Bancassurance awakes in UK

Once heralded as the next revolution in finance, the combining of banking and insurance under one roof - "bancassurance" as it has been dubbed - is in some ways proceeding at a snail's pace in the UK.

Recent events, however, suggest we may be catching up with our continental brethren. More than 50 per cent of life assurance policies in Italy, for example, are sold through bank branches.

In the UK, by contrast, banks account for only 20 per cent or so of personal financial products outside their traditional realm of savings, cheque accounts and deposit accounts.

The pressures driving this revolution were heard again last week on the Continent, when two of France's largest insurance groups, Axa, and Union des Assurances, announced a merger to create the world's second largest insurance business, which will be worth pounds 12bn and have a turnover of pounds 36bn.

There have been UK success stories: Royal Bank of Scotland (RBS) and its Direct Line business is one. But Direct Line concentrates on one approach to business, and there is little cross-selling between the parent and its subsidiary.

That, however, is set to change. Last week, the Royal Bank announced a deal to see life insurer Scottish Widows link up with Direct Line.

Widows will buy a 20 per cent stake in the bank's life subsidiary, Royal Scottish Assurance and will work with Direct Line - which already has other insurance products, beyond its origins in motor insurance - in new products.

Meanwhile, the landscape of the UK insurance industry is essentially the same as it was 20 years ago: the Prudential, Sun Alliance - now merged with Royal Insurance - General Accident, and Commercial Union, still rule the roost.

One of the problems has been that the UK insurance industry is still recovering from the trough of the recession, a fall in premiums, and massive claims. These have ranged from disasters such as Piper Alpha and hurricane damage in the US to the rising crime rate on Britain's streets.

With these problems, insurance shares have been in the doldrums for the last few years. But the insurers are keen to get in on the bancassurance act.

To much fanfare, the Pru announced earlier this year, that it wanted to become a bank. It launched its telephone banking business last month. These are still early days for the insurers - always a staid bunch - wanting to become one-stop shops in the financial services shopping mall. The Pru's chief executive, Peter Davies, also has a building society or another life business on his shopping list.

Of those to have made real strides in melding together the different administrative requirements of insurance, personal pensions, and banking products, the most headway has been made by the Abbey National, and Lloyds TSB. Abbey National, once a building society, now offers its customers a full range of insurance products. After its takeover of Scottish Mutual Assurance in 1992, it now has profits of pounds 105m from life sales - or roughly 10 per cent of total sales. But only 1 million of its 14.5 million customers are currently linked to it through its life business. A spokesman said: "We still see enormous scope to grow this business."

Last month, Lloyds TSB announced it would buy up the remaining stake in Lloyds Abbey Life, its majority-owned insurance venture.