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.