Banks are starting to emerge as an important source of growth for the life insurance industry. For the first time ever, we're seeing real momentum in bank sales of life insurance products.

Domestic individual life sales last year totaled $8.8 billion, up only 9% from the previous year, according to statistics from Limra International Ltd., a life insurance industry marketing and research firm.

But last year banks captured 2% of the individual life sales in the United States, up from 1.2% in 1999.

While that might seem minuscule - especially since last year banks and thrifts sold about a third of all fixed annuities and over 11% of variable annuities - the growth rate of life insurance through banks is now much faster than that of sales through other delivery channels.


This year we adopted the life insurance industry's weighted-premium approach to measure bank insurance sales and compare them with industry totals more easily.

The weighted-premium standard reduces single-premium life sales to 10% of the premium, and then adds that to the total first-year premium from recurring-premium products.

Even though a large portion of the life insurance sold through banks is single-premium - last year it accounted for 56% of all new life insurance premium from banks - the weighted-premium approach was adopted by the industry to account for the fact that single-premium products are much less profitable for the insurer than recurring-premium ones.


Banks sold $193 million of single-premium insurance last year, up 33% from 1999. New first-year premium from recurring-premium products rose 90% from the year before, to $152 million. Thus, the total weighted-premium through banks was $171 million.

The improvement in first-year premium from recurring-premium products is in marked contrast with 1999, when the premium increased by only 1.25% from the year before, to $80 million.

Total life insurance premium by banks (including single-premium sales and first-year and renewal premium from recurring-premium products) rose 31%, to $422 million.

Liberty Life of Boston (which sells only single-premium life through banks) produced the most total premium through banks - $57 million, a 12% increase over 1999.

Hartford Life was second, with $48 million, up 76%. Not far behind were Nationwide, at $36 million (with a percentage increase virtually the same as Hartford's), and Allstate Financial, whose bank life premium quadrupled from 1999.

Other companies with notable premium increases include CGU Life, which doubled its bank life premium, Aegon USA (up 30%), John Hancock (up 264%), General Electric (up 533%), and Jefferson-Pilot (up 112%).

If renewal premium is excluded, Allstate would rank third, displacing Nationwide. Aegon would rank sixth instead of seventh, and First Penn-Pacific Life (a subsidiary of Lincoln Financial Group) would rank seventh instead of ninth.


Different rankings emerge if we use the weighted-premium approach.

Since Liberty Life sells only single-premium products through banks, it ranks eighth in weighted premium. Similarly, Hartford, the leader in single-premium variable life sales - with $28 million, 2.5 times second-place Allstate and 12 times third-place Nationwide - ranks fourth in weighted premium, with $15 million.

Nationwide, which sold 2.3 times as much first-year recurring-premium variable life as Hartford, had the highest weighted premium, with $27 million, followed by CUNA Mutual Life (a life insurance provider for credit unions) and Aegon.

Nationwide's weighted premium doubled, while CUNA Mutual's rose 51% and Aegon's were up 328%.

CGU Life, which has focused on selling simplified issue term and whole life products through licensed bankers, doubled its weighted premium, while American General's actually declined slightly.


Variable life insurance continued to dominate bank sales of recurring-premium life products last year. It accounted for 57% of first-year premium on these products - the same percentage as last year.

Recurring-premium universal life accounted for 17% of recurring-premium sales last year, 2.4 times its share the previous year.

However, the percentage of term life sales through banks continued to slide downward. New bank-generated term life premium accounted for only 22% of recurring-premium sales, down from 29% in 1999.

The percentage of whole life sales also shrank to 4% of recurring-premium sales last year from 7% in 1999.


On the single-premium side, 49% of all single-premium life sales were for universal life products, down from 67% in 1999.

Some of the slippage was captured by variable products, which accounted for 31% of all single-premium sales, up from 23% in 1999, and whole life, which doubled its share of single-premium sales.

One problem with assessing banks' progress in life insurance sales is that the insurance companies are not reporting the numbers effectively yet.

Even though the number of policyholders who bought insurance through banks has been going up, and life insurance companies report that 94% to 95% of the policyholders who buy insurance through banks renewal their policies, insurers reported that the amount of renewal premium, which should be growing every year, declined last year.

It's curious that several of the insurers that market through banks say they have difficulty tracking renewal premiums by distribution channel. Commissions are paid to the bank selling/servicing agencies on renewal premiums, so there must be records of whether banks are being paid.

Despite this problem, however, the banks' first-year single- and recurring-premium numbers give a clear picture of the progress they are making in selling life insurance.

Mr. Kehrer is the president of Kenneth Kehrer Associates, a consulting firm in Princeton, N.J.

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