For The Typical Bank, Profits From Life Insurance Sales Are Slim
Life insurance sales add only 60 cents per customer household to net income for the typical bank, finds a new study for LIMRA, Windsor, Conn., by Kenneth Kehrer Associates, Princeton, N.J.
That contribution pales in comparison to the profitability of bank investment sales units, says Kenneth Kehrer, who heads the research firm that did the study.
Last year, for instance, the typical bank retail broker/dealer generated a contribution to pretax profit of $10.76 per bank customer household, 18 times the payoff of the typical bank life insurance sales program, he notes.
The profit margins of bank life insurance sales programs average 8%, only one-fourth the level of the typical bank investment sales program.
Overall, profits from life sales amount to only 0.11% of the entire net income of the typical bank selling life insurance. In contrast, bank sales of annuities and mutual funds contribute 2% of the banks bottom line.
The LIMRA-Kehrer studies do not count annuities in insurance sales.
In-house agents are the least profitable bank channel for insurance, Theodore Johnson, director of bank marketing for LIMRA, notes.
“Basically, they seem to be overpaid,” he says. “The conundrum for banks is, life agents are used to making money. So for a bank to draw them in, it must pay them more than it does to a financial consultant.”
Profit margins vary widely by distribution method, Kehrer found.
Advanced agents–those who concentrate on selling insurance to their banks wealthier clientele–produced a margin of 25% of sales.
Financial consultants in banks showed a far higher margin for insurance: 40%.
But only about 3% of the sales of banks financial consultants are from life insurance, Kehrer found. The rest is from investment products such as stocks, mutual funds and annuities.
“Its an interesting trade-off,” Kehrer notes. “Advanced agents provide more revenue but at lower margins. Financial consultants provide less insurance revenue but higher profits.”
The study did not gather data on the profitability of retail agents in banks or of insurance-licensed bankers.
The main point of interest of the latest study is that it looks at banks customer penetration for life/health insurance in terms of profitability. This provides a way to compare the success of banks and credit unions of different sizes.
Net income from insurance is much higher in super-community banks (with $2 billion to $7 billion in retail deposits) than in other banks, the LIMRA study found. Super-community banks have three times the profit penetration of regional and super-regional banks that have similar revenue penetration per household, on average.
Community banks with retail deposits of less than $2 billion have lower sales revenue penetration, but their average profit per customer household is almost as high as super-regional banks (those with retail deposits in the $12 billion to $30 billion range).