Insurance Opens Opportunities For Bank Investment Sales

By

The fall of the Glass-Steagall Act in 1999 and the resulting removal of sales limitations on insurance products in banks sparked new life in bank insurance offerings. Now banks are evaluating not only their ability to compete within a broad landscape of financial services providers but also the success of their existing insurance efforts.

To remain competitive with other financial services providers in the post-Glass-Steagall era, insurance can be an important fee-income source and a significant means of capturing additional customer wallet share.

Cerulli Associates has found, however, that most banks consider their existing insurance offerings to be less successful than expected.

To be successful at selling insurance, a bank needs to evaluate how it fits into the bank reps product mix. The answer may be rooted in banks ability to provide comprehensive financial planning.

Selling insurance often involves customer profiling and needs analysis–two fundamental components in the delivery of financial planning advice.

Born in the upper echelons of private-client arrangements, the financial planning concept has emerged as the preferred delivery model for advice and guidance. Its emergence occurred because it promotes consistency and objectivity of advice and helps deepen advisors relationships with clients.

Although previously limited to select pockets of the financial services industry, today the financial planning mindset permeates virtually every stripe of advisor at every type of financial services provider. As a result, both investors and advisors are beginning to see the benefits of the current shift toward financial planning.

To support advisors in meeting the growing demand for advice, banks are creating programs, tools and education and training.

Often, implementing the recommendations outlined in an investors financial plan includes a robust set of products–mutual funds, annuities, insurance and broker-dealer separate accounts, among other products. Industry studies, however, reveal that advisors can only learn six products well enough to sell comfortably.

Another barrier to success encompasses the fact that bank broker/dealers often view insurance product sales as a deterrent to their primary focus–selling investment products.

The fact that an advisor can only sell a limited number of products effectively underscores the challenge banks face in introducing a full range of products suitable to the financial planning model.

Nonetheless, advisors in general expect that they will sell more insurance products in the future, according to Cerulli Associates proprietary survey into the financial advisor community. Cerulli Associates attributes this increase to the inherent shift in the investor populations financial goals and the need for advice on longer-term issues, such as funding retirement income.

Current economic forces signify opportunity for advisors to increase sales of insurance products, as retirees seek safety from volatile markets and retirement risks. As investors shift focus from a preoccupation with asset accumulation to asset protection and distribution, the demand for insurance products is likely to proliferate.

Banks, however, are undecided about the best way to distribute insurance products to their customers. Some rely on their brokerage and platform reps as primary distributors but employ specialists to assist in the sales process. Others employ a specialized sales staff focused exclusively on insurance sales, while still other banks use a combination of each.

Supporting insurance sales through the use of specialists appears to be the best approach. It ensures that the right reps with the right knowledge are assisting customers with any given problem. Since insurance products can be complex and may require a long lead time to close, customers often need additional handholding and service.

This approach is also advantageous to brokerage reps who can pass along complex cases and rely on a specialist to follow through with the sale. Under this approach, brokers are less likely to be in conflict about having insurance sales responsibilities. Banks that require platform and brokerage reps to generate a monthly quota of insurance sales are met with less resistance when specialists are available to do much of the heavy lifting.

Instead of employing a specialized sales force, some banks rely on their brokerage platform reps for insurance distribution. Reps are required to obtain their insurance licenses, and an insurance component is built into sales goals. While brokerage reps often distribute a wide range of insurance products, platform reps are usually limited to term life policies and other simple products. With insurance, brokerage reps have the opportunity to work closely with commercial lenders and small business bankers–areas that previously passed referrals to the trust area.

However, brokerage reps may view insurance product sales as a hindrance to their primary focus–selling investment products. Many banks that license dedicated brokerage reps to sell insurance often find a significant level of resistance.

Another approach is to use dedicated insurance reps who are full-time agents responsible for generating and supporting a book of insurance business. These reps are most often focused on specialty insurance lines, working in conjunction with platform reps who distribute primarily life insurance lines.

A disadvantage of using dedicated insurance reps is that it may be difficult to integrate them into the bank for cross-selling. A mandate from management and a well-established referral process, including referral compensation, can overcome these obstacles.

Many banks have found that a combination of roles works well to address multiple products and markets. By using a three-tiered approach to insurance distribution, they can distribute a broad range of products to a diverse customer base.

Under this approach, platform reps are the initial point of sales and focus primarily on personal life insurance and health insurance. For customers with advanced insurance needs, platform reps can refer them to specialists who handle a broader list of insurance products, while dedicated insurance reps who support branch activities can handle commercial products and the most complex cases.

Insurance unit profitability largely depends on developing the most appropriate and effective distribution model that compliments a banks customer base. Seamless integration of several insurance roles requires strong referral structures. Reps must be motivated to share customers and ensure that the right personnel are meeting the right customer needs.

are senior analysts for Cerulli Associates, a Boston research firm. Much of this article is based on two recent Cerulli reports: The State of the Bank Brokerage Industry and Financial Planning: The Delivery of Advice & Guidance. Ms. Malatestas e-mail address is rmalatesta@cerulli.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 14, 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.