As banks press into the insurance business, they are likely to encounter an old nemesis: Charles Schwab & Co.
The San Francisco-based discount brokerage, one of the fiercest competitors in selling mutual funds and securities, announced on Monday that it will start selling life insurance life next month. The rollout is to start in California and go nationwide by yearend.
"It's pretty clear to see that even if our own customers are the only ones who respond, within five years we can be a significant player in the life insurance industry," said Jeff Benton, vice president for annuities and life insurance at Charles Schwab & Co.
The move could pit the discount brokerage against the many banks planning to step up their own insurance activities in the wake of a U.S. Supreme Court decision last month. The decision upheld the right of national banks to sell insurance in small towns.
Schwab's move into insurance, like its push into selling no-load mutual funds - a legendary success - is an attempt to diversify the company beyond its bargain brokerage roots.
Mr. Benton, who heads the insurance efforts at Schwab, said Schwab doesn't intend to stop at the roughly one million active account holders in California, or its 3.6 million customers nationwide.
Instead, he said, Schwab expects to broadly duplicate in insurance its success in selling securities directly to consumers.
"We think there's an untapped market of people who will bypass an agent and go direct at a lower cost," said Thomas Taggart, a Schwab spokesman.
According to Schwab, even though 1% of current life insurance sales are made without an insurance agent, consumers are ready for an alternative - at least for relatively simple products.
"We think there's a huge pent-up demand," for directly sold life insurance, Mr. Benton said. "There were $14 billion in new life insurance premiums last year, and we believe we ought be able to capture several points of markets share."
In May, Schwab will begin selling three types of insurance:
* 10-year term, which provides only a death benefit.
* Universal life, which earns interest and provides a death benefit.
* Survivorship universal life insurance, which covers two lives, earns interest and pays a benefit upon the death of the second insured person.
Great-West Life and Annuity Insurance Co., Denver, will issue and underwrite the three policies.
"If we can successfully market this, then we ought to be able to identify a profitable position for the company," Mr. Benton said. And that could include "everything from starting an underwriting company to joint- venturing with an existing one," he added.
Schwab is not the first noninsurance company to try to stake out a dominant position in the business.
"Schwab is just doing what Merrill Lynch and Fidelity have done before them," said Valerie G. Jordan, president of Jordan & Jordan, an insurance consulting firm, based in Belchertown, Mass.