An uneasy alliance is forming between banks and insurers. Taken to the logical extreme, insurers will find themselves purely in the manufacturing business, as banks master the distribution game and capitalize on some natural advantages they hold in market management. We mentioned some in the piece last Tuesday; there are two more of special interest. One is public confidence and the other is the special nature of the transaction- account link between banks and their customers - a circumstance that can greatly reinforce the potency of a focused marketing effort.
Most surveys, including those conducted by associations serving the insurance industry, affirm that the public has a significantly higher level of awareness and trust in banks than in insurers or their agents. It is likely that people will seek to establish the kind of trust-intensive relationship that is basic to successful insurance product sales with institutions in which they currently repose the most trust.
Most households have to participate in the payments system and thus are more or less compelled to deal with banks. Holders of transaction accounts inevitably have the need for telephone or teller service interactions. In the bank of the very near future, a telephone service call will create a window of opportunity for a sales effort because the customer representative receiving the call will have access to a computer-generated sales prompt advising him or her of which financial product the caller is likely to buy next. How this will be done - with neural network models, data base access, integrated transaction processing technologies, and the like - is now being conceptualized in many banks.
Although insurers are also investing in sales-prompt capabilities, the fact that the banks inevitably will receive more calls puts them at a significant advantage. At other financial intermediaries, salespeople in effect must chase prospects; at banks, it is often the prospect who will do the chasing, albeit without being aware of it.
Despite many natural sales advantages, banks are unlikely to succeed in insurance distribution unless they gear up to meet some key challenges:
1. Insurance distribution is different from selling a commissioned financial product like mutual funds. Salespeople will be required to provide a level of service that many banks are not now accustomed to offering. Banks will have to train personnel to assist customers with the filing of claims and the interpretation of policies. They also might be called upon to represent the customer's interest in dealing with the insurer.
2. Banks will have to negotiate with insurers to provide the kind of policy coverage customers want at an advantageous price. Most banks do not presently have the expertise to manage this type of supplier relationship.
3. Every bank that aspires to participate in insurance sales must determine how to do so without running afoul of constantly changing laws and regulations. Waiting for everything to sort itself out is a safe, but unfortunately unrealistic, strategy - followers are unlikely to find much opportunity left once the leading banks establish their market positions.
Given the complex and changing environment, banks that have chosen to breach the insurance barrier have pursued a diverse array of strategies:
1. Build or buy an agency: About a third to half of banks have chosen this route. However, agencies are the channel for which insurers seek an alternative in banks. The challenge is to make the distribution system more efficient, yet maintain the sales power of a commissioned agent.
2. Distribute through branch employees during the course of bank business: About 10% have pursued this approach. The challenge is to convert branch personnel into sales professionals in a product few understand sufficiently to explain.
3. Use alternative distribution capabilities: Building from their credit insurance experience, some banks are experimenting with insurance direct response marketing, telemarketing, and, increasingly, electronic commerce. This approach assumes that the bank has capabilities insurers cannot access in other ways.
4. Renting the customer list: When all else fails, a number of banks have discovered there's money to be made in providing qualified leads to insurers or agents on a fee or shared commissions basis.
Subsequent articles will assess the viability of these strategies, as well as analyze the managerial and organizational challenges in insurance distribution.
Mr. Kaytes is a managing vice president of First Manhattan Consulting Group, New York. Part one of this article appeared Dec. 12, and further installments will appear in January.
