Bundled Employee Benefits Offer Cross-Sell Openings For Banks

Since the Gramm-Leach-Bliley Act was signed, many banks have been seeking ways to enter the insurance industry. Today, many banks offer a full array of investment and insurance products, ranging from mutual funds and long term care insurance to estate and business succession planning.

While these have been met with great success, the opportunity to sell bundled employee benefits has been left on the table.

A bundled employee benefit program provides the banking industry with a tool to cross-sell the more profitable insurance, investment and consulting services that are at the core of their fee-based business.

For example, a discussion of a group life insurance program with the controller or owner of a company will lend itself to dialogue on key person life insurance, business succession planning and long term care. Similarly, discussing a group long-term disability plan will create the opportunity to focus on key person disability insurance.

While life and disability insurance are an important part of overall planning, the purchase of these products usually grows out of separate conversations rather than developing as part of an overall employee benefits program.

Small business owners (generally with fewer than 50 employees) have been at a disadvantage because their individual buying power is limited.

For banks, however, this becomes an opportunity, because their strength is their ability to distribute products to this marketplace efficiently.

In working with banks, the insurance industry may discount pricing, increase guaranteed issue limits and loosen minimum participation requirements.

To gain such considerations from carriers, the bank should present them with an analysis of its small group customers. This should break down those customers by Standard Industry Classification Code in addition to other traditional general demographic data.

As a result of this analysis, carriers may offer bundled packages, which might include group life insurance rates at a discount and voluntary short-term and long-term insurance products. Dental and long-term care programs may also be available.

Depending on the geographic region, the offering may include health insurance with the same carrier. If not, the bank may negotiate ancillary health coverage on a stand-alone basis, separately negotiated with health carriers. The medical offering may include more than one carrier–again, depending on the region.

For the small business owner, the sizzle for bundled benefits is in the packaging. Regardless of the number of carriers, the small group buyer is also looking for ease of administration.

The bank will typically subcontract this work to a third-party administrator, or it may administer the program itself.

For the business owner, the simplicity of receiving all these programs on one monthly invoice is extremely valuable. It removes the day-to-day administrative headaches of adds and deletes, relieves the owner from the worries of COBRA and HIPAA compliance, and allows the employer to focus on what is most important to him–growing his business.

For the bank, it is not only a great opportunity for cross-selling but also helps lock in the group. Once the employer becomes accustomed to a single invoice, simplified issue contracts and a single enrollment capability, it is hard for competition to make a move on this business.

The ease of enrollment of the employee and employer is almost as important as the product, underwriting and pricing. The most successful programs have a quoting engine that provides Internet-accessible quotes, enrollment and communication tools.

The technology must also provide independence of carrier choice and the ability to accept and deliver both Internet and telephone enrollment.

The ability to deliver enrollment data in a paperless format offers security, clean data and self-service, thus eliminating the need to scrub information off paper applications. Moreover, it provides the possibility of even further rate discounts. Delivering enrollment data in an electronic format may reduce the administrative expense on the employer side as well.

The business relationship can be developed either as a joint marketing relationship for smaller banks, which may not have extensive internal capabilities, or on a direct basis for larger institutions. What is of utmost importance is to have a dedicated sales team that has been educated to understand the medical and ancillary marketplace.

Just as banks have specialists for loans, investments and insurance, an employee benefits consultant is of equal importance, especially in view of the high cost of health care.

According to AON Consultings Spring 2003 Health Care Trend Survey, the forecasted average health plan rate increase for 2004 is 16%. These increases are causing difficult times for businesses as they are forced to reduce benefits or put more of the financial burden on employees.

By bundling together products such as medical, dental, term life, long-term and short-term disability along with a commercial loan and checking account, the bank streamlines the administration and gives employers the option to offer enhanced benefits.

Funds from one checking account can automatically be deducted and transferred to pay the premiums. This increases the probability that premiums are paid while freeing the owner to focus on running his business.

Another major benefit of the GLB Act is that it can enhance distribution. Banks have their own distribution network through branches, while many insurers have an expansive network of brokers and agents. It is much easier and cost-effective to add new products to existing distribution networks than to build your own. An agency can go from having two offices and a sales team of 15 to 500 locations and 200 in sales through a joint marketing relationship with a bank.

Just how successful banks and insurers have come together depends on whom you ask. Banks have been most successful in bundled benefits by creating direct relationships with insurance companies. Direct relationships can be difficult, however, since they only offer products through a specific company rather than the independent agent structure.

Going direct to an insurer works fine for life insurance products but can limit success with property/casualty products and most employee benefits. As banks become more familiar and comfortable with insurance they will want to offer their clients more choices.

Kevin Gannon is president of Niagara Insurance Group Inc., Buffalo, N.Y., a risk management and employee benefits consulting firm. His e-mail address is kgannon@niagarainsurance.com.


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.