Issues To Watch For In Bank Sales Of Life Insurance And Annuities

In an environment of heightened competition among the different distribution channels of life insurance and annuity products, a favorable brand reputation is critical. Compliance and market conduct improprieties often can tarnish a brand’s reputations on both local and national levels. Such damage often comes at a greater cost than regulator fines, settlement costs and the cost of litigation.

Agents and managers who sell life insurance and annuities in bank-type settings (banks, credit unions, etc.) may not be fully aware of some of the compliance and market conduct issues unique to the sale of registered and traditional insurance and annuity products in a bank environment. These are the type of compliance and market conduct issues that can tarnish a bank’s or credit union’s brand in a local area and, in some cases, on a national level.

The following are some of the situations we have observed that create greater potential risk for sales in bank type settings.

1. A product orientation vs. a planning orientation. Banks typically sell products like annuities when CDs come due or when there is an excess of cash in the client’s checking or saving accounts. They typically are not making sales based on in-depth fact finding. Without fact finding, it is almost impossible to provide planning or integration of life insurance or annuities with other investments and consumer needs. When you take into account the higher age of many bank consumers, the potential for unsuitable sales grows because the sale may not be integrated with the needs and financial circumstances of the consumer. This can lead to liquidity and suitability problems.

The solution: Require that a suitable need analysis be performed, provide agents with training on needs analysis and make appropriate computer-based tools and aids available. Provide incentives for consumers to spend the time on the needs analysis by providing things like a computerized analysis, personal financial software, etc.

2. High opt out rates for personal or financial information related to suitability. Consumers are not required to provide suitability information and can opt out of providing the information by signing a form. Based on our experience, life insurance sales in bank settings have higher opt out rates for providing financial information on applications than non-bank settings. One reason appears to be a lack of privacy in the bank setting. Sitting at a desk while other consumers mill around causes consumers and bank-housed agents to avoid discussing financial information of a personal nature that is often called for on applications. In addition, the lack of a strong personal relationship between the bank-housed agent and the consumer also can lead to unwillingness on the part of the consumer to divulge personal financial information. Without this information the bank and the insurance company may have difficulty evaluating the suitability of a particular sale.

The solution: Provide a private setting in which to conduct the sale. Create more pressure on agents and consumers to complete suitability forms and not opt out. Require a separate form be signed acknowledging the opt out and cautioning the consumer on the negative implications of opting out.

3. Lack of consumer education about the product’s features, benefits and cost. Based on our experience, the amount of time the consumer spends in the bank with the bank-housed agent is much less than is spent with an agent in either the agent’s office or the consumer’s home. The lack of time spent on educating the consumer about the features, benefits and costs of the product often leads to complaints based on a lack of understanding.