Bancassurance is an ugly, misleading portmanteau of a word, marrying banking with insurance. It can be an ugly, misleading portmanteau of a business too. It sounds safe but isn’t.
Lloyds Banking Group is about the only bancassurance business left in the UK. High street financial conglomerates were all the rage in the 1990s when it seemed like a no-brainer for banks to use their branches to cross-sell insurance, asset management and mortgage products. But the cost savings proved illusory and the margin improvements didn’t materialise. It was harder than expected to cross-sell money and insurance products to British customers without regulators worrying about mis-selling. Investors worried nobody quite understood the risks. By the noughties, bancassurance was a very bad word in English if not over the Channel. Most lenders ran for the hills years ago. Royal Bank of Scotland was forced to float its insurance arm, Direct Line.
Not Lloyds, though. Despite investor pressure to flog the business, it has held on to Scottish Widows, the insurer it bought in 1999. It did so even after the payment protection insurance scandal cost the industry more than £50bn and Lloyds itself about £22bn.
Indeed, three years ago chief executive António Horta-Osório aka Aho began building up Lloyds’ insurance-wealth division. He formed a joint venture with Schroders to beef up its wealth management services. And he bought Zurich’s workplace pensions operations. On paper it makes sense. The UK’s ageing population needs to protect savings. Workplace pension schemes, insurance and wealth management generate a growing pot of steady fees. Unlike mortgages, profitability doesn’t move in lock-step with interest rates, now at a dispiriting 0.1 per cent and expected by some to fall again.
The division only generates about 15 per cent of profits. Market share of protection and financial planning could grow — either organically or by acquisition — without trustbusters turning a hair. Lloyds conveniently has a finance director with an M&A background in William Chalmers.
The lenders’ folk say it has learnt from past mistakes. Old incentive schemes that encouraged mis-selling are ancient history. It’ll be different this time, they assure us. But that’s another punitively expensive phrase — almost as bad as bancassurance.
Revenge of the technocrats
Navigating the corridors of power in the palace of Westminster is nothing compared with those at 25 Cabot Square, headquarters of the Competition and Markets Authority.
Andrew Tyrie, ex-politician and feared Treasury select committee chair, abruptly resigned as CMA chair earlier this month. He lasted 20 years as Lombard’s hometown MP, seven as TSC chair and only two at the CMA.
In his resignation letter, Lord Tyrie cited the “inherent limits” of his role in achieving the policy reform he desired. Reports over the weekend indicate some of those limits came from colleagues, who threatened a mutiny if he stayed in post.
With Lord Tyrie gone, the CMA has lost its most public face. In the short time he was there, Lord Tyrie made the most of the publicity his CV and connections afforded him in the job. Many of the CMA and its predecessor groups’ chairs were cut from a different cloth, drawn from academia or legal practice.
But the CMA’s forerunners also had bosses from time to time who weren’t shy either: John Fingleton at the Office of Fair Trading and Peter Freeman at the Competition Commission, for example. And while it has been easy to over-egg his sway over the body and its new public swagger, the CMA was not Lord Tyrie’s instrument. There are strict limits stopping the CMA board and its chair meddling in merger rulings, for example, where independence is baked in below board level.
Still, tone is set by those at the top. There is no doubt Lord Tyrie’s proclamations did that. The manifesto for reform he published last year dressed up as a letter to the business secretary was grandstandingly ambitious. He would have refashioned the CMA as a consumer protection agency first and foremost, more Consumer and Markets Authority than Competition and Markets Authority. No longer a slow, lumbering regulator but a consumer champion fit for the digital age — and a fitting platform for a once-prominent politico to run a new sort of campaign. It is not hard to see how that might have rankled with the body’s technocrats.
No doubt Mr Tyrie had all the political connections to press his vision at Westminster. But office politics still counts. The Financial Reporting Council tried a high-profile chair too. He also lasted barely five minutes before stepping down midway through a reform effort. Don’t be surprised if their replacements work in very different ways.
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