Life Premiums Through Banks Rose 44% In 1st Half Of 2002

By

Banks and thrifts sold new life premium of $314 million during the first six months of 2002, 44% better than the same period last year, according to the Kehrer Report survey of insurance company sales through banks. The six-month total was 2.5 times the level achieved in the first six months of 2000.

Banks continued to emphasize single-premium life products, increasing sales of these products by 55%, to $241 million. First-year premium in recurring or flexible premium products like term life, whole and universal life, and variable life and variable universal life was up, too, albeit only by 16%. This seems relatively modest, but it was really quite respectable, considering that bank sales of recurring-premium products had actually fallen in 2001 from the prior year. So the gains during the first half of this year represent a significant comeback.

Weighted premium. Life insurance industry statistics generally discount single-premium products, because historically they were much less profitable to insurance companies than recurring-premium products.

LIMRA International, Windsor, Conn., uses the weighted-premium method to report industry sales. Premium from single pay products are discounted 90% in LIMRA sales statistics.

Under the weighted-premium method, banks had just $96 million in life sales during the first half of 2002 ($71 million in new recurring premium plus 10% of $243 million of single premium). Weighted premium sold through banks was up 25% from the first six months last year and 81% greater than the same period two years ago.

Market share of weighted premium. Banks continue to increase their share of US industry life sales, our study found.

Bank market share of weighted premium reached 1.7% in the first six months of this year, up from 1.4% for the same period last year and 0.9% two years ago.

Although bank life sales are still small, they are growing rapidly, and bank market share is also increasing.

Will banks become important life distributors? While these sales increases are large, it would take some time before these rates of increase bring banks up to a 10% market share (their share of variable annuity sales), let alone the better than one-third market share they enjoy for fixed annuities.

Note, too, that the rates of increase appear to be slowing. While total new (first year) premium was up 44% on a year-over-year basis for the first six months of 2002, it had grown 58% between the same periods in 2000 and 2001.

Similarly, single-premium life sales doubled between the first half of 2000 and the same period in 2001 but then slowed to a 55% increase this year. And weighted premium grew 45% between the first half of 2000 and the first six months of 2001 but slowed to 25% in the same period this year.

Thus, banks increase in life insurance market share has slowed. Banks gained 0.5% in life market share between 2000 and 2001 but only 0.3% between 2001 and 2002.

Part of this is the natural progression of sales growth. Large percentage sales increases are relatively easy to achieve when the base (prior year) sales are small, but the same absolute dollar volume of increased sales results in smaller percentage increases as the sales volume grows.

The increase in new (first year) life premium was virtually the same between each of the two years, but the 2001-2002 increase was a smaller percentage gain, because the sales volume is now so much larger. Even with single-premium life sales, where banks have found the most success, the 2001-2002 increase is only $8 million more than the 2000-2001 increase.

Source of the increases. As we evaluate the progress banks are making in selling life insurance, it is important to distinguish between whether the increases in sales are coming from more and more banks starting to sell life insurance, or from sales improvements in banks that are already selling life.

The dramatic growth in bank fixed annuity sales from the mid-1980s until 1992 was the result of more and more banks starting to sell fixed annuities each year, with each bank using a similar methodology and achieving similar sales penetration. On the other hand, the growth of bank VA business was driven by improved sales penetration in banks that were already selling variable annuities.

If the sales growth is coming from a widening of life distribution at static sales penetration, then we should be able to compute the ultimate limit of bank life sales growth. If the sales growth is coming from improved sales penetration, it will be more difficult to project the eventual size of bank sales, but it would be good news for insurers that have been waiting for banks to become an important distribution channel.

One objective of the Kehrer-LIMRA Bank Life Sales Study, which surveys banks, is to identify whether individual banks are improving their sales penetration. The results of the 2001/2002 Bank Life Sales Study will be available later this fall.

is the principal of Associates, a Princeton, N.J. research and consulting firm that focuses on bank distribution of insurance and investments. His e-mail is kenkehrer@att.net.


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.