Take It to the Bank.

An effective bank marketing strategy for insurers integrates product design sales and underwriting in a seamless process.

Insurers that want to tap into the potentially lucrative bank market must know how bank-based brokers think and work. This knowledge will affect how they approach product development, compensation, pricing, underwriting and issuance.

Bank brokers are transaction oriented: They must keep knocking out many sales rapidly. They make most of their money selling annuities and mutual funds, which are guaranteed issue and attract large sums of money. They view insurance as a "by-the-way" sale. They're willing to learn the basics of insurance to earn extra income, but they aren't likely to take the time to become insurance experts. Therefore, for banks, insurance products must be easy to comprehend and explain, and applications must be easy to fill out.

In-house brokers want immediate gratification; they don't want to wait six weeks for their commission while policies are underwritten and issued. In response, some insurers now provide on-the-spot issue for annuities. Now, the challenge is to provide fast turnaround for underwritten life and health products, while keeping sales and issue costs low.

An effective bank marketing strategy for insurers integrates product design, sales and underwriting into a seamless process, resulting in higher sales, lower costs, greater responsiveness and higher paid rates. Successful insurers will be able to extend their marketplace beyond the traditional channels.

Tailored Product Design

Selling to banks' middle-market customers successfully requires a full range of basic, modestly priced products, such as interest-sensitive life, universal life sold on a money-purchase basis, disability income for two-year and five-year terms and basic medical coverage. Underwritten insurance products should have low minimum amounts, uncomplicated features, competitive guaranteed premiums and benefits and liberal underwriting rules. Tailoring such products means making sure that all have a variety of riders that allow customers to add or subtract coverage as their means and needs change.

With such products, the regular sales representatives can handle most sales. But since it is not cost effective to train a middle-market sales force in the complexities of sophisticated life and health insurance products, more sophisticated sales should be referred to advanced sales specialists at the larger branch offices.

Service Issues

Bank brokers cannot be expected to have the same product knowledge or to offer the same level of service as a full-time insurance agent. Thus, the insurer's policy service area will need to handle service functions normally handled by the agent. Dealing directly with the home office should be simple for the customers. An absolute must is a toll-free customer-service line for sales representatives and policyholders. Access to policy information and transaction forms via a Web site and e-mail access also are helpful. Reducing the service fee included in the insurer's sales compensation can compensate for the extra service provided by the home office.

Pricing Issues

Products offered through banks should be priced differently from other life and health products. Several unique factors affect pricing.

First, simplified underwriting can result in higher mortality or morbidity, which can be offset by lower issue costs. At younger issue ages, the savings of more streamlined issue may actually outweigh increased mortality or morbidity.

With lower minimum and maximum face amounts, the average policy size will be lower. The fixed costs per policy will thus be proportionately higher. But, as noted, streamlining issuance can slash fixed costs. A benefit and premium structure that is simpler than traditional lines also can help cut costs.

Compensation is a key component of pricing, and insurers need to understand its full dimensions. Everyone in the sales process must be compensated. Besides the broker, there will be compensation to the bank itself and perhaps a sales manager.

Persistency should be higher because of lower not-taken rates--that is, fewer policies that are issued will be rejected by the applicant. If issuance can be cut from three weeks to three days, that probably will cut not-takens in half.

Home-office service costs will be higher and must be factored into expense assumptions. But agency costs will be lower. The bank already has the physical space and provides agents with employee benefits. Additionally, experience in Europe suggests that there's less turnover among bank agents, which lowers training costs.

Reduced Sales Costs

The key to reducing sales costs is increasing each sales representative's volume. To accomplish that, insurers should take the following steps:

* Help each representative sell the full range of products by keeping them simple and providing the representative with good needs-analysis sales tools. From the sales representative's point of view, simple products have easy-to-follow sales materials and easy-to-use illustrations and rate charts.

* Make the application process simple. This can be achieved by using simplified underwriting, teleunderwriting (home-office underwriters ask medical questions over the phone after the sale is made) or underwriting software that can be used by the sales representative on the spot. Though promising, this software is very new and may not be adequately tested.

* Cut the sales commission. Since the sales process is simple and there's a ready supply of prospects, bank brokers can produce much higher volume than traditional insurance agents. A high first-year commission isn't necessary or warranted. Some of the savings should be invested in providing good home-office telephone sales support to the field and good front-end sales tools.

* Help the banks with lead generation. Much of the difficulty with insurance sales comes from not knowing how to identify prospects and generate leads.

* Increase the closing rate. The closing rate can be improved by minimizing the hurdles to getting coverage. Offering temporary coverage or getting on-the-spot approvals and issuance can achieve this.

* Use multiple distribution approaches. Some low-margin commodity products, such as term life, are better sold via direct-response methods. Other products, such as long-term-care coverage, are best sold via seminars. Direct mail and seminars can be used to generate business for the representatives.

Driving Down Issue Costs

The issue cost per policy includes the cost of underwriting and obtaining lab tests and attending physician statements, processing/printing, the level of not-takens and underwriting rejections. If the underwriting process could be moved to the field-by using simplified underwriting or underwriting software, coupled with an electronic link to the home-office underwriting department-then underwriting costs could be slashed. Part of the key to this is eliminating lab tests and attending physician statements for low-face-amount products or using saliva tests that can be administered by the sales representative.

Instant underwriting and approval combined with instant policy printing will eliminate the labor costs of policy issue-a huge savings. Instant-issue processing also will reduce the not-taken rate to almost zero.

When field issue is not feasible, home-office processing should be hastened. One of the biggest hold-ups-- which is also an expense--in the underwriting process is obtaining an attending physician statement. Insurers should perform a cost-benefit analysis. Is it really cost effective to require statements on low-face-amount sales, particularly if the insurer is getting blood or saliva tests?

Insurers should review and revamp underwriting and issue processing to speed up turnaround time for the bank market. Doing so will not only improve the "taken" rate, but it will make the insurer become a preferred provider for banks and brokers. Better technology and processes can also reduce costs a great deal.

There is a huge population of average-income consumers in the United States whose insurance needs are not being adequately addressed by insurers. Bank distribution is one way to capitalize on this market in a cost-effective way. The insurers that will gain the greatest advantage from these distribution channels are those that tailor their products and services, and those that take advantage of modern technology and underwriting techniques to wring the greatest speed and cost efficiency from their delivery systems.

Maria Thomson is managing principal of Thomson Management Solutions Inc., a nationwide consulting firm based in Brimfield, Mass.

Characteristics of the Bank Market for Insurance
Insurers that want to market through banks need to tailor their
approach to the specific characteristics of bank brokers and
customers.
Sales Force                   Customers
Transaction-oriented          Modest income
Seek immediate gratification  Modest assets
Consider insurance to be      Often no paid financial advisers
"by-the-way" sales
Source: Thomson Management Solutions Inc.