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Banks increased their modest share of the life insurance market in 2003 while producing near-record sales of annuities, experts say.

Banks may set new highs this year in annuity sales, says Kenneth Kehrer, head of a Princeton, N.J., research firm that tracks banks sales of life insurance and investment products.

“Theyve set new records for the past 4 years in total annuity sales,” says Kehrer. “This year, they have a shot at setting a new record and putting the total over $50 billion.”

Banks had a 43% market share of U.S. fixed annuity sales in the third quarter and 14% of the variable annuity market, Kehrer reports.

Although fixed annuity sales in banks fell in midyear, variable annuities more than made up for their losses, paralleling the recovery of the equity markets. In recent months VA sales sagged, but fixed products improved.

For October, banks total sales of annuities stood at $4 billion, down 7% from $4.3 billion in the same month a year earlier and 11% below September 2003s $4.5 billion.

John Fenton, a principal of Tillinghast-Towers Perrin, a consulting firm in New York, thinks bank sales of fixed annuities will be down from last year but still high.

Fixed annuity sales were strong in banks, as elsewhere, for much of 2002 because interest rates were low, he explains.

“For a while, they offered a 3% guarantee and crediting rates of 3% but eventually had to pull back and now offer rates as low as 1.5%,” Fenton says. “In 2002, turbulent equities pushed sales of fixed products, but now low interest rates are catching up with them.”

What happens to these products next year will depend on which way interest rates go, he adds.

In the fixed annuity market, many banks sought out products that continued to offer upfront compensation.

“Stock brokers are moving more to asset-based compensation for fixed annuities, but banks are still interested in getting 5% to 6% of premium upfront,” Fenton says.

Variable annuities increased their share of the bank market this year after a big drop in 2002, he says, ironically because of the appeal of guarantees in their fixed subaccounts.

“Sometimes guarantees in VAs were more attractive than in fixed annuities,” he says.

Guaranteed minimums on income benefits, withdrawal benefits and accumulation benefits all boosted variable annuity sales to bank consumers, he notes.

“Its generally acknowledged that bank customers are more conservative, but todays variable annuities give upside participation with guarantees that minimize the downside,” Fenton says.

Banks love for upfront commissions also played a role in VAs resurgence, he adds.

In life insurance, banks saw balanced growth, with about half of sales coming from banks that already sold life products and half from new banks entering the insurance game, Kehrer reports.

“Banks continued to inch up in the first half to over 2.5% market share, compared to 2002s 1.7%,” says Kehrer.

“We saw significant growth in recurring-premium products, so we are getting some balance against single-premium life,” he adds. “In 2002, all the growth was in single premium.”

Despite the growth, banks are still not a major channel for life insurance products, Kehrer acknowledges.

“Growth has been disappointing when you look back at the last decade, and banks are still dissatisfied,” he says. “But they are making progress and have grown nicely over the past couple of years, in contrast to the general life market, where there has been virtually no premium growth.”

Still, predictions widely heard 20 years ago that banks would have 25% of the life insurance market seem drastically off target, he concedes.

“Banks have been impeded by the difficulty of selling insurance compared to investments,” he says.

Banks that hired agents found that approach to be an expensive way to sell life insurance, compared to the small amount of customer penetration they achieved, he says. In general, banks have come to realize that its better to train their own people in how to sell specific kinds of products to specific kinds of customers.

“Banks are still figuring out which people to train on what products,” Kehrer says.

Keith Dall, a bank insurance expert with Milliman USA, Seattle, believes bank life insurance sales are making progress.

“In terms of products, it is still the simplified guaranteed issue term and whole life insurance product that are driving sales in banks,” he says. “The key is the product has to be a simple one that banks can turn around very quickly.

“Life insurance still needs to be sold, and that is the difficulty banks have with it,” Dall says. “Insurance companies need to continue to train bank employees at the point of sale and to continue to increase the face amount of products.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 19, 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.