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Banks As Competitors: Producers Say Fears Were Overstated

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Many life insurance agents and brokers opposed the Gramm-Leach-Bliley Act when it was passed in 1999 because it allowed banks to enter their business. Now, however, many see the entrance of banks as a potential boon, industry observers say.

Doug Mishkin, president of Algren Associates Inc., a New York life/annuity/long term care insurance brokerage, acknowledges he had some concern about banks when GLB was enacted.

“Now I dont think banks have been tremendous competition in general,” he says. “Most of time I find people employed by banks to sell insurance are not as knowledgeable as independent agents.”

“I have not seen anything that would suggest banks have put agents at a disadvantage,” says Timothy J. Tongson, a consulting actuary in the life/financial services practice of the consulting firm Milliman USA, Minneapolis. “I dont think their strategies have been thought through well enough so that they are a competitor to a significant degree.”

“After three years [of GLB], those that are mature and have good client relationships understand that competition from banks wasnt what they have had from others in the [financial services] industry,” says John P. Dewald Jr., head of Agency Services Inc., Memphis, Tenn., and chairman of the National Association of Independent Life Brokers and Agents.

Dewald notes that not all banks got off to a strong start with their insurance programs. “Some of them have done horrible jobs,” he says.

Among those in the Memphis area doing insurance right, he says, are the large regional banks, First Tennessee, Union Planters and First Union.

In general, banks that have acquired an experienced insurance sales force have had more success, he says.

“Banks by definition are hierarchical and committee-oriented, and an independent agent can be more flexible in reacting to what a client needs,” observes Dewald.

Many small banks are more likely to compete with life agents than with p-c producers, some note.

“Community banks have local p-c agents that they do banking business with and so dont want to compete with them,” says Charles Burnham, CEO of Burnham Insurance Group, Battle Creek, Mich. “So they will offer life insurance.”

“Banks basically have had limited success selling life insurance and done well with annuities,” observes Tongson. “Most of their sales have been related to single premium products. Some of that lack of success is due to the fact that off-the-shelf insurance products are not suited to bank customers needs.”

Moreover, banks that want to sell insurance need experienced agents to show them how, he points out.

“Generally, life and long term care agents deal with topics that can be uncomfortable,” says Tongson. “Youre talking about premature death or someone who may end up in a nursing home, and thats generally outside the zone where banks are comfortable about talking to customers. To the extent the agent can help educate or leverage their understanding of a solution to meet bank customers needs, thats obviously in their favor.”

An impediment to insurance growth in banks has been a general lack of awareness among the buying public that many banks sell insurance products other than annuities. But their awareness will increase, Tongson feels.

Banks can provide significant opportunities for producers by opening the doors to their highly profitable customer base, he says.

“If you can reduce the effort it takes for producers to interface with customers and make sales, you are going to be able to drive the economics of distribution down,” Tongson points out.

That, in turn, makes the middle-income customer more worthwhile to pursue. “That should be appealing to agents,” he says. “Getting face time is the hardest things agents do.”

Banks interest in developing fee-based income has opened a number of partnering opportunities for agents.

Cornerstone Financial Group, Houston, for instance, has allied with a large Texas bank, which it declines to identify.

Cornerstone, an agency of Guardian Life Insurance Company, New York, teams its agents with the banks investment professionals.

“In the financial planning process, we take a macroeconomic approach in looking at the customers financial position,” says Dorann Valka, director of marketing for Cornerstone. “We can spend four or five hours with the customer. Ninety-five percent of the time, the customer is very appreciative because he hasnt done [financial planning] before.”

Guardian Life specifically has targeted smaller banks for alliances with some of its agencies, such as Cornerstone. Guardian believes those banks represent a niche many other life insurers have ignored.

Altogether, relatively small banks and their customers represent “a substantial universe,” says Jennifer Snider-Torneta, manager of bank strategic alliances for Guardian.

There are around 1,600 community banks and 8,300 credit unions and savings and loans in the U.S., she adds. The enactment of GLB “didnt do them a favor,” she says, because they lacked the resources to sell insurance.

In February 2002, Guardian launched a program to take advantage of that need, fielding 2,700 of its financial representatives in 93 different agencies to work with smaller banks. The company currently has agreements with four banks, and another 12 are “in the pipeline,” says Snider-Torneta.

To gauge their success, Guardian agencies track the number of bank customers met, number of referrals, the close ratio and average annual premiums per customer for each bank.

The agencies also note marketing activities their producers perform for each bank, such as press releases, announcement letters, direct marketing, telemarketing and advertising, Snider-Torneta says.

For agencies planning to ally with a bank, she has some advice. “The primary thing is to go in organized and with a well thought-out plan,” she says. “Get a focused marketing plan, so everyone understands what is it is youre trying to accomplish.”

“We tell our agents its a tremendous opportunity to establish good client relationships, a long-term opportunity for them,” adds Valka of Cornerstone Financial. “As they build relations with the bank and its customers, they are building their income stream.”

Independent agencies can also develop joint marketing programs with banks. For example, Burnham Insurance started the Michigan Bankers Insurance Center in partnership with the Michigan Bankers Association a couple of years ago. The center acts as an insurance agency for 47 banks that are members of the MBA. Those banks collectively own 80% of the agency, while Burnham owns the other 20%.

“Many had decided they didnt want to buy an agency,” says CEO Charles Burnham. “They did want to explore the types of products and services that they can access through an aggregation of a number of banks.”

The next step was to set up a product committee to determine the types of products and services the banks wanted Burnhams agents to focus on.

Among the products developed so far: an automated term life policy that can be delivered right on the bank platform and a paperless annuity program. Both products are ready to be rolled out, Burnham says.

His agency, with 180 employees, has grown its revenues from around $22 million in 2001, $12 million of which came through banks, to $25 million last year, of which $15 million was through banks.

Some producer firms have no formal bank program but do occasionally work through banks when the situation arises.

For instance, Algren Associates has contacted smaller banks from time to time to expand its distribution of upscale products.

“We found smaller banks easier to work with because you can get an agent in there who is experienced enough to make more advanced sales,” says Mishkin.

“Some wire houses and small stock brokerage houses have done business with us [to sell insurance to their clients],” Mishkin says. “But they wanted a lot of services and a lot of compensation from us.”

Banks demands, he found, were much more modest.

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 28, 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.