Bank Brokers Making Progress In Selling Life Insurance
Selling life insurance through the financial consultants who sell mutual funds and annuities in bank branches has been an uphill climb, but banks have made substantial progress in the past two years, according to the 1999/2000 Kehrer-LIMRA Life Sales Study.
In 1997, the typical full-service broker working in a bank environment produced $2,500 in gross commission revenue from sales of life and health insurance, only 1% of the financial consultants annual production. Two years later, the typical broker generated life sales revenue of $8,379, 3.4 times the 1997 level. Life sales accounted for over 3% of the brokers annual production, three times the revenue contribution two years earlier.
The Kehrer-LIMRA analysis is based on 43 banks that are broadly representative of the size and geographic dispersion of banks and credit unions that are selling life and health insurance, including 18 of the 20 largest bank life insurance programs.
The average life/health productivity in 1999 was twice the median level and slightly higher than the top quartile, indicating that the average productivity was pulled up substantially by the performance of a few banks. Indeed, the banks with the highest life/health productivity averaged $57,333 in sales revenue per broker, almost 7 times the life/health productivity of brokers in the average bank.
But broker productivity is only part of the story. For a bank, a more important measure of success is how much revenue from life sales a bank produces for its size. For the most part, banks and credit unions are trying to capture the insurance business of their existing customers rather than selling to the population at large.
A bank can achieve higher sales force productivity by cutting back on the number of sales staff, but that might actually reduce total revenue (and profits). The total sales from a smaller but more productive sales force could be lower than the total sales of a larger, less productive sales force.
Banks want to maximize revenue and income from selling insurance, but maximizing a sales forces productivity does not necessarily result in maximum income. One useful measure of sales performance relative to a banks size is life sales revenue penetration of retail deposits.
Retail deposit penetration also enables us to compare the success of life/health marketing efforts at different sized banks, comparing the banks “pound for pound,” as it were. And this measure allows us to track the life sales performance of banks over time, as they grow in fits and starts through mergers.
Brokers in banks tripled their revenue penetration of consumer deposits between 1997 and 1999. First-year commission revenue per million of bank retail deposits was $30.70 in 1999, compared to $9.26 two years earlier. These gains in deposit penetration are largely attributable to very large life/health productivity gains, rather than to the deployment of more investment sales staff.
How are banks achieving these productivity gains? Our discussions with the chief executive officers of bank life insurance sales programs, most recently at the LIMRA Bank Study Group in Boston last November, point to many sources of improvement. But increasingly the role of variable life is singled out as a key driver of improved broker life sales.
The emergence of variable life insurance has made life insurance more attractive to bank brokers than traditional life insurance that credited fixed rates of return to the life insurance cash value. Variable life invests the savings component of the life policy in mutual fund-like investments, which the policy owner can pick and choose among, just like in a variable annuity. And the single premium version of variable life enables the broker to focus on repositioning assets, which is central to the brokers financial consulting.
How important is it for bank broker/dealers to succeed at selling life insurance? If we compare the banks in the top quartile in profit contribution from securities brokerage services (for their size) with banks with less profitable brokerage operations, we observe dramatic differences in their life insurance sales. The more profitable bank brokerages have almost five times the life insurance sales revenue mix as the bank brokerages with lower profit penetration of their customer base.
While some bank brokerages have achieved substantial success in selling life insurance, and hence augmenting their bottom line, others lag behind. But as the best practices in selling life insurance become better understood, we expect that successful life insurance selling will spread through the U.S. bank brokerage industry.
Kenneth Kehrer is president of Kenneth Kehrer Associates, a bank investment marketing research & consulting firm based in Princeton, N.J. Matt Riebel is president of Nationwide Financial Institution Distributors, a co-sponsor of the 1999/2000 Kehrer-LIMRA Bank Life Sales Study.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.