US bancassurance divide closing

A new look at the bank-life insurance relationship finds
stronger marketing relationships despite some lingering barriers
that must be breached to maximise bank distribution of life
insurance products.

The 2008 edition of the study, Bridging the Cultural Divide between
Banks and Life Insurers, reveals a significant shift in attitude
among both US insurers and bankers from the first study conducted
in 2003 – a shift that bodes well for future bank distribution
channels for life insurance products. Conducted by insurance
industry consultancy CF Effron Company, the study was sponsored by
Liberty Mutual, Prudential Financial and Reinsurance Group of
America, in co-operation with the American Bankers Insurance
Association and the American Council of Life Insurers.

As the study now incorporates data from essentially the same peer
group over a span of six years there are, as expected, many
changes. An important overarching theme is that both the insurers
and the bankers have moved away from being most concerned with
product and profitability to being more concerned with process and
the effective use of technology.

Shifting priorities

The study finds that the marketing and sales functions improved
significantly, while the administrative and operations and
effectiveness functions displayed major deterioration of results.
For marketing and sales this shows a focus from insurers that was
previously lacking and means that they are more in tune with the
time, effort and actions that it takes to make insurance programmes
successful in the bank, the study said.

“Interestingly, as in every previous study, the insurers
consistently give themselves higher and better scores than the
bankers do,” said Carmen Effron, president of CF Effron and author
of the study. “It is only when the carriers begin to listen to the
concerns of the bankers and take them seriously that change
occurs.”

In the 2003 study, both insurers and bankers cited such basic
issues as product availability and profit as their top concerns.
But in the 2008 study, insurers and bankers said that product
availability is no longer a problem and profit opportunities have
been identified. Instead, concerns focused on the life insurance
application process and better use of technology to increase
sales.

“This attitude shift is welcome news, suggesting that banks and
insurers are better prepared to identify ways to improve joint
sales activities and expand bank insurance sales,” said
Effron.

“When operations, administration, compliance and risk are
integrated, efficiencies of scale can begin to emerge and the
distribution of insurance via banks becomes more
commonplace.”

Moreover, the study found that 67 percent of life insurance company
executives and 63 percent of bank executives believe that consumers
are more aware now than they were in 2003 that banks sell life
insurance.

Continuing opportunities

Challenges remain to full utilisation of bank distribution
channels, the study found. For example, opportunities remain for
bank senior management to fully embrace life insurance
distribution. Additionally, bank executives said they are still not
satisfied with sales support for more complex life insurance cases
nor with the application process, which from the bank executives’
point of view still takes excessive time.

When insurers were asked what distribution channels other than
banks they were using to sell their products, each averaged at
least two other channels in addition to the bank channel to
distribute life insurance products. Over half of the insurers that
distribute through banks also use both a general agency and
independent agency system.

“This tends to support the theory that while many banks have
developed specific products for the bank channel, for many
insurers, banks are just another channel and not necessarily an
equal partner or their most important distribution channel,” Effron
said.

The study also found that banks desire standardised products
targeting a broader consumer population that can be sold by their
generalists, rather than specialists.

“The challenge is now to simplify the processes that are used to
sell and underwrite policies for the mass middle income and
emerging affluent clients of the bank,” Effron added.

Determining value

Banks and insurers had a choice of four attributes for determining
the value and reasons banks distribute insurance. Banks had an
overall slightly higher score of 4.7 (out of a maximum of 5)
compared to insurers at 4.5.

Reasons for distribution expectations were very much aligned
between banks and insurers with both ranking the need to strengthen
and retain existing customers first, with non-interest fee income
moving up from third in 2005 with a significant increase in the
importance score.

One-stop shopping for financial services was the third most popular
response, and using insurance to attract new customers comes in
last place with a not very important score of 2.7 for banks and 3.0
for insurers.

“This might mean that fees from life insurance sales are now more
predictable and that life insurance is beginning to find its more
rightful place as a companion to bank and investment products, not
fighting to be sold solely for the fee income potential,” said
Effron.

“This also may be the effect of recent regulation and compliance
focus with an emphasis towards what the customer needs, not what
the bank needs. It is a healthy shift, regardless of the
reasons.”

Satisfied partners

Banks, for the first time since the study began, are satisfied with
the ability of insurers to provide simplified underwriting for
policies up to a $250,000 death benefit.

This capability, as well as the variety and extent of product
availability and simplicity of product, were all considered
important elements of the bank-insurer relationship with no
significant gaps emerging in the course of this study.

Banks continue to want life insurance programmes, products, and
processes tailored to their unique relationship and the
transactional nature of their interaction with their customers for
the mass and emerging affluent markets.

Additionally, banks desire streamlined underwriting processes,
acknowledgement of underwriting outcomes, and case management
procedures for the high net worth and commercial client
segments.

The study recommends that insurers target education to consumers to
build awareness both throughout the bank and to the general public.
It urges banks and insurers to work with reinsurers and technology
providers to answer the need for automation at the point of sale,
application standardisation, underwriting outcome notification at
the point of sale, and database integration to avoid redundant
entry of data.

Most importantly, the study recommends that insurance must be
constructed as a part of a bank’s sales structure, not separate
from it, and that significant focus must be placed on understanding
bank customer demographics to achieve more targeted and successful
sales.