The 2004/2005 Kehrer-LIMRA Bank Life Insurance Sales Study, released this month, found banks and thrift institutions continue to make substantial progress in growing their life sales business. Customer revenue penetration in 2004 was up over 40% compared with 2003. The banks studied had revenue from life and health insurance marketing of $2.33 per bank customer household, on average, in 2004.
It is useful to measure the relative success of bank life and health sales by comparing customer penetration because, for the most part, banks and credit unions are trying to capture the insurance business of their existing customers, rather than selling to the population at large. Revenue penetration of customer households also enables us to compare the success of life and health marketing efforts at different size banks, comparing the banks “pound for pound,” as it were. We would expect that a bank the size of, say, JPMorgan Chase, would sell more life insurance than First Tennessee, for example, because Chase has 75 times as many bank customers. But the smaller bank might actually have better customer penetration.
The average bank’s total gross revenue from selling life and health insurance divided by the total number of bank customer households was 45% higher in 2004 than in 2003 and almost three times the customer penetration of 1997.
Comparison with investment sales
On the other hand, life insurance sales revenue penetration of a bank’s customer base still lags far behind the penetration achieved by bank retail investment sales, including annuities and mutual funds. The typical bank selling investments produced $31.08 in investment revenue per bank customer household in 2004, more than 13 times the average life insurance penetration.
Banks generally have been selling investments longer than they have been selling life insurance. The average age of bank retail investment services units is 11.7 years, compared to 8.7 years for the average bank life insurance marketing program studied. But the study found that, after the first few years, there is little improvement in revenue.
Penetration by program maturity
Another way to examine trends in customer penetration is to compare different cohorts of banks that have been selling life/health insurance for different periods of time. Some banks have only recently started to sell life and health, while others have been selling them for over a decade.