All aboard for Allfinanz
The Germans coined the term Allfinanz,the marriage of banking with insurance and other services for retail customers,
yet their banks and insurers have lagged behind European rivals in putting it into effect.
French banks,for instance,sell 35% of France's life insurance;German banks a puny 5%.
But thanks to the EC'single market,Germany's insurance market will be deregulated in 1994.
Foreign competition could then threaten the domestic cartels that dominate German insurance.
That should force German banks to catch up.
Habit,law and the balance of power among financial institutions explain Germany's backwardness.
Bankers and insurance agents are not used to selling each other's products.
Savers usually buy insurance from agents tied to a single insurer,rather than from banks.
The tax authorities encourage segregation by refusing to give tax breaks to types of insurance that mimic banking products.
And some banks have been loth to start their own insurance operations lest they offend insurers,
which are among their best customers.
So most banks have sought to deliver Allfinanz through alliances,a strategy that entails modest costs but also produces modest returns.
Allianz,Germany's biggest insurer,co-operates in some areas with Dresdner Bank;
in others with Bayerische Hypothekenbank or co-operative banks.
Its alliances with Dresdner and Hypobank are cemented by shareholdings;its banking partners sell 17% of its life-insurance policies.
Commerzbank owns 48% of its insurance policies.DBV and sells DM1 billion($600m) of DBV's life insurance.
Bolder approaches have not been particularly successful.
AMB,Germany's second-biggest insurer,plunged into Allfinanz by buying BFG,a former trade-union bank.
It lost more than DM750m on BFG's bad loans,and the bank sold less insurance than AMB hoped.
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.
The deregulation of Germany's insurance market in mid-1994 will free prices and allow insurers to experiment with new products.
That will drive banks and insurers closer together and may promote mergers and takovers among companies that now co-operate.
One reason is that banks can sell standard life insurance more cheaply than insurers' tied agents.
As competition heats up,that price advantage will tell.
A second reason,says Sven-Michael Slottko,a former head of Deutsche Bank's life insurance operation,
is that mere allies cannot invent true banking-insurance hybrids without squabbling over how to split the profits.
Insurers require high commissions;banks live off spreads.
Only a combined Allfinanz group,says Mr Slottko,can sell an insurance policy that sacrifices commission for a high spread.
Deutsche Bank's insurance venture may be a sign of things to come.
Alone among big banks,Deutsche started its own company,DB Leben,in 1989.
In 1992 DB Leben sold DM7.2billion worth of life insurance through Deutsche's branches,putting it among Germany's top 15 life insurers.
Despite this apparent success,Deutsche suddenly abandoned its go-it-alone strategy last year by buying 65% of Deutscher Herold,a medium-sized insurer.
Deutsche has since transferred its insurance business to Herold and the insurance men who run it.
Hilmar Kopper,Deutsche's chairman,calls the purchase of Herold "the most significant move we have made for years."
Leaking at the seams
HAUNTED by catastrophes past,Lloyd's of London faces a bleak future.
Some wonder whether,in any recognisable form,by 2000 it will even be there.
This matters to more than just those smooth scions of the British upper class who work in this singular insurance market,
or to those who pledge their wealth,as "names",to back the market's underwriting syndicates.
Though this collective of co-operatives pulls in only as much premium income as some of Britain's big insurance companies,
Lloyd's is synonymous with British insurance.
An enfeebled Lloyd's would harm the City of London's international standing.
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.
The market has since done much to polish up its self-regulation,though it is still far from squeaky-clean.
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.
In the next couple of years these will prove uniformly bad,underscoring the steady loss of competitiveness from which Lloyd's has suffered recently.
The market's share of world premium income was 2.2% in 1983,but is only half that today.
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),
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:
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.
Worse,these disasters coincided with falling premium rates in almost every one of the market's businesses.
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.
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.
Yet half the names could not leave even if they wanted to:
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,
so unquantifiable are the liabilities stacking up against them.
Many of the resultant 92 "open years" have to do with old American liabilities-for asbestos-related risks,
for example,and pollution-whose scale was undreamt-of when the insurance(or,more usually,the reinsurance) policies were underwritten.
The most notorious case concerns the 1,600 names on 31 Outhwaite syndicates.
These face losses,mainly on asbestosis claims,of up to ￡1 billion;since Lloyd's names have unlimited liability,many will be bankrupted.
A case that looks set to rival Outhwaite in notoriety concerns two Feltrim syndicates,
where at least ￡200m of losses are emerging on"excess-of-loss"insurance in 1987-89.
Nor do the market's commerical troubles end there.
Other unsuspected"long-tail"claims are now hitting it,notably untold billions of coming dollars for professional negligence.
Most visible are the claims arising out of the gross mismanagement during the 1980s of America's saving-and-loan institutions.
Open years are proving to be open wounds for Lloyd's.