Brokerage general agencies have been striking up alliances with banks and broker-dealers, inking deals where the BGA provides specialized products, services and support in life insurance and annuities.
Time was when BGAs focused on serving the needs of traditional independent life and annuity agents, and they still do that, says Matthew McAvoy, president of Target Insurance Services and the 2006 chairman of National Association of Independent Life Brokerage Agencies, Fairfax, Va.
But the insurance business is changing, he says. There are fewer people being recruited to sell insurance, and those who do sell insurance are older than they used to be or they come from different backgrounds–e.g., the banks and broker-dealers.
These changes are opening up new opportunities for BGAs, he says, specifically in the “institutional delivery of products and services.”
This is “a product of capitalism,” McAvoy adds, explaining that BGAs exist to “fill opportunity voids to deliver life insurance.”
BGAs are independent businesses, he points out. “We can customize packages of goods, services, products and compensation to suit customer needs.”
That has always been the BGA’s primary role in the business, he says.
The new opportunity that is opening up now springs from the continued expansion of banks and B-Ds into insurance services. Some of these firms don’t have the resources, time or premium volume to justify establishing their own operations, so they outsource some or all of the business, McAvoy says.
BGAs are responding to the trend by offering their own expertise, such as in product selection and delivery, sales, marketing, processing, underwriting, etc.
In the banks, the BGA will serve variously as consultant, back-room resource, administrator, and even trainer.
It’s not a new development, points out James J. Sorebo, a BGA who has been working with banks since 1993. The president of Four Seasons Financial, Mt. Laurel, N.J., Sorebo was one of the few BGAs to enter such arrangements in the 1990s. Many BGAs still do not do so, say industry observers.
However, in the past year or so, Sorebo says, other BGAs have increasingly been asking him how to set up such arrangements with banks. “There is definitely more interest in it.”
This rising interest in banks comes at a time when some BGAs are also offering their services to broker-dealers.
Many B-Ds are well able to handle product selection and other insurance activities on their own, McAvoy allows. Still, some are less proficient with the newer annuity products, such as index annuities, says Sorebo, who provides support to B-D firms as well as banks.
In January 2006, Sorebo inked a deal with a B-D that has 5,000 reps and wants to offer index annuities. Under this arrangement, he brought the B-D access to 5 index annuity carriers and also set up an intranet that enables the B-D’s reps to obtain forms, enter orders, locate marketing materials, track case status, etc. “We also sent wholesalers out to the reps to talk about index annuities and life insurance,” Sorebo says. The BGA provides education at regional meetings and offers point-of-sale support, too.
The result? “We’ve appointed a lot of reps to sell index annuities, and the B-D’s index sales are starting to grow.”
Michael White, president of Michael White Associates, LLC, a bank insurance consulting firm based in Radnor, Pa., says the rising BGA activity in banks tracks with the growth of insurance sales in banks. Between 2001 and 2005, for example, insurance compensation to banks (which he terms “brokerage fees”) grew by 21.9%. By contrast, fee income from mutual funds and annuity sales grew by only 10.6% in the same period.
For the past 20 years, White adds, banks have been taking a hard look at increasing their non-interest income (such as from insurance and annuity sales). “They want to use it to lower volatility and diversify their revenue streams,” he says.
This is attracting the attention of the BGAs. “Given what they do, we should expect the BGAs to search for market opportunities here,” White says.
White himself has been consulting with a BGA who wants to enter the bank market.
For the BGAs to be effective in this market, White says, “they need to do more than provide product selection and administration. They also need to provide training and education.”
It is true that some bank advisors do have insurance licenses and experience, he says, but a lot of platform reps do not have that background or, if they do, they may only work part-time and so cannot keep up without additional training and support.
“Remember, these are bankers. They don’t make their livelihood by selling insurance day in and day out,” White says.
Banks will also need the backroom skills of BGA shops, he says. “This will make their lives easier.”
In fact, one banker he knows recently “farmed out the insurance and annuity processing, back office, marketing, compliance, supervision and carrier/product selection activities, because the banker wanted to make life easier.”
White thinks community and regional banks will be in most need of BGA outsourcing services. “The smaller banks are more sparing, and they need to reduce their line item expenses,” he explains.
Meanwhile, bigger banks often keep part or all of these activities in-house, he says.
McAvoy has noticed the same trend. Bigger banks often have the resources to move into insurance themselves, he says, noting that they do this by going directly to insurance companies and setting up fully loaded contracts with full compensation.
There’s a trade-off in the big bank direct arrangements, though. For instance, the bank has to do all the backroom work, McAvoy says, and, to earn BGA-level compensation, the bank must deliver BGA-level service to the insurance company and meet certain production requirements. Meanwhile, the insurance company has new a sales channel to service inside the bank.
So, even some big banks are using BGA services, he says.
To be successful in the new markets, though, BGAs have to clearly communicate their advantages, Sorebo maintains.
For instance, the BGAs should point to their superior underwriting capabilities. “This often makes the difference between placing and not placing a case,” he says.