Bank of America Offers Credit Protection, But Dont Call It Insurance

By

Thomas

Scottsdale, Ariz.

It may look like insurance, but Bank of America, Charlotte, N.C., says its not. And the Office of the Comptroller of the Currency agrees.

BofA says it is seeing growing customer acceptance for its new borrower-protection plan, which it offers with loans and mortgages.

Even though the product has an accidental death component, the Comptroller of the Currency agrees with BofA that the product does not fit the definition of life insurance, said Catherine S. Kenworthy, vice president and insurance executive for the bank.

That means the product is not subject to state insurance regulations, said Kenworthy, who spoke at the Financial Institution Insurance Association annual conference that was held here from Apr. 14 to 16.

The plan also offers protection against disability and unemployment. Because the bank retains the risk entirely, “its not insurance,” Kenworthy said. “Its a contract.”

The unemployment component of the contract provides that if the individual qualifies for state unemployment insurance, all payments due on the loan would be cancelled for 12 months.

The cancelled payments also do not qualify as income, so BofA does not issue Internal Revenue 1099 forms reporting the cancelled payments to the IRS, she noted.

BofA dropped out of the single-premium credit life market last year due to unsatisfactory profits. The borrower protection product, introduced about a year ago, has, on the other hand, enjoyed growing acceptance among the banks loan customers, said Kenworthy. It has a cancellation rate “in the low single digits,” she said.

The monthly fee for the plan ranges from 6% to 18% of the borrowers monthly loan payment, depending on whether the purchaser wants coverage for one, two or all three of the protected hardships.

It is sold entirely at the point of sale for loans and mortgages, Kenworthy explained.

BofA lays claim to a customer base of 27 million households in 21 states plus the District of Columbia, Kenworthy reported, although the borrower protection is available in only a few states. Its customers make a total of 500 million visits to branches and other bank outlets each year, she notes.

The bank sees insurance as a significant way to deepen the banks relationships with these customers, Kenworthy observed.

“Insurance profits are durable profits,” she said.

Still, that potential remains largely untapped. Recent research by the bank found that its average customer spends about $4,800 annually on insurance, but only about 2% of that is spent with the bank. Last year, it pulled in around $150 million in premiums, which Kenworthy said amounted to about 0.5% of the banks total revenues.

“The opportunity is huge,” she said. “The penetration is small.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 22, 2002. Copyright 2002 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.