Border crossing: Life insurance companies that have historically sold through banks in their own states look to other states' bankers organizations to help them expand distribution. (Banks in Insurance: Life/Health).
The pacts may stimulate sales to middle-income Americans and help boost the industry's minuscule level of sales through the bank channel.
Savings Bank Life Insurance Company of Massachusetts finalized in December 2002 what is likely to be considered the landmark deal. It is with the Virginia Bankers Association, which stepped up its efforts to help member banks sell insurance after Congress enacted in 1999 the Gramm-Leach-Bliley Financial Services Modernization Act. In 1999, the Virginia association created a special organization, Bankers Insurance LLC, to buy agencies throughout the state; that organization's deal with SBLI of Massachusetts complements its primarily property/casualty operations. It also represents its first pact with an insurer.
The Woburn, Mass.-based insurer struck a similar deal in 1999 with the New Jersey League of Community Bankers, but development of the life market in Virginia has already surpassed development in New Jersey. Every banking company in Virginia belongs to the association.
Meanwhile, SBLI of Connecticut, which now markets as VantisLife Insurance Co. in other states, has reached agreement with banking associations in Delaware and Maryland.
An Impressive History
SBLI of Massachusetts has special expertise in selling insurance through banks. It achieved that distinction due to a 1907 Massachusetts law that empowered mutual savings banks to establish life insurance departments as a way to provide the product over the counter and at low cost. That same year, Louis D. Brandeis, a Boston attorney and future member of the U.S. Supreme Court, formed the Massachusetts Savings Bank Life system. It sold policies exclusively through the commonwealth's savings banks until 1992, when a new law allowed the system of 56 life insurance departments of member banks to restructure into a closely held life insurance stock company with the current name. Today, it is still the top issuer of life insurance in the commonwealth despite competition from much larger companies.
The law also allowed the company to sell through other distribution channels and in other states, two key provisions for its growth plan. SBU of Massachusetts now sells only 15% of its product through banks and 85% directly to the consumer, and it has expanded into Connecticut, Maine, New Hampshire, New Jersey, Pennsylvania, Rhode Island and Virginia.
Virginia bankers like the SBLI plan because it can increase revenue, broaden insurance offerings to customers, and form stronger relationships with them, said R. Michael Hedden, regional vice president at Bankers Insurance and vice president at subsidiary VBA Insurance Services. "SBLI is a very defined marketing and support channel for term life insurance," he said. "The way they are set up equipped to sell is something we'd otherwise have had to replicate or build." SBLI handles the underwriting, administration, processing and claims.
Under the deal, SBLI generates leads for its direct marketing system through inserts in bank mailings, signs and marketing materials. Member banks also refer prospects to SBLI's sales center. SBLI provides the minimal amount of bank-employee training that is needed.
As of late April, 18 of the Bankers Insurance group's 56 member banks had signed up for the SBLI program. Hedden estimated that 28 will be on board by the end of the year. He also expects to enroll eight or 10 banks a year that are association members but are not part of Bankers Insurance. More than 140 banks are association members.
Training is primarily to help platform employees and loan officers become comfortable in recognizing life events that generate an insurance need and in making a referral. Employees do not need insurance licenses to perform those tasks. The training typically takes only a couple of hours, Hedden said. The system represents "a much smoother transition from banker to insurance agent" than in having bank employees both prospect and try to make the sales, he added.
Dwight Wilbur, vice president of marketing at SBLI of Massachusetts, said the referral system is "a natural" for bank platform employees. The bank then receives revenue for all applications converted to sales.
Competition for the Virginia contract was "rigorous," but the contract is valuable, said Robert K. Sheridan, SBLI of Massachusetts president and chief executive officer. "We were astonished when we went down there," he said. "Virginia is so advanced that the association actually owns agencies. A lot of the action is in property/casualty and title insurance, and they were missing a life product."
Growing by Leaps and Bounds
Even before Virginia, SBLI of Massachusetts was enjoying double-digit growth. Insurance in force has more than doubled to $45.5 billion at the end of last year from $20.1 billion at yearend 1997, according to A.M. Best Co. data. The company has a Best's Rating of A+ (Superior) as of May 14, an unusually high rating for a small company and among the top 10.2% of life/health ratings in 2002. Sheridan said his company is the smallest independent organization with an A+ rating.
As a safe, low-cost provider, SBLI controls expenses, invests prudently and underwrites carefully, said Sheridan. It will retain up to $500,000 of risk per life and reinsures amounts m excess. While SBLI clearly reaches the underserved middle market, Wilbur said people with annual incomes up to $175,000 also buy the product. On the low side are those with incomes of $50,000. "They are basically do-it-yourselfers looking for good value," he said. "They tend to hold a bachelor's degree or higher, and they are primarily males."
Only about one-third of customers are females, due to the Massachusetts unisex underwriting law to which it must adhere and which extends even to business outside the state. Under unisex underwriting, a company cannot consider the gender of an applicant in its expectations of longevity, a practice that hurts women and favors men. "It's amazing we produce what we do with women," Sheridan said. "At younger ages, it's not that much of a handicap, but it's detrimental to women, and at some point, we'd like to try to get rid of it. "The company has recently instituted multiclass underwriting to enable it to better "slice and dice" the mortality risk, he added.
In New Jersey bankers did not have the statutory authority to sell SBLI products until the 1999 Gramm-Leach-Bliley law opened up financial services. "We quickly jumped on board" after the act became law, said Sam Damiano, president of the New Jersey League of Community Bankers. He said there had long been a demand for the insurance, particularly by New Jersey residents who knew about it from working in New York City, but could not buy it because of where they resided.
The league has a history of selling insurance through an insurance management organization it formed in 1982. In 1996, that organization and another that had merged with it became Bankers Cooperative Group, which provides member banks with marketable group-benefits programs, administration, consulting, claims services and communications packages. The group, staffed by eight fulltime employees, is a source for property/casualty coverages, including directors and officers, fidelity bond, employment practices liability and related areas.
BCG's predecessor in 1982 had sold both term life and whole life, and at one point, had 81 bankers licensed to sell those products. "That program took off like gangbusters, but it fizzled out," said Damiano. "At one point, we had 81 bankers licensed to sell life insurance." The reason the effort failed was that banks were not used to operating in a "sales culture mode," he said.
Since contracting with SBLI of Massachusetts in 1999, BCG has seen at least eight banks become active in marketing the product. "Four more have been anxious to come on board, and others are looking seriously at the program," Damiano said. Some banks in the state were already engaged in life insurance through partnerships with insurance agencies, and some actually own agencies, he said. "As a trade association, we've been encouraging producers and agents to work with us for years," said Damiano. "There was a time they were adamantly opposed to us selling insurance. We said, 'Why fight us? Join us.' And now this is occurring across the country."
But having a marketing partnership with the writer of the insurance-- rather than with agents--appears to be new "inasmuch as it offers new marketing opportunities," he added. "I think it's positive. It has a bright future. It's a competitive product that is priced right and well-structured."
A Fresh Face
Much newer to the strategy of partnering with banking associations is Savings Bank Life Insurance Co. of Connecticut, which last year changed its corporate name for business outside its home state to VantisLife Insurance Co. Ten of the largest shareholder-banks in Connecticut own the company, which was founded in 1942.
Peter L. Tedone, president and chief executive officer, said the company has the endorsement of the Connecticut Bankers Association, and the endorsement of bankers organizations in Delaware and Maryland. It is a member of those organizations and is in the process of becoming a member of other state banking associations, which often leads to preferred provider status, Tedone said.
VantisLife began venturing outside its home state last fall, and Tedone said in April it had no substantive results to report. He added that the company has been actively marketing through bankers associations only in the past couple of months.
The company has worked over the past two years, however, to expand both its product portfolio of life insurance and annuities and its distribution system into other states. Tedone said it has achieved a presence in 12 states over the past year or so. "To grow, we'll need to look outside Connecticut," he said. "We've penetrated the state so substantially that over the long term, our growth strategy has to be in other states."
About 50 banks are headquartered in Connecticut, and Tedone's company does business with about 40 of them. It has $4.1 billion of insurance in force and about $535 million in assets, he said. When the company was formed, it was a division of the state Department of Banking. In 1963, the company became a specially chartered corporation as part of a change in state law and took on the name Savings Bank Life Insurance Co. of Connecticut, and participating banks became the owners.
Future growth will focus on states east of the Mississippi River through medium-size banks operating in several states, Tedone said. "Our strategy is to become admitted into many states and actively pursue bank distribution outlets," he said. "Limra research shows that the middle-income customer is underinsured and underserved by the industry, so our strategy is to penetrate that market."
RELATED ARTICLE: Life Sales at Banks Remain Low, but Start to Gain
Of all financial services outlets, banks remain the worst at selling life insurance. But Kenneth Kehrer, whose company tracks such sales, says they have "grown dramatically" in the past couple of years from a "very low" level. Kehrer is president of Kenneth Kehrer Associates, Princeton, NJ., which performs ongoing scientific sampling and analysis of insurance and annuity sales through banks.
According to Kehrer, new life premium (weighted to account for single-premium purchases) grew to $643 million in 2002, up 90% from $338 million in 2000. Weighted premium is 10% of single premium plus 100% of first-year recurring premium. That premium growth is significant because of the rise in banks' market share of life insurance sales in the United States, which last year was 1,8%, up from 1.5% in 2000.
Driving this growth are sales of single-premium life products, not the sort propelling sales of Savings Bank Life Insurance. Banks can sell these products because they are asset transfers, and they are not necessarily bought by the affluent, Kehrer said. Many of these sales are in the $40,000 to $70,000 range and are used as an efficient way to transfer wealth to heirs. With their cash values, money is still there in case of emergencies. Limra International, the industry's research and marketing association, only counts 10% of single premiums toward total first-year premiums because recurring premium products are about 10 times as profitable, Kehrer said.
Of the five major bank categories--mega, super regional, regional, super community and community--the super regionals and regionals have the best insurance operations. Kehrer said that may be because it's more difficult in a very large bank to get different parts of the bank--such as distribution channels, branch offices, call centers, trust departments and Internet delivery channels--working together. In a big bank, there's more tendency for them to be silos, he said. Generally, an insurance operation in a bank does not own distribution channels, but has to work with them to get products sold.
Smaller banks are starting to become involved, just as in the annuity and mutual fund businesses, because there are more organizations willing and able to help them and give them some of the support they are unable to provide themselves. Kehrer said large insurance brokerages like BISYS and Highland Capital are examples.
Universal life is used most often for single-premium products, while variable life is used for recurring premium. Kehrer said single-premium customers tend to want a safe, steady vehicle, while recurring premium customers see the product also as an investment and want long-term accumulation benefits.
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|Comment:||Border crossing: Life insurance companies that have historically sold through banks in their own states look to other states' bankers organizations to help them expand distribution. (Banks in Insurance: Life/Health).|
|Date:||Jun 1, 2003|
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