Double-Digit Increases For New Life Premium In Banks Last Year

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Banks and thrifts had new life premium of $643 million during 2002, up 42% from 2001 and 90% better than the level achieved two years ago.

Banks continued to emphasize single-premium life products, increasing sales by 48%, to $484 million. First-year premium in recurring or flexible-premium products like term, whole and universal life and variable life was up, too, after slipping in 2001. Bank sales of recurring-premium products were up 28% in 2002 but were only 9% above the 2000 level.

Life insurance industry statistics generally discount single-premium products, because historically they have been much less profitable to insurers than recurring-premium products. LIMRA International uses the weighted-premium method to report industry sales, discounting premium from single-pay products 90% in its sales statistics.

Under the weighted-premium method, banks had just $207 million in life sales during 2002 ($159 million in new recurring-premium plus 10% of $484 million of single premium). Weighted premium sold through banks was up 34% in 2002, after falling 8% in 2001.

Using weighted premium enables us to compute bank market share, because life industry sales statistics generally are based on weighted premium. U.S. life industry sales increased 3% in 2002 to an estimated $11.4 billion, according to LIMRA. Thus, bank market share reached 1.8% in 2002 after slipping slightly in 2001.

While still small, banks life sales are growing, and their market share is starting to increase.

Our analysis of bank life insurance sales monitors whether the increases in life insurance sales come from more banks starting to sell life insurance or from improvements in sales by banks that already sell life.

The dramatic growth in bank fixed annuity sales from the mid-1980s until 1992 was the result of more banks starting to sell fixed annuities each year. Each bank used a similar methodology and had similar sales penetration.

On the other hand, the growth in bank VA business was driven by improved sales penetration in banks that were already selling VAs.

According to the just-released “2001/2002 Kehrer-LIMRA Bank Life Sales Study,” bank life sales revenue was down slightly in 2001, a finding consistent with the “Kehrer Report survey of life insurance companies. But the banks that participated in both the 2001 and 2000 “Kehrer-LIMRA” surveys had an increase in life/health sales revenue of 6% over 2000. And these banks had revenue penetration of bank customer households that was 65% greater than banks that have been selling life insurance for three years or less.

Thus, banks committed to selling life insurance are making progress toward becoming an important channel for life insurance companies.

Almost all of the single-premium life sold through banks was in fixed product in 2002. Three-fourths was written in single-premium universal life, and over one-fifth was whole life. Only 4% was written in single-premium variable life, continuing the downward trend of the past two years.

On the other hand, variable life and variable universal life continue to capture the lions share of bank-sold recurring-premium products. VL and VUL accounted for 64% of first-year recurring-premium in banks during 2002. While that was down from 73% in 2001, it is greater than in 1999 and 2000.

New term life premium was 22% of new recurring-premium life sales in banks, about the same percentage as the previous two years.

Universal life premium increased to 11% of recurring-premium life sales in 2002 after dropping from 16% to 3% in 2001. Whole life continues to account for a negligible share of bank life sales.

Bank investment programs are searching out carriers that can assist them in delivering life insurance products more efficiently. To that end, we observe the following trends:

A requirement for expedited underwriting for standard cases. In some instances, we have seen carriers reduce underwriting times to less than 10 minutes. In addition, a number of institutions are implementing tele-underwriting.

Coordination of sales literature for both fixed annuities and fixed life products. This combined process allows for seamless discussion of the concepts underlying both products, then allows the advisor the opportunity to help clients select which product better suits their needs–traditional fixed annuities or wealth-transfer life.

As the demand for selling life products increases so, too, does the demand for wholesaling support and associated sales support literature. We found that many insurers are deploying far greater sales support to bank life sales programs than in years past.

Kenneth Kehrer is the principal of Kenneth Kehrer 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. Rob Shore is executive vice president of Allstate Distributors, L.L.C. a sponsor of the Kehrer LIMRA Bank Life Sales Study. His e-mail: rshore@allstate.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.