Banks have found it difficult to create scale in life insurance, says Wade Reece, the president of BB&T Insurance Services in Raleigh, N.C., and a possible explanation lies in a recent survey indicating customers are only vaguely aware that banks sell the product.
More than 60% of banks and insurance companies in the survey by the CF Effron Co. consulting firm said they believe bank customers have only a vague idea that banks are in the life insurance business. And the banks said insurers fall short of giving vital sales and operational support for bank life insurance sales, hampering their efforts to build volume in the business.
Life insurance has been a natural fit for BB&T because it already had a presence in the property and casualty insurance market, Mr. Reece said. But banks that do not already have insurance operations may struggle to get a foothold in life insurance, he said. Successfully integrating banking and insurance operations also is a challenge, he said.
“You have to do some extensive study and determine how much of the company’s resources you are going to put behind this effort,” he said. “Life insurance is a fairly difficult business to be in if you don’t have the scale to drive it.”
The most viable point of entry for banks looking to enter the market is the wealth management and private banking business, where significant cross-selling opportunities exist, he added.
“Those clients by nature have life insurance needs,” he said.
BB&T began in the life insurance business in 1981. Its insurance operation has about 80 agencies in the Middle Atlantic states and the Southeast.
The company also sells life insurance through direct mail campaigns and a call center. Many of its life insurance sales are group plans offered to employers.
Banks large and small have increasingly made forays into life insurance in recent years. Roughly 90% of both bank and insurer respondents to the Effron study said they plan to increase the scope of their bank life insurance distribution programs.
Forty-eight banks and 30 life insurers participated in the survey by the Westport, Conn., consultant. The banks ranged in size from less than $100 million of assets to more than $10 billion, and the insurers ranged from less than $1 billion to more than $10 billion of assets.
The survey found significant gaps between how highly banks valued certain support services from insurers and how satisfied they were with these services. It asked both banks and insurers to rate the importance of certain elements of their bank life insurance programs — and their satisfaction with those elements — on a scale of 1 to 5.
The Effron firm used “gap analysis” to pinpoint significant discrepancies between the value attributed to some services and the satisfaction with them. Subtracting the satisfaction score from the importance score yielded gap scores to measure such discrepancies, and gaps bigger than 1.1 point were considered “highly significant.”
Banks said they considered dedicated wholesalers and operational support, such as providing computer systems, the most valued insurer services. But the survey found a 1.4 gap score between the value banks place on these services and the degree to which they are satisfied with what insurers offer.
Both sides produced significant gap scores for a discrepancy between the importance of integrating insurance databases with banks’ customer information files and their satisfaction with the results. Banks’ gap score was 1.6; insurers’, 1.2. Sales and marketing support from insurance carriers were other areas in which banks’ dissatisfaction registered significantly — 1.1 for marketing and 1.2 for sales support.
But banks and insurers’ goals for their life insurance programs were largely aligned. Both ranked the need to strengthen customer relationships and retain customers highest in importance; a need to offer one-stop financial services shopping and to generate fee income were ranked second and third, respectively.
Both banks and insurers expressed disappointment with senior management’s commitment to bank insurance programs. The satisfaction differential was 1.7 among the banks and 1.1 for insurers.
