Banks continue to make substantial progress in building their life insurance business, producing $1.60 of life insurance revenue per bank customer household in 2003, up 31% from the previous year.
And the 2003 result came on the heels of a 22% improvement in customer penetration the previous year, according to the Kehrer-Limra Bank Life Insurance Sales Study.
We believe that it is appropriate to measure the relative success of bank life/health sales by comparing customer penetration because, for the most part, banks and credit unions are trying to capture the insurance business of their existing customers rather than selling to the population at large. Revenue penetration of customer households also enables us to compare the success of life/health marketing efforts at different size banks, comparing the banks "pound for pound," as it were.
We would expect that a bank the size of, say, J.P. Morgan Chase & Co., would sell more life insurance than First Tennessee, for example, because Chase has 75 times as many bank customers. But the smaller bank might actually have better customer penetration.
Though banks continue to make substantial progress in building the life insurance business, sales revenue penetration of banks' customer bases still lags far behind the penetration achieved by banks' retail investment sales. The typical bank selling investments produced $29.09 of investment revenue per bank customer household in 2003, more than 18 times the average life insurance penetration.
Of course, banks have generally been selling investment products longer than they have been selling life insurance. The average age of bank retail investment services units is 10.8 years, compared to 8.5 years for the average bank life insurance marketing program in the study. But we have found that after the first few years there is little improvement in revenue penetration as life sales programs mature.
Banks with the most mature life/health sales operations - longer than 10 years - have lower customer penetration, on average, than banks with less experience, except for the very youngest programs. Thus, though penetration improves at first as bank life sales programs mature, penetration appears to deteriorate after the 10th year.
The inescapable fact is that life insurance is more difficult to sell than investments like annuities and mutual funds. We have become a nation focused on concerns about living too long rather than dying too soon. The popular press is rife with articles on how to invest for retirement. When was the last time you saw an article in the magazines displayed at the supermarket checkout station that promised advice on how much life insurance you should own?
Beyond the focus on investing, potential buyers of life insurance also face other questions about purchasing. How much do they need? What kind of life insurance should they buy? From whom should they buy it? A related obstacle is that the traditional source of life policies, insurance company agents, has been shrinking - and turning away from the middle-income consumer. This provider gap is what banks have been struggling to fill.
And banks face questions too. How should they sell life insurance? Should they hire insurance agents? Or sell life insurance through an existing sales force like the financial advisers and platform bankers who already sell investment products? If banks turn to full-time agents, they find that the best ones demand such high compensation that selling life insurance becomes less profitable than selling investments. If they pay less, as some banks have done, they attract agents who are not very successful in their own right and generally not successful working in the bank, either. The high cost of supporting the agents and administering the paperwork in the sales process also crimps profit margins.
Financial advisers and bank platform reps also face problems when they are asked to sell life insurance, including the traditional products' complexity and the delays in underwriting and payment of commissions. But banks have worked with insurance companies to streamline both the sales and underwriting processes, and insurers have fine-tuned their marketing support and wholesalers to better meet the needs of these two part-time life insurance sales forces. Today, most bank life insurance sales are coming from financial advisers and platform reps.
The problems that bank customers, banks, and bank salespeople face in the life insurance marketplace are not unique. According to Limra International, sales in the entire U.S. life insurance industry were stagnant last year, for many of the same reasons. Though bank sales are still small - amounting to only 2.1% of the market last year - they are growing rapidly in an industry where growth is hard to come by. We see banks continuing to build on their success to become an important source of life insurance for their customers.
