Bank and insurance: the difficult alliance

At the traditional end-of-the-year assessment, lots of teachings are noted.

To begin with, it is noticed that insurers have resisted the crisis relatively well. They are endowed with enough cash to keep them safe from a provisional decline of the economic activities. They could be vulnerable only to a long-term crisis that would gradually dry up their liquidities.

The crisis has also allowed to test the model of bank insurance which has been developing for some years now. The Dutch ING, portrayed as the champion of bank insurance, has quit this scheme. Other players such as Fortis, Dexia or Royal Bank of Scotland are withdrawing from insurance or reconsidering their organizational plan.

The crisis has highlighted how dangerous it is for insurance to be excessively driven by finance. This difficult alliance has been almost fatal to insurers whose activities are bound by a rationale that is different from that of bankers. The main role of an insurer is to manage risks not financial assets. Financial speculation and the search for short-term profits do not match with the insurance task which is rather medium and long-term-oriented.

The last finding pertains to the craving for size which threw insurers in the arms of financiers. In insurance, size is not enough. It could even be a handicap: loss of control, gigantism, mess, excess of power. Big insurers (AIG), reinsurers (Swiss Re), and brokers have not been spared the turmoil. Size certainly allows to accompany a handful of international clients but is unable to provide millions of others with community service. Yet insurance is based on a multitude of small risks and not on a few big clients that must necessarily be served worldwide.

May insurers have good memory!