Bank Sales Of Life Insurance Gained Momentum In First Half
The evidence is mounting that banks are making progress in building their life insurance sales.
According to the Kehrer Report semi-annual survey, banks increased their life sales to $77 million during the first half of 2001, a 45% increase over the same period last year. Actual new life premium was up 76% to $218 million, but almost three-fourths was in single-premium products.
Life insurance industry sales statistics discount single-premium products to 10% of the actual cash premiums in toting up life sales. Thus the bank weighted-premium total of $77 million was only 35% of the $218 million in premium from new life sales that banks actually produced between January and June.
Banks had $157 million in single-premium life sales, almost twice the level achieved during the first six months of 2000. The lions share was placed in single-premium universal life contracts (62%), with 20% in single-premium whole life contracts and only 14% invested in single-premium variable life.
Banks have been more successful in building single-premium life business than traditional recurring-premium life business, because single-premium products share some of the characteristics of annuities and are an asset-transfer sale.
In contrast, recurring life products are more like a savings product, requiring the purchaser to reduce consumption of other goods and services over time to make the recurring premium payments.
Bank sales of recurring premium life products increased 36% to $61 million during the first half of the year.
Variable products account for most recurring-premium sales. Variable life and variable universal life captured 74% of first-half recurring-premium life sales by banks. Term life products attracted 16% of first-year premiums, with 5% going to universal life and 5% to whole life.
Meanwhile, other life insurance distribution channels were actually experiencing shrinking sales. LIMRA International reports total life insurance industry sales (or weighted premium) were $4.2 billion in the first half, down 3% from the same period last year. The decline occurred in the second quarter, after first quarter sales were essentially flat with the first quarter a year ago.
Consequently, banks increased their market share of U.S. life insurance sales to 1.8%, a two-thirds increase over the first half of last year. While still small, bank life sales are becoming increasingly important. Last year, banks accounted for 11% of the increase in life sales from all channels. So far this year, the growth in life sales in banks has helped to offset the decline from other channels.
More encouraging signs are provided in the just released 2000/2001 Kehrer-LIMRA Bank Life Sales Study. The typical bank had new premium from its life sales business of $397,618 per billion of bank retail deposits.
In analyzing bank sales performance, we use measures of customer penetration such as premium per billion of bank retail deposits. This helps us to analyze how well a given bank is taking advantage of its insurance selling opportunities. It makes sense to assess banks performance relative to the size of their customer or deposit base.
Using this measure, we found mid-sized banks have much higher life penetration than the largest banks.
Regional banks (with $7 billion to $12 billion in retail deposits) produced new life premium of $849,151 per billion of retail deposits. Thats more than twice the average bank and almost seven times the deposit penetration of the mega banks that have retail deposits greater than $30 billion.
The super-regional banks (with retail deposits in the $12 billion to $30 billion range) also have above-average deposit penetration, but super community banks (with $2 billion to $7 billion in retail deposits) also outperform the mega banks, with 2.4 times their deposit penetration.
In all, 51 banks, collectively accounting for 50% of all bank life insurance sales, participated in this years study. The average bank studied has been selling life and health insurance for 4.5 years.
The study found that deposit penetration improves as a bank gains experience selling insurance. Those that have been selling life and health insurance for over seven years have an average new life/health premium of $1.7 million per $1 billion of bank retail deposits, 3.4 times that of banks that have been selling life for four to seven years, and almost eight times that of banks with under four years of experience.
But while this learning curve is encouraging, it is undoubtedly not steep enough for most banks management. While banks are making good progress in building their life insurance sales, they clearly will have to learn how to ramp up deposit penetration faster.
Kenneth Kehrer is head of Kenneth Kehrer Associates, a Princeton, N.J., consulting and research firm. Brad Powell is president of the institutional marketing group of Jackson National Life, a co-sponsor of the Kehrer-LIMRA Bank Sales Study. Further information about the study can be found at www.limra.com or www.kenkehrer.com
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 22, 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.