Bank insurance executives are optimistic about the prospects for selling a wide range of products. Just don't get them started about the state laws that are keeping them from putting the foot on the accelerator.

During a wide-ranging session, three executives and a leading consultant discussed the business and the legal challenges that banks continue to face.

The participants were: Carmen Effron, president of BankBoston Corp.'s insurance unit; Jack D. Cussen, senior vice president of the financial services group at Summit Bancorp, Princeton, N.J.; Alan F. Liebowitz, president of Citicorp Insurance Group; and Michael D. White, president of Michael D. White Associates, a Radnor, Pa., consulting firm.

Mr. Cussen served on last year's panel; the others were making their first appearance.

John Kimelman, an American Banker senior editor, moderated the discussion. Excerpts follow:

How satisfied are you with the pace that banks set in selling noncredit insurance policies and annuities?

EFFRON: I think we're on the cusp of a very exciting time, for both life insurance and annuities. A large percentage of annuities are sold through banks already. In a recent study by Tillinghast-Towers Perrin, life insurance chief executive officers overwhelmingly selected banks as the fastest-growing form of distribution for both life insurance and annuities.

I think it's moving in the right direction. I think the regulatory environment is what's really holding us back, more so than anything else.

CUSSEN: That's exactly the case. We're trying to judge the success of banks in the insurance business without recognizing that there's been no clearly defining moment that says, "Banks, you can now be in the business." So it's now not a case of which bank is most effective at selling insurance, but which banks' lawyers are most effective in guiding their banks through the town-of-5,000 rules or through all of the other myriad type of regulatory hurdles that you have to jump in order to get into the business.

We also have a major education hurdle we have to get over. We have consumers that don't associate us with certain products. Most of the banks are getting into it on a scattered basis, so as a result it's kind of a hodgepodge.

But what I think is going to happen is eventually insurance is going to become more commoditized. So the consumers aren't going to need the same level of explanation in order to get to the product. It's going to be readily available at all of the banks. And therefore what's going to happen is, who is going to be able to provide the thing most efficiently? That's what it's going to come down to.

While Alan's bank, Citicorp, underwrites and sells credit insurance and annuities, the bank has stayed away from the marketing of life insurance and property and casualty insurance. When a banking company the size and with the influence of Citicorp decides that they don't want to be in these businesses, is that saying something? Is that a comment on the potential for this industry?

LIEBOWITZ: We didn't say we don't want to be in this business; we just don't see leading with those products. In other words, right now the consuming public doesn't necessarily associate banks with being providers of insurance. And I guess where we see things is, 'Let's get customers to start seeing us as a provider by starting with products that they can relate to for us.' Maybe over time, they'll start to say, "Well, you've provided me with this product and that product, what about ... I think it's just a difference in the way we feel we want to lead in getting into the business.

What would you like to see coming out of either Congress or the federal agencies that would give banks the freedom they need?

LIEBOWITZ: There needs to be a piece of federal legislation which clearly says, "Banks, you are now permitted to underwrite and/or sell insurance." It's very simple. But the second thing that's needed is federal regulation of insurance. It needs to be recognized that insurance is a national and not a state business given that the major distributors now are national in scope.

Banks need to have the opportunity to be able to offer a uniform product state to state. That's what it's going to take to be able to take the insurance industry and allow it to move forward into the next decade.

EFFRON: I agree. State law can be very restrictive. For example, if you're a customer in Rhode Island and you pick up a phone and one of our guys is talking to you, they have to ask you, "Do you have a loan currently pending in our bank?" And if the answer is yes, we have to say, "I'm sorry but I can't talk to you about insurance."

It's the bizarre state-by-state regulations that are done for protectionist purposes for the independent agents that are going to stop this business from becoming what it should be.

LIEBOWITZ: It's actually worse than that in New York. Here, a bank may not sell you any insurance on any property which is collateralized for the particular loan. So if you take a home loan, the bank can't sell you homeowners' (insurance).

WHITE: The main point that Alan and Jack and Carmen are making is that even so, even when bankers win a better deal in (one state), it's a hodgepodge.

Given that insurance is still such small potatoes for banks, how interested are banks is making a commitment to this business?

LIEBOWITZ: I think that there's now a certain rededication on the part of bankers at every level to say, "Wait a minute, this is an important product. It's a product that we need to be able to sell and offer to our customers."

I also think insurance companies are starting to recognize that they themselves are becoming frustrated with the state regulatory scheme. And then we have the other players, the full financial service type players, like the Merrill Lynches, who are scratching their head and can't believe any of this.

Which bank insurance program, outside of your own, do you admire the most and why?

EFFRON: I have to say that I look at the European programs. I look at the Natwest bank assurance program. I looked at Lloyd's program. For the European banks, insurance is a core product that's totally integrated. Those are the programs, to be really honest, that I admire the most and that I will try very hard to emulate at BankBoston.

CUSSEN: If I were to take a look at programs that I admire, it would be the ones that were grandfathered. It would be the Norwest and the BB&Ts. Because they've been in it for a long time. They run it as a core business for their companies.

But other than that, I think there have been so many changes in management in the insurance business. Nobody stays in any one place for any length of time and so I think that there has not been any consistent approach that's measurable from year to year to year. Citicorp has one of the more successful credit insurance programs because they really work it.

What's the buzz in the industry right now?

CUSSEN: I suppose the Fleet issue is a real question on people's minds. Why would Fleet (Financial Group) get out of the business when most of the other banks are thinking about getting in?

I'm glad you brought up Fleet. Let's be clear. Fleet is not getting out of the business per se, but the bank did announce that it is restricting its life insurance sales effort to a single carrier-Travelers-and also decided to get rid of its insurance infrastructure so that the retail bank could run insurance sales. What do you folks think of Fleet's retrenchment?

WHITE: I think if you're going to launch an insurance program, you've got to manage expectations. Everybody who is involved in this game needs to understand that insurance is not a quick hit. We're not talking about a commodities trade, where you're going to pull in a hundred thousand dollars off one single contract with a couple of pennies. We're talking about a long-term commitment of capital and a commitment of personnel, and really examining what is it that we're trying to accomplish here.

EFFRON: You also have a lot of pundits out there with unrealistic benchmarks. For example, for every billion dollars that you have, you ought to be able to generate somewhere between three to five million dollars of revenue. Well, that may be true for Citibank or it may be true for Summit, but it may not be true for Bank of America, or it may be 10 times that for another bank. Each bank is individual in its approach to customers.

What is the most effective distribution avenue for generating profitable insurance sales? Is there one?

LIEBOWITZ: It depends on the product, it depends on who your market is. What's most effective from one particular product, what works for the private bank isn't necessarily going to work for you.

Let's look at term life. Is direct response the primary way to go?

CUSSEN: Well, not necessarily, but I'm going to say we've begun with the wrong question now. I mean, this is what, for instance, Wells Fargo believed, and they believed it adamantly. They believed that there was no way to sell these insurance products, particularly term life, other than to do direct mail with telemarketing follow-up and they invested big money in a state-of-the-art facility and they preached this gospel to every banker around that we know how to do it and a year later, they're out of the business.

People need to take their blinders off. Why don't we start at the first question of why is everybody so infatuated with term and thinking that the middle- and the lower-middle-income people are only going to term life. We haven't started at the more fundamental debate of whole life versus buying term and investing the difference.

We haven't discussed renting insurance or owning insurance and why. Do you know why? They aren't sales-oriented. Too many people in the business are not focusing on the sales issue as well and it's got to be taken into consideration.

In closing, how much farther along will banks be in this business a decade from now?

CUSSEN: We're in the insurance business now where we were in the annuity business 10 or 12 years ago. Look what's happened to annuities. I firmly believe that banks will be the major distributors of insurance going forward. It's going to be done either directly or it's going to be done through the employer. We think voluntary insurance for employers is going to be a huge success.

And so a combination of those things is where the business is going to go.

WHITE: People have to be committed to it. Senior management has to be committed to it. We need the regulatory legislative environment in which it can be done.

EFFRON: I have seen statistics that said it took the telephone 38 years to get 35 million people. It took the cell phone nine years to get 35 million. It's taken the Internet less than five years to get 35 million and by the year 2000, it will have 163 million people. In England, people now expect when they walk into their branches that there was going to be insurance there.

This is not a revolution. It's an evolution, so therefore we have to take the time to do it right and to maintain our focus on this business going forth and that's what's going to make it work.

And then we will become the major distributors of insurance, but it's not going to happen in a year. It's obvious that we all feel very strongly that banks are going to be the major distributor of insurance within the next 10 years or so.

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