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.

We examined customer revenue penetration by the age of the bank’s life insurance marketing program. Banks that have been selling life and health insurance for less than three years have total life/health revenue of $1.99 per bank customer household. Programs that have been in existence between five and 10 years have the highest penetration, ranging from $2.51 to $4.33 per bank customer household. Banks with the most mature life/health sales operations–more than 10 years–have lower customer penetration, on average, than the banks with the least experience. Thus, while penetration improves at first as bank life sales programs mature, penetration appears to deteriorate after the 10th year.

Does this mean the sales performance of more mature bank life insurance marketing programs actually deteriorates with experience? In fact, we believe the apparent decline in life revenue is due to some banks selling life insurance half-heartedly for several years. Some of these banks make life insurance available to their investment sales forces but do not put much emphasis on this product line. Others have a few full-time life agents selling to bank customers, but neither the size of the sales force nor the marketing efforts are sufficient to have an impact on customer penetration.

Penetration by bank size

Another factor influencing bank customer penetration might be bank size. The largest banks might be able to take advantage of their more extensive banking distribution, stronger brand identity and more substantial marketing resources to capture relatively more of their customers’ life/health insurance business. Indeed, in this year’s study we observe life insurance sales revenue per bank customer household increases with bank size. The superregionals (banks with between $12 billion and $30 billion of retail deposits) have life/health revenue of $4.17 per bank customer household, well over three times that of regional banks ($7 billion to $12 billion) and over four times better than super community banks ($2 billion to $7 billion). In our previous surveys, superregional banks also had the highest customer penetration.

Compared to the 2003/2004 study, both community banks and credit unions with less than $2 billion in retail deposits, the superregionals and the megabanks (with more than $30 billion in retail deposits) improved their penetration relative to banks of other sizes.

Study participants

Seventy-two banks and credit unions provided data for the study, up significantly from the 58 financial institutions that participated the previous year. The 72 institutions produced over $156 million in first-year commission revenue from individual life and health insurance sales, up from $128 million in 2003. We estimate that the banks in our sample accounted for 51% of all bank life sales last year, up from 44% in the two previous studies. The growing interest in participating in our survey–this is the sixth annual study–is another indication that more banks are focusing on building their life insurance sales business.