Banks that offer insurance and investment products are earning, on average, more than twice as much net income per household on sales of investment product sales as on insurance products.

A study co-written by Limra International and Kenneth Kehrer Associates found that in 1999 customers contributed an average of $3.06 per household to the net income of the banks’ insurance services units. Banks made $8.09 per household on sales of investment products, including annuities, according to the study.

“I think $3 is disappointing, given banks’ ambition,” said Ken Kehrer, president of the Princeton, N.J., consulting firm. “They aren’t satisfied with the $8 number for investments, so they can’t be happy with the $3 insurance number either.”

A few banks are selling insurance successfully. For instance, the top-selling bank made $14.50 per household, and the third best made $12.45. But even at the top, investments were more profitable than insurance. In 1999 the top bank in investments made $21.24 per household.

The banks that have sold insurance for a longer period also made more profit on it than banks that had entered the market more recently, Mr. Kehrer said. Annual profit from insurance is about four times higher at a bank that has sold it for two years than at one selling it for a year or less. Also, banks with six or more years’ insurance sales experience generate twice the insurance profits of banks with three to five years’ experience.

“I suppose the good news in this is that banks that hang in there for a while end up doing pretty well,” Mr. Kehrer said. “Banks are trying to figure out how to speed up the maturation process.”

David Holton, president of Wachovia Insurance Services in Winston-Salem, N.C., said banks must be patient with their insurance business. Wachovia entered the business in February 1997, selling life insurance to wealthy customers through the trust department. Now it offers auto, homeowners, commercial property and casualty, and life insurance. It also owns a property and casualty agency and a life insurance agency.

“It’s a struggle to start for a couple of reasons,” Mr. Holton said. “You’re introducing an entirely new product that doesn’t snap into the typical lending products that banks understand. Also, because it’s insurance, you’re selling a product that belongs to someone else. Complexities are there, and it takes about three years to weave them together.”

Barbara Johnson, senior vice president for insurance services at People’s Bank in Bridgeport, Conn., said any new business has a breaking-in period.

“In general, businesses have a three-year break-even period,” Ms. Johnson said. “For insurance, some property and casualty products create a stream of income over several years, so it pays off after you build up the business.”

Auto, homeowners, commercial property and casualty, life and health, credit, mortgage, and title insurance were the products included in the study. Annuities, considered to be the top-selling insurance and investment product sold through banks, were counted on the investment side, along with mutual funds.

Participants in the study were fairly evenly divided among large, regional, and community banks, and 18 of the 20 largest bank life insurance programs were included.

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