Banks have lost ground in life insurance sales this year as overall demand for the product fell, according to Kenneth Kehrer Associates.
The Princeton, N.J., consulting firm, which tracks bank sales of insurance and investment products, said life insurance premiums from new sales slid 12.2% in the first half of this year, to $555 million, compared with the year earlier.
“Selling insurance successfully in banks is really a challenge,” said Martin Zoller, the Fairfield, N.J.-based director of insurance services at Philadelphia’s Sovereign Bank. A major obstacle for banks entering life insurance sales is the difficulty in coordinating disparate bank divisions to generate referrals, he said.
“It’s a challenge to show profitability and get the different silos to work together,” he said. “We’re really trying to get everyone to see that insurance needs are underserved for the mass market.”
Sovereign expects its life insurance sales to be $3 million to $4 million this year, a “slight increase” from last year, Mr. Zoller said. The bank offers products from about 15 carriers.
Several banks have entered life insurance in recent years in an effort to generate fee income and enhance their competitiveness by offering a comprehensive array of financial products. In October, the St. Louis-area banking company Enterprise Financial Services agreed to buy the Nashville insurance wholesaler Millennium Brokerage Group, which has life insurance consulting and brokerage operations in 49 states.
The Kehrer survey’s results for the first half of 2005, based on responses from about 70 banks, broke a 2000 to 2004 pattern of steady increases, from $124 million in the first half of 2000 to $632 million in the first half of 2004, for 410% cumulative growth.
Banks’ shrinking life insurance sales can be partly attributed to their intensified targeting of high-net-worth customers rather than the mass-affluent customers who give them the bulk of their life insurance sales, said Kenneth Kehrer, the consulting firm’s president.
Baby boomers’ preference for products that offer a lifetime stream of income has also dented life insurance sales, he said. These customers’ concern about outliving their retirement assets has led them to choose variable annuities over insurance products that lack income options, he said.
Banks can boost life insurance sales by offering the product through a variety of distribution channels, Mr. Kehrer said. Though many sell life insurance through their brokerage subsidiaries, few offer it through platform representatives.
Selling through platform bankers may also prove more profitable, he said, because platform representatives earn lower commissions than brokers do.
Life insurance sales in the bank channel have been dominated by the single-premium product, which is more sensitive to interest rates than recurring-premium life insurance. Of the $555 million of life insurance sales through the bank channel in this year’s first half, $495 million was of single-premium policies.
Banks’ share of the life insurance market remained flat, at 2.3%, in the first halves of 2004 and 2005 after peaking at 2.5% during the same period in 2003.
Sovereign Bank has sold universal life, whole life, and single-premium life insurance for the past three years through platform representatives in its bank branches, which total roughly 650 in New England and the Middle Atlantic states, Mr. Zoller said. The bulk of the $58 billion-asset bank’s life insurance customers are in the mass-affluent category, he said.
Within the past nine months, the bank has expanded its life insurance menu to include term life, which is sold through Sovereign’s network of about 140 financial consultants, and life insurance for high-net-worth clients, sold through the consumer lending and wealth management divisions.
Sovereign has also marketed term life through direct mail campaigns to customers’ homes for four to five years, Mr. Zoller said.
As the bank looks to life insurance growth, it will try to improve communication among its trust, insurance, and investment groups, he said. Its integration efforts will most likely include insurance referral and revenue goals across those groups, he added.
“We want to pull the different lines together and have them work a lot more closely,” Mr. Zoller said.
Sovereign will also consider partnerships with insurance carriers that offer simplified online programs for platform representatives, he said. Such programs would let salespeople gain access to information on disparate insurance offerings. Platform representatives typically focus on selling traditional bank products and may not be familiar with insurance products’ features.
“The key with branches is that [the insurance products] need to be easy to use,” Mr. Zoller said. “If it’s quick and easy, they’re more apt to use it.”
