company has hired three actuaries who will devise proprietary life insurance and annuity products to be underwritten by First Union's insurance partners.
The idea is to offer products that can be sold more easily and that suit the company's customers better, said Roger E. Dunker, managing director First Union Insurance Group.
"I believe we can be better aligned and working together (with underwriters) rather than the typical way of getting the products," Mr. Dunker said.
The idea has a lot of merit, according to Carmen Effron, a Westport, Conn.-based consultant who previously ran BankBoston's insurance effort. "I like it," she said. "It gives them a lot of expertise in-house without the underwriting portion of it."
While only the biggest banks will have the need and resources to hire seasoned actuaries as First Union has done, it's a development that signals a shift in the industry, she said. "This is the beginning of a sea change in the marketplace."
Banks have previously turned to independent actuaries to help get design ideas across to underwriters. Bank One, for instance, chose Chicago-based Milliman & Robertson Inc. to help influence product refinements.
That's been adequate for Bank One so far, but bringing the expertise under the bank's roof is interesting, said Glen Milesko, president Banc One Insurance Group of Milwaukee.
In the rapidly changing marketplace, it might be worthwhile to "wipe the slate clean" and redesign products from scratch with a bank-employed actuary, Mr. Milesko said.
Mr. Dunker envisions simpler products that will be easier for employees and customers to understand. In addition, he has asked the actuaries to look at ways to shift compensation to better suit both customers and First Union.
"We may choose to take profits elsewhere than in the up-front commission," Mr. Dunker said. Diverting some assets from insurance company management to bank management is appealing because of asset management spreads, he said.
One risk to the strategy of bringing an actuary on board at a financial institution is stepping on the toes of its underwriting partners, Mr. Milesko said.
That's already been an issue for First Union. One of the actuaries, Patrick Sutherland, was hired from one of First Union's insurance partners, American General Corp., where he was director of business development.
Mr. Dunker said that while it was a loss for American General and a gain for First Union, American General "hasn't seen the last of Patrick." Having actuaries should only improve the ability of the bank and the underwriter to provide customers with better products, he said.
There was a pocket of resistance within First Union from bankers who hold a common misperception of the job as just poring over mortality tables, Mr. Dunker said.
"Actuaries are much more multipurpose," he said.
Actuaries, like lawyers, are the butt of many jokes. But Mr. Sutherland, vice president of product development and actuarial, said actuaries can be outgoing and often have expertise that cuts across disciplines. Actuaries can help with economics, capital markets, marketing, and other topics. "We can even set up a plan better than a financial planner," he said.
Michael Jones, who was hired from Cincinnati-based American Annuity Group, where he was chief product development actuary, also defended actuaries against pigeonholing. "In a nutshell, as long as you have money and possible risk actuaries are the best people for that," he said.
The third actuary hired is James Tan, who had been with Indianapolis-based Conseco Inc.
Ms. Effron said First Union has broken the ice with its move and "the second one is going to be a lot easier to do."
