In a May 2 article American Banker examined the steps some insurers are taking to capture "shelf space" at bank distributors for increasingly commoditized products like annuities. For this follow-up we talked to bank-insurance executives to find out what they value in annuity providers.

From an insurance perspective, Bank One Corp. has a fairly straightforward approach to dealing with banks it acquires: If the target bank does business with a wide range of annuity providers, Bank One starts cutting away.

"We have 4,000 people selling these products, we have to keep it simple," said Glen Milesko, chief executive of Banc One Insurance Group in Milwaukee. "You're going to try and train new sales staff to understand 25 products? That's absurd."

Bank One currently has six annuities, including fixed and variable, from just four insurance companies on its shelf, Mr. Milesko said. Keeping the number manageable "makes it easier for our salespeople to fit the customer with the right product."

Banks may differ on how they select their annuity providers, but there is little doubt that as a group they are becoming choosier about their relationships. Many, like Mr. Milesko, have begun stressing values like "partnership" when they describe what they expect in a provider.

And many are keeping the number of companies with which they do business relatively small.

Banc of America Investment Services Inc., in Charlotte, N.C., for example, has six annuity providers on its preferred list. Ask Paul L. Merritt, senior vice president and national insurance coordinator for the Bank of America unit, why those providers were selected, and he'll give a multi-part response.

The first test is simple ratings. To have a shot at the shelf, an annuity provider has to have at least an A-plus rating from A.M. Best or an AA from Standard & Poor's, he said.

After that, a variety of factors come into play. A carrier's bank sales numbers matter greatly, as does the standard and value-added support and services provided by an insurer's wholesaling unit. There are other service-related tests. "Do they have continuing education or training programs?" Mr. Merritt said. "That's another factor."

Aside from the ratings, the analysis that goes into selecting a company's annuities for Bank of America's preferred list is selective and hard to quantify, he said.

"No one factor is more important than another," Mr. Merritt said. "There are a lot of good insurance companies out there. It's very competitive."

Once Bank of America makes its choices, it constantly evaluates its providers. Mr. Merritt's operation stays in close contact with its branch-based reps, to determine whether they're satisfied with the insurers.

Understandably - if frustratingly, for insurers - executives tend to differ on specifics when they define partnership. Still, there is plenty of common ground.

Many banks say they value bank-only wholesalers (or even wholesalers dedicated to the institution, if the business' size would warrant it). They also want more support at the wholesaler level, such as sales and training programs, a product that fits a bank's profile (whether conservative or aggressive), and a product with a good track record for sales.

Product customization matters to some companies. Being able to wrap investment portfolios managed by the bank inside an insurer's fixed or variable annuity wrapper, or at the very least setting the crediting rates for the fixed annuity if the assets are not managed by the bank, are also often cited.

"We don't want a shelf product," Mr. Milesko said. "We don't care if you've been in the business since 1867. We want to design a product, and we want the insurer to manufacture it. If they can't do that, forget it."

For some companies, the discussion begins and ends with product choice. Tom Howe, president of Webster Insurance Services in Waterbury, Conn, said marketing efforts and all the add-ons, like training programs, are secondary. Instead, it's about the annuity products themselves, he said.

"The most important thing for us is to offer a broad, diverse range of products," he said. "We want an index fund. We want access to multiple managers, and we want flexible products. We want to offer annuities with features that provide the flexibility to make partial withdrawals. We also look for bonus payments and unique death benefits. And we look for performance" - both in terms of how well the annuity has sold through other banks and how well its investments have performed.

Unlike some companies, which like to exert direct control over product - Bank One sets the crediting rates on the fixed annuities it sells, for example, and would like to manage the fixed portfolio as well - Webster does not offer a proprietary annuity, Mr. Howe said.

That decision "gives us objective scrutiny" - meaning that they are not necessarily tied to a particular product if a better one comes along, he said. "Every quarter, there are two or three new twists to a product," and if he wants Webster to consider one of these products, it's easier if he doesn't have to worry that an annuity with one of the bank's portfolios is going to lose out on sales, he said.

Still, Mr. Howe does not change the products on his shelf very often. Right now seven annuities, both fixed and variable, are on Webster's preferred list.

People's Bancorp in nearby Bridgeport, Conn., is more conservative in its selection process. Mike Harkins, first vice president of brokerage services at People's Securities Inc., the bank's investment and annuity sales subsidiary, likes to stay vanilla. "We don't react to bonus products. We're much more interested in the long-term performance" of the annuity, he said.

He said most of the products are pretty close, anyway. "Successful products are going to get copied pretty quickly."

On the wholesaling side, bank-insurance executives generally give insurers credit. "They have annuity sales down pretty well," said Gregory Vacca, first vice president of Cal Fed Investments, a unit of Golden State Bancorp in San Francisco. "They've been doing it for a long time."

His wish list includes annuity providers being more open to "mixing and matching" within their products.

"It would be nice if someone let you take a product they offered and custom-fit features from some of their other products," Mr. Vacca said. "We should be able to adjust rates based upon it. Wholesalers who train and make calls to a bank, an insurer that helps with marketing efforts - that's all important, and we're getting that."

Still, wholesaling seems to be an issue for many banks. A survey of 67 banks last summer by Ken Kehrer, president of the Princeton, N.J., consulting firm Kenneth Kehrer Associates, showed that banks want more one-on-one wholesaling support for their sales reps.

"They also want more group meetings between the wholesaler and the bank sales staff," Mr. Kehrer said.

There are some other techniques available to help insurers capture business, including becoming a bank customer.

Mr. Milesko said he would like to create as many cross-selling and other business linkages between Bank One and its annuity providers as he can. "They're going to be a partner, so can we do their cash management? Do they have First USA credit cards for their employees?"

Likewise, if the insurer needs a loan for any purpose, he'd want it to use Bank One for the loan.


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