Deutsche Bank’s newest effort to reinvent itself and reassure investors it has a profitable future is a partnership to offer online property and casualty insurance policies to its customer base.
Germany’s largest bank is resurrecting the concept of “Allfinanz” or “bancassurance” with a new twist that it hopes will improve on the mixed record of banks selling insurance products. By partnering with an insurtech startup, Friendsurance, Deutsche hopes to harness disruptive digital technology to better match the product to the customer’s particular needs.
“Different objective criteria go into the appraisal,” says Tim Kunde, co-founder of Berlin-based Friendsurance. “Along with the price comes the question of how financially stable the insurer is or how good its customer service is.” As with other types of fintech products, insurtech applies algorithms and artificial intelligence to sorting through these criteria.
Deutsche Bank plans to establish its own insurance brokerage, operated by Friendsurance, to sell insurance through its online bank. It will not be just a platform to compare prices, nor will it be just a link to its partner, Friendsurance. Rather, it will perform the function of a traditional insurance broker advising the customer if a policy is a good fit or if there is a better alternative.
With digital technology, the Allfinanz concept gets a new chance. Markus Pertlweiser, chief information officer, Deutsche Bank retail
Despite its perennial appeal, mixing banking and insurance under the same roof has had a checkered history. In the United States, for instance, where federal banking rules prohibited the practice for decades, the first efforts to combine the businesses once this hurdle was removed were not successful. Citigroup merged with the Travelers insurance group in 1998 only to split up again a few years later after it emerged that earnings from P&C insurance were too volatile and a drag on the bank’s stock price. Moreover, it proved difficult for bank employees to fully grasp complex insurance products.
Similar problems arose when Munich insurance giant Allianz acquired Dresdner Bank, Germany’s second-largest, in 2002. The combination failed to generate any synergies and Dresdner’s remaining customers and staff were taken over by Commerzbank in 2009, bringing the 137-year history of Dresdner to a close.
New technology is now supposed to overcome all those problems. “With digital technology, the Allfinanz concept gets a new chance,” says Markus Pertlwieser, chief information officer for Deutsche’s retail banking business. The bank plans to test market the new business in the second quarter with a full launch to come after the summer vacation period.
Property and casualty insurance lends itself better than life insurance to this type of digital streamlining. “There is no online sale of life insurance,” says Mr. Kunde. “That’s due to the diversity of products, which makes a sale complicated, but also to customer behavior.” Customers are used to personal attention in deciding on life insurance products, while P&C policies are more easily standardized.
As persistently low interest rates have eroded margins in the traditional loan business, banks have taken a renewed interest in insurance. Italy’s Unicredit is in talks with insurer Generali about setting up a bancassurance group in Eastern Europe. In Germany, linkups between banks and new technology firms have been pioneered by the online bank of Frankfurter Sparkasse 1822, together with insurtech Getsafe, and by ING-Diba and PSD Bank Hannover, working together with insurtech Clark.
Deutsche Bank opted for the brokerage route in order to offer the widest range of choices to customers while obtaining maximum revenue for the bank. Policies from some 170 insurers are available via Friendsurance. As broker, Deutsche will not get just the initial commission for selling the policy but a steady stream of fees for servicing the customer. Mr. Pertlwieser estimates the bank will earn fees in the “two-digit millions.”
For its part, Friendsurance, which has only 100,000 customers now, figures it will get a multiple of that number with access to Deutsche’s customer base. The market for P&C insurance in Germany is €66 billion ($81 billion) in annual premiums, of which 27 percent are negotiated by brokers.
Deutsche Bank is the midst of a multiyear restructuring after losses and fines in the wake of the financial crisis brought it to the brink. Turnaround expert John Cryan, brought in as chief executive in 2015, has come under increasing pressure to start showing results.
After its largely unsuccessful forays into international investment banking and trading, Deutsche is seeking to refocus its efforts on the domestic retail market and is looking to digital technologies to help with that effort. Late last year, the bank launched a new robo-advisor product available primarily through its retail branch network.
Handelsblatt reporter Yasmin Osman covers banking in Frankfurt and Christian Schnell reports on finance and technology. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the authors: [email protected], [email protected], and [email protected].