Research On The Bancassurance Based On The Principal-Agent Theory

As a product of financial integration and a new system arrangement, bancassurance has been an important development trend in current international insurance.As the word show, bancassurance refers to the fusion between the bank and the insurance. The generalized bancassurance means an kind of fusion stratagem adopted by the insurance company or the bank. Tt contact bank and insurance many kinds of financial service together, by conformiting the customer resources and sharing marketing channel, provides with insures therelated financial product service, and satisfy financial service demand with the integrated management. The specialised bancassurance means a kind of agent distribution alliance in the initial stage. The life insurance company sells the life insurance product through, the annuity and otherinvestment products through bank or post institution.Bancassurance of our country started in 1995, as a new force suddenly rises in recent years, is changing the insures market pattern rapidly, which has already accounted for 1/3 of the total life insurance premium income in few years. However, the robust way in the bancassurance business, the price competition has quietly risen regarding the bank charges as the core, and the tendency is becoming more intense. With the escalation of the war, the insurance company had been "non-profit" predicament. At present, the bancassurance has entered a critical stage, how to maintain the bancassurance achievements, excavation its development potential, promote the bancassurance business for the long-term, sustainable and healthy development is an important and urgent task.At present, there are multiple principal-agency relationships in bancassurance business: the principal-agency relationship between bank and insurance companies; the principal-agency relationship between bank and employees; the supervision and insurance companies; the principal-agency relationship between bank and clients. To simplify, we just analysis the previous principal-agency relationship between bank and insurance company. It will have a direct impact on the operation risk and efficiency of bancassurance business. Therefore, the insurance company insurance companies should enhance the efficiency of bancassurance by establishing an effective performance appraisal system and incentive contract.This paper is divided into four chapters. The first chapter is the reviews on the bancassurance and the principal-agent theory, forming the theoretical framework. The second chapter is to examine the current situation of China's bancassurance business, the development of bancassurance , cooperation pattern, analysis and summarize the current main problem. As the main part of paper, the third chapter use principal-agent theory in information economics, discuss the problem of incentives to the banks in bancassurance. Three different circumstances including symmetric information condition, asymmetric information and the introduction of other observational variables are discussed. It's the first experiment of applying the principal-agent theory to explain Bancassurance.The fourth chapter, put forward the countermeasure of our country's bancassurance, focusing on the two-pronged approach of Chinese development strategy and expectation of the future development model. Finally come to this overall conclusion of the study, put across policy recommendations based on research findings. Such discussions seek to provide a theoretical basis and method direction in formulating the incentive mechanism in bancassurance, which make the incentive mechanism more equitable, reasonable and effective.In this paper,Principal-agent theory is applied to explain how insurance company establishes the incentive system in order to constraint the bank in the bancassurance business. From the model indicates that in the principal-agent relationship of the insurance company and the bank, the insurance company can design a scientific and reasonable constraint mechanism,develop optimal incentive contract under the principal-agent model, reduce moral hazard, increase the bank's enthusiasm of doing bancassurance. In symmetry information condition, the insurance company can observe the bank's effort level. Pareto dominance risk-sharing requires the banks not to take any risks, the fixed income insurance company paid to the bank's just equal to the reservation wage of bank add the cost of effort.Furthermore, in asymmetry information condition, the insurance company can not observe the bank's effort level. The optimal incentive contract requires bank must take some risk. Further more, the more risk-aversion bank is, the greater the variance in premium income, the more bank are afraid to work hard, the less risk the bank should bear. There are two types of agency cost that do not exist under symmetric information: risk cost and incentive cost. And the agent cost is rising with the increasing of bank risk-averse and the variance of premium income. By adding a new variable, such as the loss ratio by bancassurance in a given period, insurance company can not only enhance the level of the incentive to the bank and reduce the risk the bank takes, but also can reduce agency cost of insurance company; also mean that the insurance company can reward the bank according to the quantity and quality of the bancassurance. This can make the banks underwriting high quality business, therefore enhance the insurance company's economic benefit. These results can be generalized, the variable can be the economic environment, the performance of the stock market or other investment channels for consumers to choose and so on, as long as the new variable contains more information about the bank's effort. The optimal contracts drawn from this model can be helpful for the mechanism design of bancassurance.