Whether product convergence is “happening” depends on how one defines this term.
For some, convergence is the anticipated corporate consolidation of heretofore separate financial services providers–banks, brokerage firms, investment managers and mutual funds, and insurance carriers–resulting from the 1999 enactment of the Gramm-Leach-Bliley Financial Modernization Act. In this sense, convergence means transformation into financial supermarkets having inexhaustible cross-selling potential.
For others, convergence is more academic. It means the combining of insurance and capital markets, the process of moving towards union and uniformity, or separate markets performing the same functions. Here, convergence may mean the securitization of insurance risk, or the “insurancization” of financial risks.
Both types of convergence-watchers are probably right. Convergence fits the Supreme Court Justices famous remark about another activity: “I know it when I see it.”
Previously, for example, the debuts of proprietary insurance products by insurers and banks were heralded as convergence products.
More recently, a product rollout by two household names in investments and banking is widely seen as a convergent development. (I am referring here to JPMorgan Chase announcing that its affiliate, Chase Life & Annuity Company of New York, has launched a fixed annuity. As described by senior management, the product draws upon the banking and investment know-how of JPMorgan Chase, and “is a logical extension” of the firms branded products following on the heels of its mutual funds.)
Meanwhile, there are other financial products that have been around for a while that are actually convergence products but have not been generally recognized as such.
One example is the guaranteed minimum income benefit rider offered with many variable annuities. These riders seem to have all the defining characteristics of “insurancization” of financial risks, in that they combine insurance and capital market hedging techniques.
Also, the growing use of insurance contracts as hedges in other contexts, because of their greater efficiency and lower costs, can wear the convergence label proudly.
And, although not usually discussed as such, equity indexed annuities are the prototype convergence product for consumers, in that they link insurance needs, safety through the guarantee of principal, and upside potential for the credited interest rates.
Adding to confusion over the “is it happening?” question is a second question. That is, are the other necessary things happening to make convergent products happen? Such “other things” include technology, culture, and regulatory accommodations.
The quick answer to the technology question is yes. Just visit all of the Web sites that are either devoted to or have significant material about technology solutions for convergence.