Creating the Future with All Finance and Financial Conglomerates

Abstract

Creating the Future With All Finance and Financial Conglomerates, by L.A.A. van den Berghe and K. Verweire, 1998, Boston, Kluwer Academic Publishers Reviewer: Peter Hohman, The Insurance Institute of Canada Banks expanding into the insurance and insurers exploring deposit-taking activities-this evolution is altering the financial services landscape on a worldwide basis. The authors of this book take a timely look at this sometimes-sensitive topic in an academic, objective way using research primarily from the European market. The Dutch and Belgian financial services industry, particularly, serve as an excellent test bed because of the progressive integration between the banking and insurance industries that has already occurred there. The discussions are sprinkled with references to the United States, where the concepts are growing in importance. The book approaches this complex topic by investigating the diversification strategies of financial institutions and conglomerates; the increasing interface between banks, insurance companies, and investment companies; and the concepts of all finance or service bundles. Chapter 1 takes the important first step of sorting out in a scientific way the various terms that are used commonly and defining concepts such as bancassurance, assurfinance, all finance, and others. The chapter also touches on the drivers motivating banks to move into the insurance business, primarily life, and insurers, into the banking business. The interface between the banking and the insurance sectors is traced from the initial cooperative approach to the more competitive basis. The second chapter extends the analysis of the trend from bancassurance and assurfinance toward all finance. It addresses the general preference of banks for life insurance, rather than property-liability, and discusses the rebundling of financial services. Chapter 3 explores the principles and rationale of diversification as it applies within the financial services industry, including the concepts of economies of scale and scope, transaction costs, and managerial motives. The chapter also discusses the more or less unsuccessful merger wave covering the period from 1949 through the mid-'70s, the back to the core business approach in the '80s, and the apparent contradiction between de-mergers and the increasing diversification of banks and insurance companies. Different classifications of typologies for corporate structures of financial conglomerates are explored in Chapter 4. After commenting on the various strengths and weaknesses of these classifications, the authors propose and discuss at length the Financial Conglomerates Control Board (EC.C.B.) construct they have developed. The EC.C.B. model combines the concept of the value chain (Porter) with the service operations system. It is designed as a tool to gain a better understanding of the different types of conglomerates, their structures and strategies, their potential synergies as well as their types of potential risk, and their degree of integration, integration being seen as one of the key drivers for success. …