New Evidence Points To Balanced Growth In Bank Life Sales
Two new surveys suggest that banks are not only making substantial progress in growing their life insurance sales, but also that this growth is balanced in two important ways.
First, the increase in bank life insurance sales is coming more or less equally from improvements in sales penetration of their client base by individual banks and an increase in the number of banks selling life insurance.
And second, after a focus on sales of single premium life for the past few years, the growth in the most recent period is balanced between single-pay products and traditional recurring premium life insurance.
Based on analysis of data from the 2002/2003 Kehrer-LIMRA Bank Life Sales Study, the typical bank selling life insurance produced $1.39 in new life/health insurance revenue per bank customer household last year, a 22% improvement in household penetration over 2001. This performance is in stark contrast to U.S. industrywide life sales. According to LIMRA International, annualized life premium grew only 3% in 2002. (See charts on this page).
The Kehrer Report semi-annual survey of life insurance companies that market through banks found that new weighted life premium was up 34% in 2002 over 2001. Our new analysis of data provided by the banks themselves indicates that slightly more than half of this growth is coming from improvements in life penetration from banks already selling life insurance. The balance comes from an increase in the number of banks selling life and health insurance.
New life sales revenue was up 19% in the banks already selling such products, which is 55% of the overall increase in weighted premium. Since the weighted premium computation assigns weights to new recurring-premium and single-premium products that approximate the ratio of commissions for the two types of products10 to one–weighted premium and new life sales revenue are reasonable proxies for each other.
A second set of evidence comes from the survey of life insurance sales through banks for the first half of this year. Insurance companies report that banks sold an estimated $442 million in new life premium during the first half of 2003, up 43% from the first half of last year.
Single-premium products continued to capture the lions share of new bank premium–77% in the first half. But for the first time in recent years, the growth in bank life sales was equally balanced between single-premium life and recurring-premium products such as term life, whole and universal life, and variable life and variable universal life. First-year premium for recurring-premium products increased 45% over the first half of 2002, reaching $100 million. Banks sales of single-premium products, including single-premium whole and universal life and single-premium variable life, were up 43%, to $342 million.
New life premium sold through banks was double the level of the same period in 2001. Since the first half of 2000, new bank life premium has grown at an annual compound rate of 53%.
Life insurance industry statistics generally discount single-premium products because historically they were much less profitable to insurance companies than recurring-premium products. LIMRA International uses the weighted-premium method to report industry sales, so that premium from single-pay products is discounted 90% in LIMRA sales statistics.
Under the weighted-premium method, banks had $134 million in life sales during the first half of 2003 ($100 million in new recurring premium, plus 10% of $342 million of single premium).
Weighted premium sold through banks was up 44% from the same period a year ago and was double the level achieved in the first half of 2001. Since the first half of 2000, bank-sold weighted life premium has grown at an annual compound rate of 37%.
Banks continue to increase their share of the industrys life sales. Using weighted premium enables us to compute bank market share, since life industry sales statistics generally are based on weighted premium.
According to LIMRAs quarterly life insurance sales survey, reported in its U.S. Individual Life Insurance Sales Summary Report for the second quarter 2003, participants reported over $4.1 billion in weighted premium for the first half of 2003. Since LIMRA estimates that the life companies it surveys account for about 76% of all life insurance sales in the U.S., we used $5.5 billion as the estimate for total life industry sales for the first half of 2003.
Thus, bank market share increased from 1.7% in the first half of last year to 2.5% in the same period this year. Banks share of the total life insurance market, while still small, has grown every year that we have formally monitored bank life sales and is now 2.8 times the share observed in the first half of 2000.
According to LIMRA International, total industry new life premium fell 4% in the first half of this year, after declining 3% in calendar year 2002. Thus, banks remain a source of growth for an industry where growth has been difficult to achieve.
Kenneth Kehrer is president of Kenneth Kehrer Associates, a research and consulting firm based in Princeton, N.J. He can be reached via e-mail at firstname.lastname@example.org.
Brad Powell is president of the institutional marketing group of Jackson National Life, a co-sponsor of the Kehrer-LIMRA Bank Life Sales Study.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 17, 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.