[00:00.00]All aboard for Allfinanz
[00:02.72]The Germans coined the term Allfinanz,the marriage of banking with insurance and other services for retail customers,
[00:10.71]yet their banks and insurers have lagged behind European rivals in putting it into effect.
[00:17.66]French banks,for instance,sell 35% of France's life insurance;German banks a puny 5%.
[00:26.25]But thanks to the EC'single market,Germany's insurance market will be deregulated in 1994.
[00:33.96]Foreign competition could then threaten the domestic cartels that dominate German insurance.
[00:40.72]That should force German banks to catch up.
[00:43.86]Habit,law and the balance of power among financial institutions explain Germany's backwardness.
[00:51.83]Bankers and insurance agents are not used to selling each other's products.
[00:56.89]Savers usually buy insurance from agents tied to a single insurer,rather than from banks.
[01:04.00]The tax authorities encourage segregation by refusing to give tax breaks to types of insurance that mimic banking products.
[01:14.00]And some banks have been loth to start their own insurance operations lest they offend insurers,
[01:20.93]which are among their best customers.
[01:23.46]So most banks have sought to deliver Allfinanz through alliances,a strategy that entails modest costs but also produces modest returns.
[01:35.66]Allianz,Germany's biggest insurer,co-operates in some areas with Dresdner Bank;
[01:42.32]in others with Bayerische Hypothekenbank or co-operative banks.
[01:47.26]Its alliances with Dresdner and Hypobank are cemented by shareholdings;its banking partners sell 17% of its life-insurance policies.
[01:58.88]Commerzbank owns 48% of its insurance policies.DBV and sells DM1 billion($600m) of DBV's life insurance.
[02:11.84]Bolder approaches have not been particularly successful.
[02:15.71]AMB,Germany's second-biggest insurer,plunged into Allfinanz by buying BFG,a former trade-union bank.
[02:25.63]It lost more than DM750m on BFG's bad loans,and the bank sold less insurance than AMB hoped.
[02:35.45]AMB has since sold BFG to a French bank(it is itself partyly-owned by a French insurer),though it continues to market insurance through BFG branches.
[02:47.73]The deregulation of Germany's insurance market in mid-1994 will free prices and allow insurers to experiment with new products.
[02:57.45]That will drive banks and insurers closer together and may promote mergers and takovers among companies that now co-operate.
[03:06.83]One reason is that banks can sell standard life insurance more cheaply than insurers' tied agents.
[03:14.43]As competition heats up,that price advantage will tell.
[03:19.29]A second reason,says Sven-Michael Slottko,a former head of Deutsche Bank's life insurance operation,
[03:26.68]is that mere allies cannot invent true banking-insurance hybrids without squabbling over how to split the profits.
[03:35.41]Insurers require high commissions;banks live off spreads.
[03:41.36]Only a combined Allfinanz group,says Mr Slottko,can sell an insurance policy that sacrifices commission for a high spread.
[03:50.84]Deutsche Bank's insurance venture may be a sign of things to come.
[03:55.65]Alone among big banks,Deutsche started its own company,DB Leben,in 1989.
[04:03.20]In 1992 DB Leben sold DM7.2billion worth of life insurance through Deutsche's branches,putting it among Germany's top 15 life insurers.
[04:16.08]Despite this apparent success,Deutsche suddenly abandoned its go-it-alone strategy last year by buying 65% of Deutscher Herold,a medium-sized insurer.
[04:29.58]Deutsche has since transferred its insurance business to Herold and the insurance men who run it.
[04:35.72]Hilmar Kopper,Deutsche's chairman,calls the purchase of Herold "the most significant move we have made for years."
[04:44.03]Leaking at the seams
[04:46.54]HAUNTED by catastrophes past,Lloyd's of London faces a bleak future.
[04:52.26]Some wonder whether,in any recognisable form,by 2000 it will even be there.
[04:58.74]This matters to more than just those smooth scions of the British upper class who work in this singular insurance market,
[05:06.47]or to those who pledge their wealth,as "names",to back the market's underwriting syndicates.
[05:13.03]Though this collective of co-operatives pulls in only as much premium income as some of Britain's big insurance companies,
[05:20.52]Lloyd's is synonymous with British insurance.
[05:23.94]An enfeebled Lloyd's would harm the City of London's international standing.
[05:28.62]It was this thought that held the British government back from putting Lloyd's firmly under its thumb during the fraud-ridden years of the late 1970s and early 1980s.
[05:39.30]The market has since done much to polish up its self-regulation,though it is still far from squeaky-clean.
[05:46.75]Today,however,the biggest problem that faces David Coleridge,who took over this month as chairman of Lloyd's,is not one of scandal,but of profits.
[05:56.96]In the next couple of years these will prove uniformly bad,underscoring the steady loss of competitiveness from which Lloyd's has suffered recently.
[06:06.00]The market's share of world premium income was 2.2% in 1983,but is only half that today.
[06:14.67]The latest published figures for Lloyd's show ￡575m($950) of pre-tax profit in 1987(Lloyd's syndicates close their accounts only after three years),
[06:28.36]down slightly on the record profits of 1986.That was before a blast of natural and man-made catastrophes in 1988-90 sent insurance claims pouring into Lloyd's:
[06:41.42]the fire on the Piper Alpha oil platform,the spillage from the Exxon Valdez,the San Francisco earthquake,Hurricane Hugo and a spate of European gales.
[06:52.55]Worse,these disasters coincided with falling premium rates in almost every one of the market's businesses.
[06:59.34]Today Chatset,an independent consultancy,reckons Lloyd's will post a meagre profit for 1988 and a loss of more than ￡850m for 1989,the first loss since 1967.
[07:14.31]Many of the 26,500 names would therefore love to follow the 6,000 who have already shaken the dust of Lloyd's from their feet these past three years.
[07:24.55]Yet half the names could not leave even if they wanted to:
[07:28.24]they are locked into the 58, out of the total 401 Lloyd's syndicates ,that have been unable to close one or more of their past annual accounts,
[07:37.80]so unquantifiable are the liabilities stacking up against them.
[07:42.18]Many of the resultant 92 "open years" have to do with old American liabilities-for asbestos-related risks,
[07:50.75]for example,and pollution-whose scale was undreamt-of when the insurance(or,more usually,the reinsurance) policies were underwritten.
[07:59.79]The most notorious case concerns the 1,600 names on 31 Outhwaite syndicates.
[08:05.28]These face losses,mainly on asbestosis claims,of up to ￡1 billion;since Lloyd's names have unlimited liability,many will be bankrupted.
[08:16.95]A case that looks set to rival Outhwaite in notoriety concerns two Feltrim syndicates,
[08:22.20]where at least ￡200m of losses are emerging on"excess-of-loss"insurance in 1987-89.
[08:29.78]Nor do the market's commerical troubles end there.
[08:33.20]Other unsuspected"long-tail"claims are now hitting it,notably untold billions of coming dollars for professional negligence.
[08:41.61]Most visible are the claims arising out of the gross mismanagement during the 1980s of America's saving-and-loan institutions.
[08:50.08]Open years are proving to be open wounds for Lloyd's. |