Now that the Supreme Court has ruled in favor of national banks' rights to sell insurance, it is a good time to review what it will take for banks to become successful in this business.
To date, no bank insurance programs in this country have had much of an impact. That's because bankers have not understood the problems in the life insurance marketplace.
A well-executed program can result in bank agents being more productive than traditional agents. But since the average traditional agent sells only one policy per week, such a benchmark is of dubious significance.
To be successful, bankers will have to bring to the marketplace products and business practices with significant competitive advantages. They must address the problems in the life insurance marketplace and implement solutions. Unless they do so, they will be fighting the battle for market share on agents' turf with largely traditional methods.
Life insurance marketing has remained pure hard selling for more than a century, despite the intrinsic and pervasive failure of such an approach in the modern marketplace.
Bankers would be wise to recognize that pricing and disclosure problems are the roots of the traditional system's failure. The huge disparities in policy costs statistically prove the failure of the market to function in an economically competitive manner.
Inadequate disclosure practices have been, and continue to be, essential to the preservation of these uncompetitive pricing practices. For instance, although the American Academy of Actuaries more than three years ago recommended that the industry abandon its fundamentally flawed policy comparison methods and indexes, the industry has not yet done so.
Bankers also ought to value their own experience, independence, and perspective. These characteristics - often considered liabilities - will actually be assets in building a bank life insurance program.
Indeed, these characteristics will be most important when objectively studying the U.S. life insurance business' historic persistent problems: abysmal market penetration, excessive distribution costs, and pervasive consumer dissatisfaction.
Attacking these marketplace problems is the best way to create distinct competitive advantages and provide the foundation upon which banks can deliver significant new value to the consumer.
This will, of course, require designing and implementing new pricing and marketing approaches, hardly easy tasks. In doing so, the dictums of competitive market pricing need to be kept foremost in mind.
Proper disclosure goes hand in hand with proper pricing. Providing good and reliable information in a market long characterized by its absence is a critically important aspect in a bank's plan to build a valuable long-term franchise.
Failing to do so not only undermines the bank's chances of success, but exposes it to the huge and ever-growing risks associated with misrepresenting financial products.
Mr. Fechtel is principal of Life Insurance Catalysts, a Rye, N.Y., consultancy.
