Bank Insurance Purchasers are Among the Most Profitable and Loyal Customers

Banks are struggling to maintain fee income to compensate for declining net interest margins. Insurance is a new source of income that is often overlooked (insurance products sold through banks include auto, life, annuities and long-term care.) Not only that, but a recent  LPL Financial study – The Value of an Investment and Insurance Customer to a Bank – finds that customers who buy investments and insurance at their bank are among the most profitable, loyal and desirable. The study shows that customers who purchased an investment or insurance product from their primary bank or credit union have checking account balances that are 16% higher than those households without a brokerage or insurance relationship. And they are 10% more loyal, as shown below:

  • 29% of customers with 5.5 banking products said they would not switch to another bank if sold an additional banking product
  • 39% of customers said they would not switch if sold an insurance product.

In summary , insurance products cultivate loyalty in customers, and  customers who buy insurance products stay longer, and are more engaged, leading to an increased share of wallet.

Study Co-Author Kenneth Kehrer (the founder of Kehrer-Life Insurance and Market Research Association – LIMRA): The reason that insurance products promote loyalty is because insurance is more of relational product not a transactional or commodity product. Selling an insurance product requires a more in-depth conversation and relationship with the client.”

Leave Customers’ Money On the Table and Risk Leaving Them Behind

Insurance sales require a big commitment of time and resources. They have a steep learning curve, require specialized knowledge, consultative selling skills, and more drive to prospect and sell. They also involve more supervision, training, licensing and compliance oversight. Is it any wonder , they are often neglected among the array of other available financial products? However, by under-investing in their investment and insurance services businesses, banks are missing the opportunity to increase fee income and earn the loyalty of their most profitable customers. Additionally, synergies are available because customers as a whole tends to trust their local banker, and event triggered marketing opportunities abound. Event triggered marketing can use the existing banking relationship to identify key times in a customer’s life where additional insurance purchases will be needed, including:

  • birth
  • admission to a university
  • wedding
  • home purchase
  • career change
  • retirement

The Incredible Global Growth of Bancassurance

The Bank Insurance Model, or Bancassurance, (whereby the insurance company uses the bank sales channel to sell insurance products) allows insurers to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff. Bank staff and tellers, rather than an insurance salesperson, become the point of sale/point of contact for the customer, advised and supported by the insurance company through product information, marketing campaigns and sales training. The insurance policies are processed and administered by the insurance company, and the bank and insurance company share the commission. An additional approach, the Hybrid Insurance Model, is a mix between the bancassurance and the traditional insurance model, which works through larger insurance sales teams, brokers, and third party agents.. Hybrid insurance companies may have a sales force, may use brokers and agents and may have a partnership with a bank. It seems that everywhere in the world outside the United States, bankassurance is sweeping the market:

  • Europe: Bancassurance has blossomed across Europe with penetration rates ranging from 20% of pensions and life premiums in Germany to 73% in Spain, according to Datamonitor. In the UK, around 10% of life insurance premium income is generated regularly through the bancassurance channel.
  • China: Bancassurance accounted for 27% market share of total insurance sales, while the agent channel dominated the market  with 37% market share in 2009.
  • Hong Kong: Banks have become an important distribution channel for life, health and mandatory provident funds, supplying up to 40% of the market’s new business. HSBC and Hang Seng Bank together held 40% of the Mandatory Provident Fund (MPF) market.
  • Taiwan: The concept of “one stop shop” has become a common philosophy for banks. Premium income for individual life insurance new business from bancassurance accounted for 68% in 2009. Banks contributed 88% to new individual annuities, 66% to new investment-linked businesses and 51% to new life insurance businesses.
  • Singapore: Insurance agents make up the main sales channel for life insurance, with a market share of 61% in 2009. Bancassurance accounted for 22% of the total weighted new business premium income.
  • South Korea: In 2008, the bank channel grew to 37%, next only to agents with 54%.

What about the United States? Bancassurance has only recently been legalized in the the United States, when the Glass-Steagall Act was repealed after the passage of the Gramm-Leach-Bliley Act. It has been comparatively slow to take off, and revenues have been modest and flat. Despite the efforts by many banks and carriers to reap the enormous potential of bankassurance, performance lags and today most insurance sales in U.S. banks are for mortgage insurance, life insurance or property insurance related to loans. A LOMA report discusses the many challenges.

What’s in it For US Insurers?

Despite the lag in US performance, according to a Celent Communications’ research services report, carriers still remain very optimistic.

  • 67% of bank insurance program managers polled as part of a carrier panel said that bancassurance has met expectations either “somewhat” or “completely.”
  • 84% expect major growth of the channel over the next two to three years.

So why would a Life Insurer want to be in bancassurance? Despite the challenges involved in marketing life insurance through banks, it is clear that the opportunity represents a huge and lucrative untapped market. US insurers are losing full time career agents and selling fewer individual policies. And insurers are struggling for solutions as  the US middle market for life insurance remains underserved and underinsured. Marketing Anthropologist Mark Weishaarrecently brought a new report on this to my attention:

 In a new report, titled “Opportunities in Reaching the Middle Market with Life Insurance,” Conning & Co. estimates the middle market life insurance protection gap to be $10.2 trillion—a 56% increase when compared to the firm’s last study of the middle market in 2006. The total protection gap across all income brackets has more than doubled. The total number of lives covered by individual and group life insurance, which reached its highest point in 2003, has since then declined at an annual pace of 1.6%, and  Conning writes, “The evidence so far is that the life insurance industry is not laying the groundwork for replacing its customer base.”

So, as banks look to generate non interest income to compensate for declining net interest margins, it is a perfect time for partnership, collaboration and creative thinking. The Celent report suggests some planning solutions that can help bridge some of the impediments to bankassurance in the US. For instance,  the use of web-based tools and teleunderwriting are  particularly promising approaches to address the need for simplified new business processing and reduced cycle times.  Conning contends that life insurers should begin to implement the use of predictive modeling to streamline the underwriting process, making it much faster and less invasive for the customer, as well as less expensive and more accurate than the traditional underwriting process. As insurers and bankers hammer out the differences in their business models, a huge and lucrative underserved market stands to be unleashed. In a maturing market, this is an opportunity that is too important to miss.

Snap Principle of Bank Insurance Selling:

Increase in customer profitability, loyalty and share of wallet are well worth the investment.