Business opportunities and market realities in financial conglomerates

Abstract

The Financial Services Act of 1986 prompted changes to remove the regulatory hedges among financial institutions. The present work sets out to explore the non-quantitative aspects of the interface between banks and insurance firms. Without discounting any quantitative analysis, the study diverts from the existing literature by placing equal weight to the so far overlooked qualitative elements. The paper reviews the various market trends and highlights the differences among major European countries. The diverse and inconclusive bancassurance literature is also briefly reviewed. Having discussed the cultural differences and integration obstacles between banks and insurance firms, the study proposes a three-dimensional radar-shape approach for the financial conglomerate. More specifically, product complexity, distribution infrastructure and market integration are put forward as the forcing variables underlying the provision platform of modern hybrid financial services. The analysis further elaborates on a number of market-based synthetic corporate structures drawn from the European experience as a whole. Finally, two broad drivers - exogenous (market) and idiosyncratic (operational and strategic) - along with their constituents, mainly held responsible for the success/risk of the new universal financial intermediary, are identified and analysed. The paper concludes by summarizing the main issues and pointing to avenues for potential research. © 2006 The International Association for the Study of Insurance Economics.