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.