Comment: Why Banks Will Be Great in Insurance

Imagine this scenario.

A customer walks into his local bank branch to sign the final papers for his mortgage. At the same time, he purchases homeowner's insurance and makes arrangements for his insurance and mortgage payments to be bundled into one monthly fee.

The bank's customer service representative pulls up this customer's profile on a screen, and then suggests several competitively priced life insurance products he and his family might also consider.

Scenarios like this are common in Europe. But in the United States, stringent and non-uniform regulatory requirements prevent banks from offering a full spectrum of insurance products to their customers.

Yet as banks and consumer groups aggressively challenge these rules in courtrooms across the country, it's clear that the scenario is going to change.

Banks are ideally suited to become major distributors of insurance products for a number of reasons.

First, a bank's sales infrastructure, including branches, telephone centers, and other points of delivery, offers a cost-efficient means to sell insurance products.

Second, banks have accumulated massive amounts of information on customers and their purchasing habits. Banks have the information resources that can support the marketing and sales of insurance along with other financial services products.

Third, when banks sell insurance products, consumers benefit by having access to competitively priced products and services.

Currently, thousands of U.S. banks already sell insurance in one form or another. For example, just under half the states permit state-chartered banks to run insurance brokerages and almost all the states allow banks to lease lobby space to insurers.

Approximately 134 million Americans, or 53% of the population, can legally meet their insurance needs through bank insurance agencies.

In the coming years, as the regulatory environment becomes more uniform and even less restrictive throughout the country, the relationship between banks and insurance companies is going to become a lot closer.

Insurance companies, for example, will "manufacture" products that will be sold through outlets including bank branches and ATMs.

An individual bank will sell a range of life insurance products from multiple companies through its various delivery channels, giving consumers the broadest range of choice based on features and competitive pricing. Similarly, a bank may be able to offer its products through the insurance company's distribution channels. Each institution will leverage the other's strengths.

In effect, the traditional bank will shed its primary role as a lender and assume a new role as a seller of commodity products and services.

Capturing and harnessing the huge amounts of information that reside in banking institutions' information systems is no simple task.

Entirely new classes of information solutions will have to be deployed, using technology that can sort, analyze, and integrate information into meaningful patterns so that it can be used most effectively.

Information management - the way a bank uses information to compete more effectively and fuel strategic growth - will be key to the operations of an integrated financial services company.

At the hub of the new integrated financial services company will be customer information and powerful new data base tools. Such tools will allow banks to pull together customer information from any set of disparate sources and then delivers the information "outward" to service representatives, private bankers, personal financial advisers, and others who will need more unified portraits of their customers.

If banks are to compete effectively in insurance sales, they must be prepared to institutionally reinvent themselves from lenders to relationship marketers. In this new marketplace, information resources are a bank's most important strategic asset.

Mr. Santmire is president of the worldwide financial line of business at Unisys Corp., Blue Bell, Pa.

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