Demand for insurance products is expected to soar in coming years as baby boomers age and stock markets rumble, and several top banking executives say banks should be prepared.

At the Bank Securities Association annual meeting this week in Tucson, Ariz., one executive talked about a woefully underinsured American public, while others cited insurance's fat margins and "countercyclical" demand.

They were reflecting bankers' continued interest in insurance as a keystone in a broad range of financial services banks must offer to stay competitive.

Insurance sales may also be prime territory: 69% of Americans do not have a life insurance agent, and 22% have no life insurance, said Merlin R. Gackle, chairman and chief executive of Invest Financial Corp., Tampa.

"The world population is grossly underserved," said Mr. Gackle, whose firm generated $783 million, or 27%, of its 1996 revenues of $2.9 billion from sales of insurance and annuities.

Offering insurance is a vital part of many banks' aim to become full- service "relationship" organizations.

For Mr. Gackle, that means offering financial planning, asset allocation-or wrap-acc-ounts, life insurance, and estate planning.

Indeed, Robert D. Flowers Jr., president and CEO of BankAmerica Corp.'s BA Investment Services Inc., San Francisco, said that building relationship business, as opposed to piecemeal referrals, would keep revenue growth strong even through downturns in the markets and economy. Too often, he said, bankers don't realize that.

"This is a relationship business," said Mr. Flowers; "it has always been a relationship business, and it always will be a relationship business."

To get sales people to focus on insurance would only take some education about commissions, which can be lucrative, he said.

In addition, "insurance is countercyclical, so in a bear market you'll keep your sales force intact," said Mr. Flowers.

Within five years some banks will derive up to half their income from insurance sales, he predicted.

Selling insurance, however, may require some banks to deal at length with regulators.

John D. Porter, CEO of SouthTrust Securities Inc., Birmingham, Ala., went through a time-consuming petition process with the Federal Reserve because his company is a section 20 underwriter. "There were some real obstacles," he said.

The payoff, once SouthTrust won approval, was that it now generates 25% of its income from annuity sales.

Banks, insurance companies, and brokerages are licking their chops, anticipating baby boom-ers' turning 65 and starting to shift investments to children.

That so-called wealth transfer is expected to dislodge $3.2 trillion annually, up from $90 billion a year in 1990.

Just as banks need insurance, insurance companies are looking with envy at banks' network of branches. Some, like Lincoln National Corp., Fort Wayne, Ind., will use banks as distribution channels.

"The importance of distribution cannot be overstated," said Ian M. Rolland, the company's chairman and CEO. "We see distribution through banks as an important way" to sell products. "Banking has quality relationships; together, we have much to bring to the table."

In particular, Lincoln's Philadelphia-based Delaware Group mutual fund operation relies heavily on banks for distribution.

But you won't see Lincoln do a merger on the scale of the Morgan Stanley-Dean Witter deal, Mr. Rolland said.

"You don't have to own a bank or a brokerage" to grow, Mr. Rolland said. "Partnerships give you more opportunities and flexibility."

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