Laying the groundwork for a big push into insurance sales, KeyCorp is adding life and property policies to its product menu.

This week, the Cleveland-based banking company, which operates in 14 states, began pitching property and casualty coverage in Washington, Oregon, and Idaho.

Those policies are being marketed by telephone to customers who apply for auto, marine, recreational vehicle, and home loans, according to David Jarvis, president of KeyCorp Insurance Management Group.

The telemarketing push will be expanded to the Great Lakes region in the fourth quarter, and to KeyCorp's northeastern markets in the first quarter of 1997, Mr. Jarvis said.

And on July 1, KeyCorp plans to introduce two variable life insurance products that will be sold through branches by its 225 investment representatives.

The effort is KeyCorp's first attempt to broaden its offerings beyond credit insurance, a traditional banking product that guarantees payment of a debt if a borrower falls on hard times.

Mr. Jarvis, who previously headed Citicorp's insurance unit, said he is confident that KeyCorp will find solid demand for its new offerings. "This isn't a pilot program," he said. "We already know this works. We're not testing anymore - we're implementing."

Michael White, an insurance consultant in Radnor, Pa., said KeyCorp has done well at selling credit insurance, and should be able to leverage that experience into sales of property policies.

"People don't think of auto or homeowners coverage until they get approved for a loan," after which the bank can offer to quote a policy to cover the customer's vehicle or home, Mr. White said.

However, he cautioned, the $66 billion-asset banking company shouldn't expect a quick windfall from insurance sales."It takes time to build value for that book of business," he said.

KeyCorp's Mr. Jarvis would not disclose which insurance company would underwrite the property policies. He did say the bank will offer the variable life products underwritten by the Life Insurance Company of Virginia and ITT Hartford Group Inc.

The banking company already sells variable annuities from Life of Virginia and ITT Hartford, and the two life insurance offerings will contain the same investment options as the annuities.

Mr. Jarvis said there is pent-up demand among his customers for variable life products, which have a death benefit that rises or falls according to investment performance.

"Some people are not just saving for retirement, they are saving for something they want to pass on to their kids," he said.

Initially, KeyCorp brokers will offer the life insurance to customers that use its investment services, and to customers referred by bank employees. The banking company will first roll out the products in western states, such as Utah and Colorado, but no timetable has been set for offering them in other markets.

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