Bank channel eyes life insurance growth

Half of Gen X consumers and 55% of Gen Y consumers would consider buying a life insurance policy from their bank, according to a new report from industry research and consulting organization LIMRA.

No big deal, Mr. Typical Independent Life Insurance Producer thinks. “The bank channel still represents just a little drop in the bucket of overall individual life insurance sales, right? And most of these Gen X and Gen Y types fall into that middle market I ignore anyway — my focus is on affluent consumers, who tend to be older.” Sure enough, that same LIMRA report says only about one-third of boomers and Silent generation consumers would consider buying life insurance from their bank. Heck, barely more than half of all consumers know banks even offer life insurance (according to that same study).

OK, Mr. Independent Producer. Maybe the thought that younger generations are vulnerable to straying from the traditionally dominant independent life insurance distribution channel won’t have an impact on your practice today or even tomorrow. But somewhere down the road lies the potential that banks — if they decide to make a concerted effort to go after the business — could grow into a significant piece of the life insurance distribution channel pie. And by the time more of these Gen X and Gen Y types make the transition from HENRYs (High Earners Not Rich Yet) to that HNW prospect you desire, they may well already be comfortable in their existing life insurance relationships.

Banks are paying attention

Patrick Leary, assistant vice president, LIMRA distribution research, points out that many younger consumers have no existing relationship with a life insurance agent or financial advisor, so they are particularly open to buying life insurance from their bank. In a late August interview, Leary told Life Insurance Selling he thinks that banks can indeed gain marketshare.

“Are banks going to be on equal footing with affiliated agent and independent agent channels in the next few years? Not likely,” Leary says. “But can they slowly but surely increase marketshare over time? Most definitely.”

While independent producers and affiliated agents still dominate individual life insurance sales with 47% and 41% shares as of 2011, alternative distribution through channels such as financial institutions and direct sales have increased from just 2% in 1983 to 12% in 2011.

Earlier this year, Leary mentioned during a breakout session at the LIMRA Distribution Conference that banks saw significant growth in individual life sales in 2008-2009. Leary said he noticed a turning point, where banks realized they were growing and began investing resources to maintain that momentum. In the August interview, Leary elaborated:

“Traditionally, it’s been a challenge to get bank sales representatives (financial consultants, licensed platform reps, etc.) to embrace life insurance. There was no need to; they were doing just fine selling other products (including annuities). Life insurance is a very different kind of product that doesn’t fit nicely into the traditional ‘transactional’ environment they are used to,” Leary says.

But then a few things happened:

• Low interest rates on fixed annuities made single premium life insurance (a big product in the banks) more attractive

• Variable annuities became more expensive, with less-appealing benefits, which opened the door for life insurance

• Life insurance offerings became ‘simplified’ and more transactional in nature, which resonated in the bank culture

“In the wake of the financial crisis, sales reps struggled with their traditional ‘go to’ products, and as such, they looked to life insurance,” Leary says. “Life insurance presented a way for them to hit production goals and to diversify their product portfolios. So more sales reps were getting experience selling life insurance. And from what we hear, once they try it, they find out it’s not as difficult as they thought. They had to get over the hump of their first sale. No doubt that as the market has recovered, some reps go back to old habits, but for many, life insurance will ‘stick.’ So in my mind, that’s the tipping point: advisors were operating in an environment that almost forced them to take a look at life insurance; something they might not have otherwise considered. Now that they have experience with it, it’s now about building on that experience.”

It should be pointed out that LIMRA research showed a 25% decrease in bank life insurance sales in 2011 compared to 2010, but year-to-year comparisons were skewed by the fact that Allstate and Transamerica both exited the market at the end of 2010. Some estimates show that only about 2% of life insurance is currently sold through banks. But 105 executives from 75 banks that participated in the LIMRA study predicted life insurance will have the second-fastest growth rate for 2012, behind only managed money.

Goals equal sales

Banks have traditionally concentrated their sales efforts on banking products while overlooking insurance and investment products. According to a 2010 Kehrer-LIMRA Life Insurance Sales Study, two-thirds of banks had an institutional goal for life insurance sales. But more and more, banks are seizing the opportunity by setting and actively managing life insurance sales goals, which can have a significant impact on their success in this area.

Jim Sorebo, CLU, president and CEO of Four Seasons Financial Group, Inc., in Marlton, N.J., a wholesale provider of life insurance through banks, says these goals are crucial. “If they’re not committed, why should we be? We want to have mutual goals that we’re working towards,” Sorebo says. “In any sales organization you’ve got to have goals. What are we working towards and what are we trying to accomplish? Without that, it’s a problem.”

Sorebo was also a speaker at the Feb. 2012 LIMRA Distribution Conference, where he said during a breakout session he tells bank reps that if they commit to life insurance, they can increase their production by at least 20%. He looks for bank reps to sell perhaps one single-premium life policy per month, which might mean $3,500 gross for the rep. This leads to meaningful revenue for the rep, the bank, and the wholesaler.

Desirable customers

A study released in March 2012 by LPL Financial LLC, a San Diego-based independent broker dealer, “The Value of an Investment and Insurance Customer to a Bank,” revealed that customers who buy investments and insurance where they bank are among a retail financial institution’s most profitable and desirable customers. Customers who invest and buy insurance at their banks have higher levels of total household financial assets, with an average of $348,000 in investable assets. Those who don’t buy investments or insurance from their banks average only $189,000 in investable assets. By under-investing in their investment and insurance business, banks miss the opportunity to increase the “stickiness” of these desirable customers.

Fully 92% of U.S. households consider a bank or credit union to be their primary financial institution, the study says. But banks have sold insurance or investments to only 12% of those clients. Banks want that percentage to climb. LIMRA’s Leary says there are a few factors at play which will determine how successful they are:

“First, our research shows that an insurance professional is still the preferred way to buy insurance products. Most people don’t think of their bank first if they have a life insurance need. There are still a significant number of consumers [46%] who are not even aware that banks sell life insurance.”

“Banks have advantages that other agents and advisors do not have: they have long-established relationships with their clients; consumers trust their bank and the people that work in the bank, which sets up referral programs very nicely. Additionally, younger consumers typically do not have an agent or advisor yet, which give banks a ‘leg up’ on targeting them for insurance business. If banks can capitalize on these and other advantages they have, they can set themselves up nicely for insurance success.”

“If their sales reps fall back into old habits, and life insurance moves back to the back burner, then the momentum and success they’ve had over the past several years will have been lost. Banks must remain vigilant and focused on their life insurance programs to prevent this from happening.”

Bank advisors as a solution to graying producer workforce

In the minds of many, banks are being looked at as a potential answer to the problem of a graying independent life insurance distribution workforce. While the average independent life insurance producer is in his mid-50s, the average bank advisor is only in his late 30s.

“I think everyone’s concerned about the demographics affecting our distribution,” Four Seasons Financial Group’s Sorebo says. “Where is that next generation of life insurance salesperson going to come from? We think the banks have that opportunity. They’ve got hundreds if not thousands of locations through the branch network. They’ve got a greater trust factor still than most other traditional forms of distribution. They know more financial information about the consumer than virtually anyone else, certainly more so than the independent insurance agent does.

“And then also they’ve got what I call controlled distribution — they’ve got at times hundreds if not thousands of people selling inside the organization,” Sorebo continues. “I think they’ve got the best opportunity to meet both that middle market and the upper-middle and wealth management side versus anyone else out there, just due to those factors alone.”

By Brian Anderson From the September 1, 2012 issue of Life Insurance Selling.  Brian Anderson has been the Editor-in-Chief of Life Insurance Selling magazine since 2009.

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