Abstract: After years of me too efforts, banks find that platform sales efforts work well When the financial services modernization law was signed into law in March, many expected a flurry of cross industry mergers--banks buying insurance companies and insurance companies buying banks. So far that consolidation has yet to happen. One reason may be that banks would want to satisfy themselves that they could sell life insurance successfully before they took steps to manufacture--i.e., underwrite -- life insurance, particularly given the capital required to buy a life insurer and to underwrite the life products on an ongoing basis. Now, after years of sluggish growth, there are signs that bank sales of life insurance are beginning to blossom. Life sales up in '99 Banks produced $380 million in life insurance premium during 1999, a 50% gain over 1998, according to the Kehrer Report annual survey of 50 insurers that market through banks. Sales were concentrated in single premium life, which were up 68% to $185 million (Chart 1). Total premium in recurring premium products was $194 million, up 36% over 1998. But only $81 million of that total was in first-year premium, reflecting life insurance sales during 1999. Banks had $113 million in renewal premium from prior years' sales. Nonetheless, first-year life premium from recurring premium life sales through banks was up 27% Recurring premium products include term life, whole life, universal life, and variable life. The majority of new sales of recur ring premium life products was in variable life. Term life accounted for 34% of recurring premium life sales, com pared to 6% for whole life, 3% for universal life, and 57% for variable life. The single premium sales were primarily in single premium universal life. Single premium variable life accounted for 23% of the single premium sales, compared to 71% for SPUL and 6% for single premium whole life. While bank sales of life insurance lag far behind the billion dollar expectations and projections by industry analysts, the sales growth is, nevertheless, quite solid. Bank efforts to find more effective ways of selling life insurance appear to be working What's working? Most bank attempts to sell life insurance face-to-face have relied on two models: 1. Across-the-kitchen-table agents who try to sell life insurance to the bank's middle market retail customers, often setting up shop in the branches 2. Advanced agents who try to meet the estate planning needs of trust customers, small business owners, and other affluent customers The first approach has suffered from an economic model that presumed that agents would work for lower compensation because they expected that the bank would provide a steady stream of qualified prospects. But in many cases, only weaker agents were willing to sign on with the bank's agency. The second approach has struggled with the problem that the best advanced agents already have the best customers. It is not clear to the very successful agent that he or she needs the bank. Moreover, banks that have tried this approach have deployed so few agents that their aggregate revenue has virtually no impact on the bank's bottom line. For example, the banks in the Kehrer Bank-Insurance Benchmarking Study, co-sponsored by CGU Life, averaged one advanced agent for every $4.8 billion in retail deposits. Even if each agent produced $1 million in revenue a year for the bank (they don't), the income from advanced agent sales would be lost in the rounding in the bank's income statement. And both approaches--middle market agents and advanced agents--are just me too approaches; they simply mimic established insurance industry distribution, with little value added from the bank. Now we are seeing several banks working with an innovative approach that promises to give banks a competitive advantage in selling life insurance to middle market retail customers. …
Publication Year: 2000
Publication Date: 2000-05-01
Language: en
Type: article
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