The plan to merge Citicorp and Travelers into a single global entity has sparked new interest in bancassurance among U.S. financial institutions.
In general, banks have been reasonably successful at selling annuities and simple life insurance policies.
But the customary process has many shortcomings. For example, banks may not identify customer needs, product design features may not be properly targeted to the customer's needs, and sales and application processes may be viewed as complicated and time-consuming for both the distribution channel and the customer.
Whatever retail insurance strategy a bank uses, several factors must be in place to be successful.
Key customer segments must be identified, and a spectrum of delivery channels and products must be developed to meet their wants and needs.
Technology should be leveraged, where possible, to ensure efficiency in all aspects of the product, from marketing and sales support to delivery and ongoing service.
Though many business and operational aspects are associated with these key success factors, overall success or failure ultimately depends on having an appropriate "product chassis"-a set of product features that the insurance program offers.
The product chassis must be strong enough to provide for a spectrum of products, from one-year renewable term insurance to a heavily funded annual premium or even a single-premium-type product.
More important, the chassis must allow for flexible benefit terms, face amounts, and premium funding levels.
In addition, the chassis must be able to accommodate a bank's customer demographic profile (age, gender, and financial position) and allow for varied underwriting procedures.
For instance, guaranteed issue, simplified underwriting, or full underwriting may be offered within a particular bank distribution channel to meet the customers' preferred method of delivery and buying process.
In today's market, one approach that best meets these requirements is group universal life.
This product has been successfully sold in the voluntary employee benefit market, where it is often depicted as one-year term plus a side fund. Through this design, a spectrum of benefit patterns and funding methods may also be offered.
For example, post-retirement term costs can be paid from the side fund which is built up before retirement. Underwriting is either guaranteed issue or simplified issue, depending on the size of the group and the benefits offered. This product benefits from its flexible product design. For example, a menu of products can be developed to match the needs of a particular market segment.
Group universal life allows for premium rate flexibility, because premium rates do not need to be filed and re-filed with state regulators.
In addition, group universal life administration processes have been developed to handle very large volumes, and have kept the bells and whistles to a minimum.
The success of a bank's life insurance program will also be contingent on its effective use of technology.
A wealth of technology is available that will benefit the development and implementation of banks' group universal life programs, including data base management for identifying prospects and expert underwriting systems.
Banks' involvement in product development may be critical to the success of their life insurance programs. In the context of group universal life insurance, a bank could perform a series of steps in developing its life insurance product portfolio:
Perform a demographic analysis to identify a general profile of customers and their needs. This could determine their product and delivery needs and assist in determining mortality levels for underwriting procedures that reflect buying behavior and preferred delivery method.
Use the demographic analysis to further refine group universal life products. The delivery methods could also be further refined to account for their effect on the product spectrum.
Present the concept to the life insurer so the insurer can analyze the product range for underwriting viability.
