Banks and societies in dash for insurance

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The Independent Online

Half the UK's top building societies are investigating the possibility of setting up general insurance subsidiaries, according to a survey by accountancy firm KPMG. Two thirds of Britain's high street banks expect to be in the same market within a year.

The societies' plans come as the Woolwich yesterday announced plans to set up a joint insurance operation with Legal & General, one of the UK's largest insurers.

The KPMG survey, based on confidential responses from 48 banks and building societies, reflects their desire to boost earnings beyond existing commission levels of up to 30 per cent - or more in some cases - received from the sale of policies.

By setting up their own subsidiaries, they would be able to retain a share of underwriting profits.

Insurance companies, which have been hit by the success of telephone- based direct insurers, also want to cash in by offering their product and underwriting experience to the societies.

For composite insurers, sales of general insurance policies offset the slump in life and pension products.

Peter Akers, a KPMG consultant specialising in the new "bancinsurance" market, said: "Success is composed of two key elements - a distribution system and insurance expertise.

"The banks and building societies already have an excellent distribution system through their branches. Expertise can be bought in.

"The change of pace is hotting up. We only have to look at other countries to see the shape of things to come. In South Africa, five out of the six top banks now have their own insurance companies.

"This will mean increased competition, which could be good news, with lower prices for the consumer. It could also signal a switch in jobs from the insurance companies to the banks, as the latter buy in expertise."

Other banks and societies have already moved in the same direction. TSB set up its own successful general insurance operation several years ago. Last year, Abbey National and Commercial Union announced their own joint venture.

The Woolwich and L&G deal is similar. It will initially offer customers a range of household buildings and contents policies.

The underwriting company, to be called Gresham Insurance, will be 90 per cent owned by Legal & General, the remaining shares going to the Woolwich.

A separate service company, Woolwich Insurance Services, will be 90 per cent owned by Woolwich. L&G will hold the remaining shares.

In 1994, the Woolwich represented about one fifth of Legal & General's household business. The company's net premiums from household and commercial insurance, which included the Woolwich account, amounted to pounds 188.7m in 1994, out of total non-life premiums of pounds 264.8m.

It is anticipated that the business volumes of the joint venture are likely to be about double those currently written for the Woolwich by Legal & General.

The associated capital requirement for the business will be funded from existing L&G resources. The new venture will become fully operational in late summer, subject to formal confirmation from the Department of Trade and Industry.

Legal & General chief executive, David Prosser, said: "We are very pleased to support this important venture in the personal insurance market.

"We have worked with the Woolwich over many years and this, together with our combined strengths, gives me great confidence that our new joint venture will benefit Woolwich customers."

Alliance & Leicester is already preparing to set up its own life subsidiary some time next year, but said it has no current plans to move into general insurance.

Halifax said yesterday it would be launching a telephone-based banking service and would consider adding more products, including general insurance, at a later stage.