The new producers: Insurers have a great opportunity to tap into banks' large customer bases, but they have to be willing to think like banks. (Industry Strategies: Distribution).

Imaging how an insurer's sales could grow if it could sell products to a majority of the customers of a good sized bank. Imagine the effect of selling through several banks.

"A good bank program may have a 5% customer-base penetration, as far as customers having financial, investments," said Matthew Riebel, president of Nationwide Financial Institution Distributors Agency Inc. "If we just do business with the [bank's] existing customer base, there is big potential for business for a long time."

With insurance distribution systems in flux, the banking channel is especially attractive. "The number of career agents in the business is shrinking. This is an opportunity for the insurance industry to leverage their manufacturing capabilities," said Mark Puccia, managing director of Standard & Poor's Financial Services Group. Likewise, it seems to be an opportunity for banks to leverage their customers' trust to expand their business.

"I think, in the future, banks will be a major distribution channel for life insurance," said J. David Burgoon, vice president at Swiss Re Life & Health America Inc.

Riebel, Puccia and Burgoon spoke at the American Council of Life Insurers' symposium, "Bank Insurance: Threat or Opportunity," held in early March at the Ronald Reagan International Trade Center in Washington, D.C.

The Big Draw

Banks offer several attractive features for life insurers seeking new distribution methods to expand their market, particularly in the midlevel or mass market. U.S. Census Bureau statistics show that more than 54 million households have annual income between $30,000 and $100,000. That's four times the number of households -- 14 million-with an annual income of more than $100,000. Swiss Re estimates that the total aggregate household income for the mass market is $3.1 trillion, compared with $2.6 trillion for the affluent market. A recent study by the American Bankers Insurance Association, "Leading Banks in Insurance," found that only 25% of the banks in the study targeted the mass market. "the banks are still missing the mass market and need the help of insurers to get to it," said Carmon Effron, president of C.F. Effron Co.

Consumers may not think of their local bank branch as a place to buy insurance. But people in the median-income range are likely to listen if bank representatives broach the subject with an open discussion that accurately portrays their needs and addresses their concerns, said Jim Nonnengard, senior vice president and director of retail sales for SouthTrust Securities Inc.

Plus, banks have a built-in trust factor: Most people trust their banks to keep their money safe.

And with almost daily contact in one form or another, banks know their customers very well, which allows them to segment their customers precisely. This demographic information helps them create well-targeted and well-developed products. "Segmentation works very well for us, because the banks can identify customers for specific sales opportunities," Nonnengard said

An equally important feature for insurers is the limited shelf space available within a bank. While independent brokers might offer the products of 50 or more insurance companies, a typical bank will represent only three or four insurers. "So when you have a relationship with a bank, it means something," Riebel said.

But the limited shelf space also can work against insurers that aren't already selling through banks. "It can be hard to get into the bank business," Riebel said. "There is tremendous competition, and there are some wild things companies will do."

In addition to the serious competition to sell through banks, there are several other barriers to insurers. The breadth and depth of product offerings often make a difference from the bank's perspective. "In a bank, the customer's interests come first. So it's hard to build a business with a single product," said Ron DiCicco, senior managing director for Comerica Securities. "And products need to be competitive from the customer's point of view, as well as the reps' commissions."

Banks don't want to offer generic products that are available from other distribution channels. So insurers need to understand the bank's customers and create products specifically for them, Riebel said.

Cultural Differences

Once they have established a partnership with a bank, insurers must keep in mind that insurance sales are just a fraction of the bank's overall business. And although life insurance sales offer banks a good opportunity to expand their business, banks will want to retain control of the selling situation and ownership of the customer. Insurers must be respectful of the relationship that exists between the bank and its customers, because banks won't take kindly to an insurer that disturbs that relationship, Standard & Poor's Puccia said.

According to the ABIA study, 33% of the banks that sell insurance products use their own staff for insurance sales, leaving the insurance company to provide back-office operations.

That's why banks want their partnering insurance companies to deal with their customers the same way they would. Banks want to know how the phones will be answered, how customers will get their questions answered and how bank representatives will be handled. "We also would like to know if we are a key account," Nonnengard said. "We understand we are not your only client. But if we are a $48.8 billion bank vs. a $250 billion bank, convince us we are as important as the bigger bank."

Insurers and banks need to make a strong commitment to the relationship in terms of leadership, integrating resources, training and education, cobranding products and marketing to bank customers. One of the keys to success is the leadership role taken by a bank's insurance group, said Hans L. Carstensen, president and chief executive officer of CGU Life Insurance Company of America. CGU Life is one of several insurers offering life insurance products through a partnership with HSBC Bank USA and Swiss Re.

"[HSBC] has been in the lead in developing relationships with carriers and Swiss Re to design and manufacture the products they feel are most appropriate for their customer base," Carstensen said. "That sort of leadership, working with multiple parties, has not been as evident in many banks in my experience."

HSBC also has aligned its economic interests--profitability, sales, expense controls, mortality and persistency rates--with those of its partners, taking a reinsurance stake in the policies underwritten by the bank's insurance partners. "We are on the same page and moving in the same direction," Carstensen said, basically guaranteeing the bank's strong commitment to insurance sales.

Banks need to make a commitment to selling life insurance products, said Robert C. Ireland, vice president of Swiss Re Life & Health America Inc. "The head of insurance at the bank may be very committed. But if the head of retail [distribution] is not as committed, there is a gap that you have to work with."

For Comerica's DiCicco, the longevity of insurance company employees and the location of senior management are very important. "Wholesalers need to be in the field continually," he said. "They also need stability and longevity to build momentum. It's not uncommon to see wholesalers change every year and a half." S&P's Puccia agreed that strong wholesaling and customer support can mean the difference between a good and a bad experience, and "a good experience gives positive sales momentum."

Learning How to Sell

Most people know the adage, property/casualty insurance is bought and life insurance is sold. Because selling may not be intuitive to bank employees, panelists at the ACLI symposium agreed that bank employees need as thorough an understanding of selling these needs-based products as they do actual insurance product knowledge. Thus, insurers must provide training in both product knowledge and sales. Bank employees will need to learn how to be insurance salespeople--becoming more proactive and sales driven, including generating leads and developing needs in the customer's mind. Bank employees will need to become accustomed to the time required to underwrite and issue policies, which affects the speed at which commissions are paid.

Name-brand recognition becomes a big factor in bank sales of insurance products. "It's a big help to us if the customer already knows something about the provider," DiCicco said. "A few years back, we had a fixed annuity from a small insurance company and we had a devil of a time selling it." But when the bank began offering annuities from Nationwide and General Electric, sales improved, he said.

An advanced markets division is another "value-adding door opener" for insurance companies looking to sell through the bank channel. An advanced markets division essentially provides access to estate-planning resources that bank employees can use for their customers.

"I can't tell you how many doors have been opened for our reps and how they've been educated," Nonnengard said of the advance markets divisions available from SouthTrust's partners. As an example, Nonnengard told the story of a young writer who for years wrote dime-store novels that sold for $3.95. Then, she hit it big, signing a $9 million contract for a three-year deal. About six weeks before she was to receive her first check, she approached the bank for advice on what to do with the money. "The rep, very good and very educated, was faced with something [he was] not so knowledgeable on and was able to go to the advance markets division," Nonnengard said.

Looking Ahead

Insurers face sizable challenges to developing the bank distribution channel, but it might be worth the effort to overcome them. "Our experience suggests that banks are particularly effective distribution systems for reaching the middle market," said CGU Life's Carstensen.

It is unlikely that banks will look to own and operate insurance companies, said Burgoon of Swiss Re. "That will be unique because of the complexities involved and the competencies needed to drive an insurance company," he said. But insurers have certain capabilities--such as licensing, product development and management, claims management, administration and reporting, underwriting and risk-transfer management--that they bring to the table, he said.

Several of the ACLI symposium panelists said successes already are registering. "We are opening the doors to some significant life insurance sales opportunities," Nonnengard said. "The challenge is to continue to develop products that can be distributed through banks and insurance reps in banks."

"It's pretty hard to tell whether a company is a bank or insurance company--everybody's a financial-services company," said Effron, who also spoke at the ACLI conference in March. "Old-timers will know that you are a bank or an insurance company. But consumers aren't going to care. All they know is how well you've answered their questions and fulfilled their needs."

"Banks have access to a large customer base, and people trust banks. Now it's time to leverage that for a discussion of life insurance needs," Burgoon said. How do banks start that discussion? Burgoon replied, "By saying 'hi' at the window, or a phone call."

Sales of Insurance Products Through Banks

Between 1997 and 2000, sales achieved a compound annual growth rate of
17%.


1997  $27.8
1998  $31.1
1999  $36.7
2000  $44.9

Source: ABIA Study of Leading Banks in Insurance

Note: Table made from line graph
Insurance Products Distributed by Banks

More than half of the banks that participated in a recent study by the
American Bankers Insurance Association currently offer fixed annuities.

                    Currently Distribute  Plan to distribute
                                           within two years

   Fixed Annuities          52%                   9%
Variable Annuities          49%                   9%
         Term Life          44%                  15%
        Whole Life          40%                  15%
    Universal Life          39%                  14%
     Variable Life          38%                  15%
     Second-to-Die          35%                  13%
    Long-Term Care          30%                  14%
        Disability          30%                  13%
 Accident & Health          28%                  13%
Medical Supplement          25%                  14%

Source: ABIA Study of Leading Banks in Insurance

Note: Table made from bar graph
More Community Banks Are Selling Insurance

The percentage of banks participating in the study that have less than
$1 billion in assets and distribute general insurance products has
increased.


1997  31%
1998  34%
1999  35%
2000  43%

Source: ABIA Study of Leading Banks in Insurance

Note: Table made from line graph