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The 2003/2004 Kehrer-LIMRA Bank Life Benchmarking Study, published in late February, provides some important insights into the relative success of alternative ways of distributing life insurance in banks.

Banks sell life and health insurance through a variety of distribution methods, including:

Direct response (by mail, telephone and over the Internet);

Retail agents (full-time insurance sales professionals who sell life and health insurance to middle market bank customers but do not sell mutual funds and annuities);

Advanced life agents, who focus on more complex life insurance needs such as estate planning and business succession, working with the banks trust, private banking, small business and commercial clients;

Financial consultants, whose principal function is to sell mutual funds and annuities and handle general securities transactions;

Licensed platform bankers, who primarily conduct banking business and might also sell annuities and mutual funds in addition to insurance products;

Stand-alone insurance agencies, whose primary focus is commercial property-casualty insurance or employee benefits consulting; and

Referrals to a nonaffiliated life agency or brokerage.

Household Revenue Penetration. While many analysts focus on sales force productivity as the key measure in assessing life insurance sales, we believe a better measure of sales performance for a bank is how much net revenue a particular delivery method produces, relative to the banks size. After all, a bank can achieve higher sales force productivity by cutting back on the number of sales staff, but that might actually reduce total revenue and profits; the aggregate sales from a smaller but more productive sales force could be lower than the total sales of a larger, less productive sales force. Banks want to maximize net revenue or income from selling life insurance, but maximizing a sales forces productivity is not necessarily the way to do it.

The bank insurance services unit is essentially trying to sell insurance to bank customers, rather than to insurance consumers at large. For that reason, a useful measure of a banks insurance sales performance is revenue penetration of the banks customer base.

The difference this perspective provides can be seen by comparing the customer household penetration of retail agents and financial consultants. While financial consultants had average annual life-health productivity of just 14% of the productivity of retail agents, the actual customer revenue penetration of the financial delivery method in the typical bank was $0.72 per bank customer household, actually slightly higher than the retail agent delivery method. While retail agents are much more productive than financial consultants in selling life insurance, there are so many more financial consultants in the typical bank6.3 financial consultants for every retail agent, on averagethat total revenue from the financial consultant sales forces is similar to that of retail agent sales forces.

Similarly, the typical bank has 23 platform reps for every retail agent. Individual platform life rep productivity is only 4% of the productivity of retail agents. Yet because there are so many platform reps, their collective production amounts to $0.55 per bank customer household. Thats only 19% less than retail agent production.

The acquisition cost of selling through licensed bankers is only about one-third the cost of selling through financial consultants or retail agents, because platform life agents receive much smaller commission payouts. Consequently, licensed banker sales forces probably contribute higher profit per customer household than financial consultant or retail agent sales forces.

As in our previous studies, we found that advanced agents provide the highest gross revenue penetration: New life revenue was $1.01 per bank customer household for the average advanced agent sales force. That is 40% higher than financial consultant sales forces, 49% better than retail agents and 84% greater than platform life reps. But since advanced agents often command compensation of 50% of the commission revenue, their net profit contribution per bank customer household is often less than platform sales forces.

The banks that obtain some life sales through agents who work in acquired property-casualty agencies or benefit consulting firms generate $0.34 per bank customer household through this method. A few banks in the study refer prospects to a life insurance companys agents or an unaffiliated brokerage. This approach produced $0.26 per bank customer household in 2003.

Selling life and health insurance through direct response, including mail, telephone and the Internet, produced $0.26 per bank customer household for the banks that reported using these delivery channels. But this revenue is largely net revenue, since the acquisition expenses of direct response methods pale in comparison to the cost of face-to-face selling. Thus, selling life insurance through a combination of platform reps and direct response can be an effective way to increase a banks profit penetration of its customer base.

Kenneth Kehrer provides research and consulting on financial services in banks. Craig Simms is senior vice president at Vantis Life Insurance Company, East Hartford, Conn., a co-sponsor of the Kehrer-LIMRA Bank Life Insurance Benchmarking Study.


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.