Will life insurance ever truly catch on in banks? On this question there are optimists and pessimists. Pessimists note that life insurance has been on the verge of busting out in banks since the 1980sand it still hasnt happened.
Optimists, on the other hand, point to annuities, which took years to catch on in bankswhat with regulatory constraints and disintermediation fears that banks ultimately would be cut out of the sale.
But today banks are major annuity distributors. The same is sure to happen with life insurance, the optimists believe.
Who is right? Both optimists and pessimists can draw support from the Bank Insurance Market Research Groups 2004 Bank Insurance & Brokerage Productivity Study. The study is based on an in-depth survey of 36 banks and thrifts with active brokerage and insurance programs. These generally were larger institutions; the median bank size was $9.4 billion in assets.
Among the findings: The gap between revenues produced by bank-sold annuities and bank-sold life insurance is still huge. On the other hand, compared with past studies (we have been conducting this survey every two years since 1992), the gap is narrowing.
The typical (median) bank in the current study had $332,000 in revenues from life insurance in the most recent 12-month period. The median revenue figure from annuities, by contrast, was $4.5 million. Annuity revenues were thus about 14 times larger than life insurance revenues at the typical bank.
While that may seem large, it is smaller than in our 2002 study when annuity revenues were more than 16 times larger than life insurance revenues.
We can look at it another way. Among the banks that reported some annuity revenues and some life insurance revenues, the median ratio of life revenues to annuity revenues was 5.4%. Measured this way, annuity revenues were about 19 times life revenues.
That might seem, again, a big difference. But in our 2002 study, this ratio was 3.3%that is, annuity revenues were 30 times life insurance revenues. In our 2000 study, the gap was somewhat narrower25 timesbut still not as close as in 2004, the best performance to date.
Why the disparity? One reason is that life insurance is still relatively new in most banks. Only 15% of the institutions in our survey reported selling life insurance for more than 10 years. By contrast, 46% have sold fixed annuities that long.
Term life, single premium life, universal life and variable life were the most common life insurance products sold at institutions. All were being marketed by 90% or more of institutions that sold life products.
Which lines bring institutions the most revenues? Variable life insurance was the leader, cited by 30% of respondents. (In our previous 4 studies, term life was the leading revenue producer; here, however, it was cited by only 16% of respondents.)
Increasingly, life insurance is sold by licensed investment counselors (brokers) who also sell annuities and mutual funds. This was the case in 91% of institutions that sold life insurance, up from 77% in our 2002 study. Less than half used bank platform personnel (48%) or dedicated life insurance agents (45%).
Experienced institutions were even more likely to use investment reps. Among institutions that have been selling life insurance for 6 years or more, 100% used investment counselors, 58% employed licensed platform personnel and only 25% used dedicated life agents. One quarter also employed the Internet, while 17% used direct mail.
For the 5th time since 1996, we asked participants to cite the greatest obstacle to life insurance sales in banks. The difficulty of training and educating sales staff was seen as the leading obstacleoverwhelmingly, cited by 14 institutions. “Achieving full buy-in from reps that insurance should be part of their everyday business” was one typical response, cited by a large Southern bank. This also was seen as a leading obstacle in 2002 and 2000.
Educating bankers, particularly in providing referrals and leads to life insurance salespeople, was also a common hindrance. “Commitment from retail branches to allow an aggressive program” was a key challenge cited by one thrift.
Interestingly, not a single bank or thrift mentioned compliance or regulatory issues as a hindrance. This was commonly seen as a big obstacle in the 1990s before passage of the Gramm-Leach-Bliley Act.
Are banks truly making progress in selling life insurance? The guess here is yes, but it is still possible to view the glass as half empty or half full, depending on ones disposition.
is Managing Director of the Bank Insurance Market Research Group (www.singerpubs.com), based in Mamaroneck, N.Y. His e-mail address is email@example.com.
Reproduced from National Underwriter Edition, March 17, 2005. Copyright 2005 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.