selling FWD bancassurance products (from April 2020). According to SSI Securities Company, the total insurance premium revenue for the first year reached VND417 billion, an increase of 94% compared to the same period in 2019. In addition, the bank started to record 20% of prepayment fees, about VND73 million, equivalent to VND1,700 billion.

The "lucrative" revenue source

The insurance cross-selling has brought in huge revenues for many banks over the years and is expected to continue to grow. Typically, MB Bank has collected nearly VND5,850 billion from insurance business and services in 2020, an increase of 39% compared to 2019. Accordingly, this revenue accounts for more than 71% of total service income by MBBank. Similarly, this activity has brought VPBank more than VND2,575 billion, Techcombank VND827 billion.

At VIB, income from insurance commission services in 2020 will reach over VND1,217 billion, an increase of 9.5% compared to 2019. The signing of exclusive life insurance distribution cooperation with Prudential at the end of 2015 has helped bancassurance income of VIB continuously grow strongly in the past four years.

OCB Bank also recorded over VND616 billion in revenue from insurance business and services, accounting for 67% of the bank's total fee income in 2020. Due to the huge potential of Vietnam life insurance market, OCB is continuing to boost this income stream with the target of 25% / year growth.

At many banks, revenue from bancassurance is forecasted to grow strongly in the coming years. Typically, at Vietinbank, with the assumption that in 2021, the bank will start recording 1/5 of the prepayment fee from exclusive insurance contracts signed with Manulife in 2020, the figure will be at about VND1,600 billion. Accordingly, net fee income from bancassurance of this bank will grow by about 50% compared to 2020.

Meanwhile, ACB spent December 2020 preparing to sell insurance and officially selling insurance under the model of a bank employee directly consulting with customers. As a result, the bank won the number 1 position in the whole system in January 2021 with a revenue fee of VND137 billion (calculated by APE - Equivalent fees for the whole year).

According to SSI estimates, in 2021, in addition to the prepayment fee (spread over 15 years) paid by Sunlife, ACB's insurance commission will increase by 35% due to the business activities of the segment. This year is affected by the social distancing in April and the termination of previous contracts with AIA and Manulife, leaving the bank with no life insurance income in December 2020.

SSI said that two major bancassurance contracts signed between ACB and SunLife Vietnam and VietinBank and Manulife will create many changes in insurance market share by 2021 in the context of fierce competition.

Accordingly, AIA's market share will decline due to the termination of insurance product distribution contract with ACB. ACB contributed about 10% of AIA Vietnam's total premium revenue in the first nine months of 2020. Meanwhile, Manulife and SunLife could expand premium revenue even further. In the first nine months of 2020, the bancassurance channel accounts for 30% of total new operating fee revenue and 18.3% of total life insurance premium revenue (compared with 29% and 16% in 2019, respectively).