Insurance companies are jostling for position in the race to sell annuities through banks.
ITT Hartford Life Insurance Cos., Aegon USA, and Lincoln National Life Insurance Co. are already in the field. Last year, they dominated sales through banks, booking more than $1 billion apiece of annuities premiums.
Even Ford Motor Co. has gotten into the act. The Detroit giant's life insurance subsidiary was the No. 7 seller of annuities through banks in 1994.
And more big insurers are getting their feet wet. Among them: Aetna Life and Casualty Co., Mutual of Omaha, and Allstate Life Insurance Co.
The larger insurance companies hadn't entered the field earlier because bank investment sales representatives competed with their captive agents. Now these insurance companies have seen their smaller competitors establish strongholds in the market, and the profits are too big to ignore.
What's going on?
Quite simply, banks "continue to be the fastest-growing channel for annuities," said Alan Dakay, president of American Enterprise, an insurance unit of American Express Co. and the No. 6 seller of annuities through banks last year.
Insurers recognize that banks, with their growing zeal for investment products and huge cache of customers, represent a prime distribution opportunity, Mr. Dakay said.
Statistics bear him out. During the past five years, banks' share of fixed annuity sales has doubled, to 32%, while their share of variable annuities has more than quadrupled, to 12%.
What's more, insurance company executives believe the bank channel will have staying power. The executives say they are finding that bank customers hold on to their annuity policies longer than do consumers who make their purchases through brokers.
The current brisk competition for banks' annuities business is certainly a dramatic shift. When Aegon USA started selling annuities through banks 15 years ago, "we were about the only company doing it," said William Busler, president of the financial markets division at the Cedar Rapids, Iowa, insurer.
But the crush of insurance companies into banks has a downside. Annuity sales through banks are so new that some insurers simply don't bring a lot of experience to the table. Instead, they are pushing their products by subsidizing rates.
"Some are trying to gain market share by having very attractive crediting rates that may not be supported by a strong enough portfolio," Mr. Dakay said.
The possible result: an insurance company's failure and a black eye for the bank that was selling its products. Customers would also face reams of red tape, and possible losses, as the state's insurance department settled claims.
But, for the most part, the increased competition appears to be paying dividends for banks.
"More and more companies are willing to do special things for banks in terms of helping them sell the products," said Kenneth Kehrer, a consultant in Princeton, N.J.
Aegon, for instance, offers telemarketing support and employees dedicated to helping bank representatives with sophisticated investment and tax questions. "We recognize that all annuities are pretty similar," said Mr. Busler, "so service becomes real important."
Aegon also brings staff into the bank and offers compliance training that includes how to match products with client needs. Aegon also supplies details on the insurance company itself so that sales representatives can help customers understand how Aegon invests their premiums.
Other insurers are also eager to stand out.
They are ponying up a broad array of support services, including technology. First Penn Pacific Life Insurance Co. is offering computer hookups that let bank sales representatives issue annuity contracts in one day, as opposed to the week or more that has been the norm.
Bank customers like the convenience, said Tom Fitch, vice president of marketing at the Oakbrook, Ill., insurance company.
Insurance companies also help oversee marketing. ITT Hartford "at the specific requests of banks" is introducing brochures in Spanish and Chinese, said Stephen Joyce, director of bank and thrift sales.
Banks, with their broad customer base, often find they need materials in languages other than English, he said.
Newer entrants are particularly pressured as they strive to establish themselves in banks.
Aetna is one of the household names belatedly seeking to capitalize on the market. It entered the market this year and is "freshening up" its product line for banks, said David Sanderford, vice president of strategic markets and products.
Mr. Sanderford is one of several annuity industry executives Aetna hired to create its bank marketing arm.
Aetna recruited him from GNA Corp., where he was a chief marketing officer. Mr. Sanderford brought over two of GNA's regional directors of business development, Robert O'Mara and Kenneth DiFrancesca.
He also hired Paul Huntsberger from a third-party marketing firm, Independent Financial Marketing Group, which helps banks sell investment products. And he hired Dennis West, a variable annuity wholesaler, from Kemper.
Aetna hopes to entice banks by offering annuities with more attractive commissions, Mr. Sanderford said.
The company is guaranteeing a full commission to the bank even if the customer buying the annuity is 85 years old. Most companies reduce the commission if the customer is 75 or older, Mr. Sanderford said.
Also, Aetna offers a "bonus rate" product. The company raises the interest rate to be paid the first year, just as banks offer "teaser" rates on savings accounts.
So far, Aetna only sells annuities through two small banks, New York- based Independence Bank and Centura Bank of Rocky Mount, N.C.
But Aetna is hoping to boost its market share, relying on its brand name. "Go out and ask 10 people on the street who Aegon is," Mr. Sanderford suggested. He said he suspects a lot fewer have heard of Aegon than of Aetna.
Jackson National Life Insurance Co. is another insurer that had barely touched this market but has recently made a significant commitment.
The company spent more than $1 million in the second quarter to restructure its bank sales unit, developing new products and moving its bank unit's headquarters to Atlanta from Lansing, Mich., said Bradley Powell, who oversees the bank effort.
Jackson saw the competition swipe some of its newfound business, while premiums for annuities sold through banks dropped 10.7% last year from 1993. The bank sales unit's restructuring contributed to the loss of business, Mr. Powell said.
Now, to rebuild business, the company is dedicating a staff to work directly with bank sales representatives, training them on site or offering public seminars, Mr. Powell said.
He said he turned his staff of 15 telemarketers into a sales force that makes "face-to-face contact with bank reps, including offering training on location."
He insisted that banks shouldn't be lured to a particular insurer's annuity because the company offers high interest rates on their products. "That's fine if they have the highest rates," he said, "but that sort of advantage has a tendency to go away after a while."
Bankers said that they like the idea of competition among annuity companies because it makes the firms more responsive to supporting branch programs.
Bankers also want help when they create their own annuities by linking proprietary mutual funds to insurance contracts.
They are looking for "some sensitivity on the insurance company side to economically support development of the proprietary products," said Deborah Paterson, senior vice president in Bancorp Hawaii's consumer division.