Selecting the preferable bancassurance alliance strategic by using expert group decision technique

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Abstract

Bancassurance has enjoyed considerable success in Europe, but this concept is relatively new for Asian countries, having emerged only in 2002. Thus, the aim of this paper is to search and identify the preferable bancassurance alliance structure from the executive management perspectives. We adopt the analytical hierarchy process (AHP) and Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) to construct an evaluation method. Finally, this study proves that Financial Holding Company model in bancassurance alliance models is preferable for the executive.

Introduction

Bancassurance has enjoyed considerable success in Europe, but this concept is relatively new for Asian countries, having emerged only in 2002. However, Taiwan financial institutions are participating in the business activities of other financial institutions since the government’s easing of financial restrictions. Especially after enactment of the Financial Holding Company Law, the bancassurance has escalated rapidly. Such an arrangement may benefit consumers with a “one-stop shopping” option as well as create a business synergy through cross-selling between banks and insurance companies.

Mutual cooperation and strategic alliance are omnipresent in present global economy, yet the literature regarding the financial alliances between banks and insurance companies is limited. Staikouras (2006) and Staikouras and Nurullah (2008) find that banking and insurance entities have more similarities than differences, characteristics that may favor joint production and business synergies. Through diversification, the bancassurance approach reduces the resources required to manage risk, which in turn results in lower costs (Hughes, Lang, Mester, & Moon, 1999). Korhonen, Koskinen, and Voutilainen (2006a), Korhonen, Koskinen, and Voutilainen (2006b) and Korhonen and Voutilainen (2006) applied the expert panels and the AHP to explore the most prefer alternative alliances between banks and insurance companies from executive management perspectives, supervisory authorities, and customers, respectively.

The aim of this paper is to search and identify the preferable bancassurance alliance structure from the executive management perspectives in the context of Taiwan’s current conditions with regard to finance and financial systems. The managerial perspective assumption was the same as in Korhonen and Voutilainen (2006) that a manager is willing to maximize shareholders’ value, because the manager might also have some personal criteria not compatible with the criteria of the shareholders. Both the banks and insurance companies involved in a strategic alliance can be domestic or foreign with operations in the Taiwan area, and insurers can be life or non-life companies with operations in the Taiwan area. AHP is via performance indicators establishing a hierarchy utilizes experts to select the preferable project method (Bozbura et al., 2007, Carlucci and Schiuma, 2007, Chang et al., 2008, Cheng et al., 2007, Durán and Aguilo, 2007, Kang and Lee, 2007).

This study besides through literatures review and interviews with experts, we also adopt the Modified Delphi Method, the analytical hierarchy process (AHP) and Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) to construct an evaluation method for selecting the preferable bancassurance alliance structure from the executive management perspectives in Taiwan to determine its effectiveness. This proposal an evaluation criterion for determining the optimal alliance structure for Taiwan’s emerging bancassurance sector and provides high-level management of financial institutions and academicians with recommendations for future development.

Section snippets

Methodology

AHP and TOPSIS are applied to determine the weight of each factor weight and ranking of importance. A thorough description follows:

Applying AHP and GRA to evaluating the preferable bancassurance alliance structure

In this paper, bancassurance alliance structures are classified into six categories stand on the bank whether direct cross-operation insurance business activities by the aforementioned studies and the current status and business model of bancassurance in Taiwan. We introduce the following alliance structures:

Conclusions

This study combine AHP with TOPSIS to construct an evaluation method for selecting the preferable bancassurance alliance structure that seem to be a successful approach in finding a solution to the finance alliance problem. We can observe that the ranking of the six alliance models Alternatives in TOPSIS: FHC (0.803) > JV (0.292) > IB (0.256) > IA (0.254) > PA (0.216) > HS (0.167), FHC is preferred for the executives. And that application AHP get the priorities of the six alliance models: FHC (0.311) > PA

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