Bancassurance

Bancassurance

Bancassurance is a  term referring to the selling of insurance through a bank's established distribution channels.  More specifically it means that banks can offer banking, insurance, lending, and investment products to a customer.  If it helps you to think of what actually goes on in business relationship terms  bancassurance is all about the symbiotic partnership, synergy between banks and insurance companies.  For the banks, income from bancassurance is the only non interest based income.  
There is also another method called "Bank Referral" where banks do not issue the policies, they only give the database to the insurance companies. The companies issue the policies and pay the commission to them.

Legalization of Bancassurance

In some countries, bancassurance is still largely prohibited, but it was recently legalized in countries such as the United States, when the Glass-Steagall Act was repealed after the passage of the Gramm-Leach-Bliley Act.  The Glass-Steagall Act, passed in 1933,  established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation.  The bills was sponsored by Democratic Senator Carter Glass of Lynchburg, Virginia, a former Secretary of the Treasury, and Democratic Congressman Henry B. Steagall of Alabama, Chairman of the House Committee on Banking and Currency.  It is important to note that there were actually two Glass-Steagall Acts.  The first Glass-Steagall Act was the first time that currency (non-specie, paper currency etc.) was permitted to be allocated for the Federal Reserve System.  The second Glass-Steagall Act, passed on 16 June 1933, and officially named the Banking Act of 1933, introduced the separation of bank types according to their business.  This is the act that disallowed bancassurance.

The Glass-Steagall Act was eventually repealed in 1999 by the Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act which opened up competition among banks, securities companies and insurance companies.  After this act was passed banks were now allowed to sell certain types of insurance and in many cases began to partner with insurance companies.  This is good for banks because it is their only source of income that isn't interest related.  This probably helps the banks in times where the government steps in and regulates both insurance rates and the amount of a persons deposits the bank has to keep on hand, which is currently about 10 percent. 

This is not legal in all countries however.  Many countries have strict regulations as to what banks can and can't do, much like he united states did from 1933-1999.  It is hard to say whether, over all, this is good or bad.  Bancassurance has it's advantages and certainly it's disadvantages.  For some insurance companies, mainly new ones, they may not like that many banks are already coupled with insurance companies so they have to wait for deals to run out or look for smaller, local banks to lend a helping hand.