Until the Gramm-Leach-Bliley Act passed in 1999, the banking, investing and insurance industries remained somewhat separated, essentially occupying their own respective market niches.
But GLB has opened the floodgate for financial convergence. It started as only a trickle of mergers and acquisitions, but recently it has evolved into a torrent of cross-industry activity. This includes the newest concept: The debut of hybrid financial productsthe so-called “convergence” products.
Such products combine elements of banking, investing and insurance in one package.
At least one of these products is already on the market and several others will surely follow as the lines between industries continue to blur.
Convergence products not only gratify the demands of consumers by giving them more investment options, but they can also help producers act as financial services “supermarkets,” offering expertise in insurance, banking, investing and asset management.
Until recently, insurance producers had to refer clients interested in purchasing bank products elsewhere.
Now, due to convergence products, insurance producers can offer bank products themselves, thus retaining a potentially lost client.
Furthermore, the convergence products have been modified in such a way that allows typical bank customers to branch out and broaden their portfolios. For example, insurance producers can now offer clients a Certificate of Deposit with a rate of return linked to a major stock market index, similar to some equity indexed annuities, yet backed by the FDIC up to the coverage limits.
Whats in it for the producers? Opportunity.