By Robert F. Grieb

The strategic rationale for offering life insurance through banks, thrifts and credit unions is by now well documented.

For consumers, benefits include ease of access and better coordination of financial products and services.

For financial institutions, the arguments include broader product offering, distribution efficiency, and improved customer protection and service.

For insurance companies, its new, efficient distribution partnership opportunities

For agents, its access to new customers, broader availability of products and services, and even enhanced job growth opportunities.

Many good strategies have, however, fallen by the wayside due to poor implementation. This article addresses some of the key factors for success.

There are a variety of life insurance integration models currently in use at financial institutions. They include:

Purchase of an agency. There is increasing activity in this area, although most of it is centered around property-casualty agencies. Banks that have been active for their size in agency acquisitions include Commerce Bancorp. in Cherry Hill, N.J., and Leesport Financial of Reading, Pa.

Adding life insurance to the investment program. Financial institutions are finding this difficult as most investment reps do not embrace life insurance sales. This is due to a combination of product complexity and the relatively long sales and underwriting process.

One institution that is starting to have some success here is PNC Bank in Pittsburgh. Sixty percent of PNC Investments senior financial consultants now sell some wealth-management products. This still represents only about 2% of the total revenue for the firm, however.

Internal specialists. The most widely seen approach currently is the use of internal life insurance specialists. In this model, specialists are called in when a banks investment representative identifies a need for life insurance expertise.

The specialist generally handles the entire sale, but commissions are split with the licensed representative.

Another role of the specialist is that of internal wholesaler, whose task it is to raise investment reps awareness, understanding and acceptance of life insurance. M&T Bank, Buffalo, N.Y., has reported success with this model.

High-end agents. Perhaps the boldest strategy is that being implemented by First Tennessee Bank in Nashville, among others. They have a large number of seasoned, successful life agents and are integrating them into their system.

First Tennessees success with this approach has been linked to its aggressive use of independent financial planning, which has helped to integrate the investment, insurance and banking areas.

Outsource partnership. Many institutions have attempted to form relationships with outside agencies to cross-refer clients when insurance needs are identified. This model has been relatively unsuccessful as each side tends to focus on its own area, and a common bond and understanding are generally not developed.

No matter what model is used, success in offering a wide range of financial products and services requires a true corporate sales culture that will lead to quality referrals, cross-selling, and, ultimately, integrated account selling and servicing across the organization.

A true sales culture requires the following:

Commitment from the top-down and from the bottom-up. This includes employee buy-in, based on an understanding of the requirements and the belief that they can be met.

A true market/customer focus rather than a product silo mentality.

Extensive training, so employees understand “why” and “how”–not just “what” outcomes are expected.

Appropriate compensation that rewards the behaviors that get the desired results.

A clear understanding of individual roles and how they fit together.

The last item is particularly relevant. Referrals are critical to achieving the full potential in a bank sales environment.

Successful referral programs require a corporate commitment based upon understanding and believing in the value proposition for customers, employees and the institution.

This leads to the question: “What is the value of a referral?” And in clear “consultant-speak,” I can unequivocally say: “It depends.”

The process for valuing life insurance referrals is fairly straightforward and not unique to the product. Simply stated, you start with the value of a sale and work backwards.

There are four areas to be considered:

1. Direct value is the most straightforward. Start with the expected sale: product premium, commission income (including present value of expected renewals/trailers, factored for lapse) and profit margin. Include expected upgrades or add-on sales within a limited time (generally one year). Next, factor in the percentage of agent-client consultations that result in a sale (the closing rate). Finally, figure the percentage of referrals that result in consultations. The product of these three factors yields a direct value of a referral.

2. Indirect value. This is somewhat less straightforward, but nonetheless important. It includes items such as the value of core business that would be lost from customers who leave because they are more fully served elsewhere. It also includes increases in core business that come as a result of a more fully satisfied customer.

3. Factors that make an impact on referral value. In this area, we start to move from science toward art and introduce terms like “quality of referral.” Factors that come into play include:

Depth of client relationship with the referrer and the institution.

Knowledge of client situation and needs.

Referrers knowledge of product benefits, not simply product features.

Customer expectations of what they are being referred for.

Relationship between referrer and client.

Relationship between referrer and agent.

How are referral goals set and administered?

What is referral compensation?

Client relationship and knowledge of a clients situation are closely linked. Clearly, the more depth to the relationship and the knowledge of the clients situation, the more likely it is to make an appropriate referral.

Appropriateness of a referral is also tied to knowledge of product benefits. The more one understands, the more likely one is to correctly identify needs and opportunities, and communicate with customers on their terms. These all lead to creating an appropriate expectation by the customer. This is generally best expressed in terms of process (setting the stage for a meeting, how the customer will get to that point and what might take place), and possible outcomes (expressed in terms of benefits, such as “to help you with college funding”).

The closer the relationship between the referrer and the client, the more comfortable they both will be and the easier the process. Often, close relationships are found in the commercial or private client areas, which lead to better referrals.

The same applies to the relationship between the referrer and the agent. This supports the need for the agent to really get to know the people on the bank side, treating each as a valued client.

Finally, the design and administration of the referral program, including compensation, can have a significant impact on referral quality. Programs with simple number goals, little training and unfocused management will not yield good referrals.

Further, compensation plans must be developed that provide for the appropriate incentive of desired behaviors and activities in a way that meets regulatory requirements. Desired behaviors may be very different for different positions within the institution, as might the compensation plan.

4. Strategic value vs. absolute or cash value. The discussion above primarily relates to the absolute or cash value of a life insurance referral.

The strategic value of the life insurance (or investment) business to an institution is much greater than its cash value. This must be taken into account when setting goals and incentives throughout the institution. There are evolving compensation plans that allow for this.

It is also strategically important to look at the aggregate value of a referral program vs. the value of an individual referral. Most referral value analyses stop with the value of the individual referral. The analyst uses this number to show that it is surely worth $50, $100 or whatever, to make a simple referral. That number is also often used to calculate some sort of incentive payment or contribution to larger profit goals.

The problem with this is that even large individual numbers do not get much attention in the context of larger corporate goals.

We have found it much more effective to focus on the aggregate value of a total referral program. The approach is to use the methodology above to determine the value of a referral. Then, estimate the number of referrals per day or week that you might expect from a branch, business unit or individual. (It is a good idea to get line management participation in the development of this number. They will then have “ownership” of the projected results.)

Translate this into total referrals and, ultimately, into the annual profit/value of a good referral program. This quickly becomes a number that will make the management committee sit up and notice. It also becomes the justification for investing in a strong referral program development and management effort to help get the results everyone wants to see.

Robert F. Grieb is a principal at the Diversified Services Group Inc., a bank-insurance consulting and research firm in Wayne, Pa. He also serves as managing director of the Bank Insurance & Securities Association. His e-mail address is rfgrieb@dsg-candr.com.


Reproduced from National Underwriter Edition, March 10, 2003. Copyright 2003 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.