Cracking the life code: banks have lagged in their ability to sell life insurance, but more effective application processing is one of several factors that are building sales.

For nearly a decade, banks have been free to sell life insurance. Most banks have not made a serious effort, and they still have a long way to go before they become significant distributors, but they have increased sales in the past couple of years, according to studies conducted annually by marketing research firms Kenneth Kehrer Associates and Limra International.

Banks' market share of life insurance sales in 2004 reached 2.6%, nearly twice as much as in 2001, according to the 2003/2004 Kehrer-Limra Bank Life Insurance Sales Study. The report also found q that the typical bank in 2003 produced $1.24 in commission revenue from life sales per bank customer household, up from $1 the previous year.

Banks are more adept at selling life insurance because they've refined their methods through a kind of trial-and-error, said Kehrer, an author of the study. "They started out using very traditional methods, but they've figured out ways to make it work better in the bank environment. They've been working with insurers to create a shorter application process and a shorter turnaround process. At the same time, there's been an improvement in the way wholesaling is accomplished that provides training and support of bank representatives."

Despite that progress, life sales still seem out of place in the transaction-oriented bank environment, and banks may be reluctant distributors. "At a lot of banks, life sales are still referred to as being at a hobby level," said Greg Grzywacz, a senior analyst in distribution research at Limra and an author of the study. "There's a little bit of a chicken and egg scenario going on. Senior management needs to get more serious about it, but it's not willing to do so until the revenue levels increase."

The banks that are best at selling life insurance have a greater commitment to the product line than revenues would otherwise dictate, he said.

How much insurers invest in bank distribution also matters. Nationwide Life Insurance Co., for example, uses about 20 dedicated life wholesalers with banks to complement its generalist wholesalers, and it has life-sales agreements with more than 100 banks, according to Dave Giertz, vice president of bank-channel sales. "We're very active, productive and pleased with the business," said Giertz. "Banks have been in the like business about nine years on average, which isn't long. The consultative approach in educating representatives and educating the banks will help fuel the growth of the industry. That focus seems to be gaining momentum, so I'm extremely bullish."

Nationwide reported generating total premium (first-year and renewal) of $47.8 million last year in bank life sales and $12.6 million in this year's first quarter.

Sales Trends

The Kehrer-Limra study identified several trends and salient points:

* Three-quarters of bank-sold life premium in 2003 was single-premium. "Banks have been very successful with annuities, and single-premium life looks and quacks like an annuity," said Grzywacz. "It's more of a transaction-oriented product. It fits the culture, it's simplistic, and it's similar to something they're already selling. And if you're using it to transfer wealth and avoid taxes, it's superior to an annuity." Successful selling involves incorporating life products as part of a diversified solution set to satisfy client needs, said Giertz.

* Banks that already were selling life insurance experienced the best sales growth. "The reality is that once they start doing it, there's a real learning curve," said Grzywacz. "It takes a while to get traction." Banks new to life sales are often disappointed when revenues fall short of expectations, he added.

* Banks use four main distribution channels. Advanced agents--specialists who work with affluent clients, small-business owners and commercial customers--generate the most revenue. That is followed by financial consultants, licensed platform bankers and direct response.

Grzywacz said advanced agents work on the most complex cases, often with a team that includes a lawyer, an accountant and someone from the bank's trust department. Advanced agents often come from a career company, and banks have trouble retaining them because over time, they feel they can be successful on their own. Financial consultants rank second in generating revenues. They have both securities and life licenses, and they are employed by the bank. They are geared toward selling investments and securities, however, and it is often a struggle to get them to sell life insurance due to the extra time it takes for a life sale and for the producer to get paid, Grzywacz said.

* Licensed platform bankers, which rank third as premium generators, are actually the most profitable because their commissions are lower. These are the distributors most likely to sell term life and whole life products to middle-income Americans, and Grzywacz said many banks are making a big push to make them more successful. Often, platform staff are branch managers, and they might also open accounts and mortgages. "The good programs are learning how to get the tellers to keep an eye out for key life happenings, such as graduating from college, getting married or having a child," he said. "The tellers can't make any recommendations, but they can suggest that a customer have a conversation with a licensed person." Licensed platform bankers are far more numerous than advanced agents or financial consultants.

* While the potential for licensed platform bankers is "huge," according to Grzywacz, many did not decide to work at a bank to sell life insurance or, for that matter, to even be in a sales role. "It's a struggle to get them licensed unless there's an expectation upon hire," he said. "Once they are licensed, they need a lot of hand-holding, whether from an insurance company wholesaler or from the bank's financial consultant or advanced agent/life specialist. They need to sit next to somebody doing it before they do it on their own."

* Banks are phasing out retail-agent sales forces. These are full-time life insurance agents employed by the bank; they do not handle banking transactions at all. Banks had paid them a large base salary, but many were not selling enough life insurance to cover their draw, Grzywacz said. The 1999/2000 Kehrer-Limra study reported 50% of banks using them, but the recent study reported 12%.

* The largest banks generate the most premium, but regional and smaller banks often generate more commission revenue per customer household. This statistic tends to be greatest in banks with $12 billion to $29 billion in market capitalization. "Very large size can almost be an impediment because of internal politics," said Grzywacz. "And it's difficult to implement a distribution policy across such a large entity."

Growth Areas

Grzywacz predicted growth in licensed platform bankers. "As sales start to grow over time, you may see banks start to make a life license a prerequisite for being hired," he said. But the biggest change may come from greater consumer awareness that banks are a potential source for life purchases. "Awareness is a big stumbling block now," said Grzywacz.

Giertz said that while Nationwide dedicates wholesalers to the bank channel, it does not manufacture special products for it. "We try to look at what the needs of clients are, then plug in the right life solution," he said. "In the banks, the top solutions are either the universal life or variable universal life products." Wealth transfer for the "affluent is Nationwide's top focus in the bank channel, he said. The next priority is nonqualified retirement planning for doctors and lawyers through variable universal life policies.

Beyond its dedicated wholesalers, Nationwide has taken several steps to beef up its bank-channel efforts, said Giertz. In complex life cases, it calls in certified public accountants and attorneys from the advanced life part of the company. It is active in educating bank personnel in selling and in identifying life-insurance opportunities. It also makes its underwriters accessible. "At any point, a rep or adviser from the bank can call and talk directly one-on-one about a specific case," said Giertz. "That's rare in our industry." The producers can also go to a Web site to get a status update on a case at any given moment. "Those have been very popular for us," he said.

Nationwide also makes underwriting faster, easier and more convenient, he added.

Giertz said banks are much more eager to sell life insurance than they were five years ago, and they do it as part of financial planning. "If a bank can't offer life insurance, then it can't solve part of their clients' needs," he said.

Kehrer said he expects to see growth in bank life sales exceeding 20% a year over the next few years. "There is still a large number of banks without active life sales programs," he said. "If that number rises, there will be a natural uplift, and banks already selling it will continue to improve. There is still a thin sales penetration in those banks."

Key Points

* Banks successful in life sales and their insurance partners devote resources that cannot be justified by the initial financial return.

* Banks use four main insurance distribution channels: advanced agents, financial consultants, licensed platform bankers and direct response.

* Banks have been working with insurers to create a shorter application process and a shorter turnaround process.

Learn More

Nationwide Life Group A.M. Best Company # 70350 Distribution: Independent broker/dealers, wirehouses and other regional financial firms, financial institutions, financial planners, NLICA agents and Nationwide's property/casualty agents

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Number of Distribution Methods

The vast majority of banks sell life
insurance using only one or two
methods, an indication that banks
need to experiment more.
(Percent of Banks)

1 Method   38%
2 Method   30%
3 Method   25%
4 Method    4%
5 Method    4%

Source: 2003/2004 Kehrer-LIMRA Bank Life Insurance
Sales Study

Note: Table made from pie chart.

Bank Market Share
of Life Insurance Sales

Sales at banks are growing
much faster than life sales
industrywide, which were
about 6% last year.

Based on Weighted Premium

2000   1.5%
2001   1.4%
2002   1.8%
2003   2.1%
2004   2.6%

Weighted premium is 10% of single premium plus
100% of first-year recurring premium.

Source: Kenneth Kehrer Associates

Note: Table made from bar graph.

Top Insurers Selling Life Through Banks--2004

First-Year Recurring Life
($ Millions)

Nationwide             22.8
Hartford               20.9
John Hancock           16.8
AIG/American General   13.2
Great West Life        11.9
Travelers              10.1
Mass Mutual             9.7
Axa                     8.1
Aegon                   8.0
Cuna Mutual             7.8
Sun Life Financial      7.0
Aviva                   3.9

Single Premium
($ Millions)

Allstate Financial   317.4
Aegon                286.1
Liberty Life         136.9
Travelers             76.7
First Penn-Pacific    61.5
Aviva                 46.6
Hartford              39
Golden Rule           27.3
North American        14.7
Mass Mutual            0.3
John Hancock           0.1
Nationwide            0.04

Source: Kenneth Kehrer Associates

Note: Table made from bar graph.

Bank Life Sales by Type of Premium

Banks have learned that their customers are disposed to buy
single-premium products, which have accounted for larger
chunks of premium each year.

         Single Premium   Recurring Premium   Total Premium

2000           192               146                338
2001           328               124                452
2002           484               159                643
2003           760               166                926
2004         1,155               211              1,366

Source: Kenneth Kehrer Associates

Note: Table made from bar graph.