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Interface of insurance and banking in European countries

Nurullah, Mohamed (2000). Interface of insurance and banking in European countries. (Unpublished Doctoral thesis, City University, London)


This thesis investigates one of the crucial issues currently facing the European financial institutions, in particular, banks and insurance companies. Currently in Europe, the banks are engaging into insurance business, and, the insurance companies, to a lesser effect, are engaging into banking business. These cross-business activities have broken down the long tradition of separation of these two financial industries, and have raised many questions. But there is little evidence on this issue, theoretically as well as empirically. This thesis is a kind of interdisciplinary approach and it has two parts. In the first part, the thesis examines various interfaces that exist between the European banks and insurance companies from two perspectives: banks' perspective as well as insurance companies' perspective. (Chapter two and three respectively). Based on industrial economic theory, organisation theory, the strategy & international business theory, and the regulation theory, a historical analysis is employed for the examination of these various interfaces. The thesis also examines the traditional relationships and traditional distribution channels of banks as well as insurance companies and the development of their current changing patterns. Driving forces for these changing interfaces and the regulation concerning changes of interface are also considered in the thesis (Chapter four). The EC Directives on banking and insurance are also given their due weight for this examination. One of the major contributions in the first part is to make a theoretical development of this new area, and the creation of 'bancassurance' and 'assurancebank' data that is scarce and can be invaluable for further research and development on this issue. Some of these data are used in the second part of the thesis.

In the second part of the thesis, two sets of empirical tests are conducted. The first test is the test of return and risk effects on European bank holding companies diversification into various insurance business, namely life assurance underwriting, general insurance underwriting, and insurance broking business. The second test is opposite to the first one, i.e. the test of return and risk effects on European insurance holding companies diversification into banking business (Chapter five and six respectively). Based on finance literature, econometric work is employed for these tests. The results of the first test shows that banks significantly increase their risk in underwriting of life as well as underwriting of general insurance business. Expansion in life underwriting significantly increases returns but the effect on return from expanding in general insurance underwriting is not significant. The most profitable expansion is into insurance broking business since our results indicate a significant positive effect on return with no adverse effects on risk. On the other hand, the results of the second test shows that the insurance companies bankruptcy risk although increases, two other risk measurements indicate significant risk reduction, and the return in this case does not have significant effect. This suggests that only the cross-business distribution activities should be permitted and the cross-business underwriting activities should be restricted in order to reduce the probability of bankruptcies.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Departments: Bayes Business School
Bayes Business School > Actuarial Science & Insurance
Doctoral Theses
Bayes Business School > Bayes Business School Doctoral Theses
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