Comment: Level Field Just the Beginning of Insurance Game

The Supreme Court decision last month validating the powers of banks to sell annuities knocked down one more industry barrier to full entry into the insurance business. More will probably fall this year.

These actual and anticipated changes in the regulatory landscape are good for banks. They help create what the industry has been calling for ever since the relatively recent rise of nonbank competition began: a level playing field.

To win on that field, many bankers still have a lot to learn about the fundamentals of retailing - from product packaging to pricing, positioning, and even basic product management.

They can learn from the consumer goods industries, as National Commerce Bank in Memphis is doing by benchmarking Wal-Mart and the Gap.

Or they can learn from direct competitors, such as Fidelity, Merrill Lynch, or even USAA. But lessons from competitors can come at an unacceptably high cost.

Bankers should begin their retailing lessons - whether the product being marketed is life insurance, annuities, or mutual funds - by submitting to an unblinking self-assessment. Asking the following questions is a good place to start:

*Is there direct alignment between the products I offer or want to offer and the known needs of my target customers?

*Is the match between customer needs and products superior to or at least equivalent to that offered by my banking and nonbanking competitors?

*Can my current delivery system deliver the products to the target customers when they want them and where they want them at an acceptable cost?

If this first evaluation shows structural weaknesses, a bank has one kind of problem. Although serious, this is addressable. But if a banker cannot quickly, concisely, and confidently answer those basic questions, the bank has another, much more fundamental problem.

In the case of insurance products, bankers ought to be able to give very positive answers to those questions. Bankers do have inherent advantages over their sometime rivals/sometime partners in the insurance industry, if they exploit them properly.

For instance, banks should be able to do a superior job of acquiring and using information about their customers. They already have a wealth of information defining family composition, life-event changes, income, and net worth - even a customer's risk profile.

This information can help bankers identify and qualify insurance prospects in a way that insurers already envy.

Banks also have much more frequent and direct access to their customers than insurers, through simple account transactions, credit origination, or even personal banking.

And they have lower customer acquisition costs than agent-based insurers - perhaps the greatest vulnerability insurers feel these days.

But besides some well-known exceptions, most notably Keycorp, U.S. Bancorp, Norwest, and Chemical, banks generally have not shown that they can capitalize easily on these potential advantages.

For instance, while bankers collect a great deal of information about their customers, they seldom use it to precisely identify meaningful, actionable customer segments. This is an important missed opportunity, because useful segments are much more targeted than traditional demographic groups. Segments are defined by a detailed understanding of purchase behavior, life events, or "need states" that trigger purchases, and the vendor selection criteria used by customers in that segment to make a buying decision.

Your bank may, for example, routinely track the marital status of your customers.

But if you don't also know - to pick a hypothetical number - that 30% of your customers between the ages of 25 and 40 are divorced, typically remarry within a year, and then want to provide long-term security for their second families, you'll miss defining an actionable segment for your insurance products.

Bankers also frequently have trouble capitalizing on the potential advantages of a delivery system that gives them more opportunities to "touch" customers than insurance agents have.

Instead of touching them, bank branch staff often rub customers the wrong way. That's not because they're bad people. This is often because bank management has not clearly defined its job as customer-centered, reinforced that definition with an effective incentive program, or supported the job with the right information technology.

These management failures help explain why one platform employee we interviewed recently could say with a straight face and clear conscience: "My job is to balance at day's end. If the customer wants a verbal hug, he should get it at home."

If that's the message your customers get today, that's exactly where they will stay. At home, where insurance agents and other direct marketers can easily find them.

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