A shift from a third-party system to a direct distribution system continues to pay dividends for Safeco Life and Investments, whose fixed annuity sales through banks rose 21% in the first quarter, to $259 million.
Last June, Safeco reentered the bank market when it created a 10-person wholesaling unit, Safeco Financial Institutions Distribution. Since then, the unit has grown to 25 bank-dedicated wholesalers. Most have come over from Talbot Financial Corp., a Safeco-owned brokerage and third-party marketer.
This has been the real key, said Pat McCormick, a senior vice president of sales and distribution at Safeco Life and Investments, a unit of Seattle-based Safeco Corp. In many cases, banks have said they want to have direct company relationships. We saw that and reacted to it. We still use Talbot to train and educate in some bank relationships, but this is the direction many banks have wanted to go.
Valerie Jordan, president of the Jordan & Jordan Associates consulting firm in Belchertown, Mass., said many annuity providers have moved toward having wholesaling units. Otherwise, she said, youre at the beck and call of a third-party marketer, and if youre not one of the preferred carriers, you dont have anyone beating your drum, no one is bringing out your message, and youll wind up with the short end of the stick.
She said, however, that a place remains for third-party marketers in annuity distribution.
For smaller banks, a third-party marketer brings them an infrastructure, Ms. Jordan said. They get to sell products from the carriers the third-party marketer has agreements with.
Kevin Ahern, a director in the financial services group at Standard & Poors in New York, said an insurer that plans to sell multiple products through banks is best served by having its own wholesaling force.
A company wholesaler can go up to ABC Bank and say, I have term, variable annuities, fixed annuities; I know all the back offices of these products and [can] help you with what you need to know about them, Mr. Ahern said. The wholesaler is the link. Thats where a wholesaling unit is maximized. If all a company wanted to do was sell one product through banks, a third-party marketer could make more sense.
Safeco is trying to make its way into the bank channel with other products, including variable annuities, immediate annuities, and mutual funds. Still, its fixed annuity success in the bank market has not led to a significant rise in variable annuity sales. In the first quarter, the company had $4 million of variable annuity sales through banks.
Basically, we have to get on a banks A list with our variable annuities, and to do that we have to continue to show we have a good-performing annuity with strong funds, solid wholesaling, training and education, and a good compensation system, Mr. McCormick said. We feel like we have all that, but its difficult. We have entered the market with the fixed products, and that put us through the door. Now we have to keep working at getting on the top shelf at banks. Its not easy.
He also stated the obvious, namely that variable annuities are not selling well through banks.
From the consumer standpoint, there is a lot of leeriness with the market in general; people dont like the volatility, Mr. McCormick said. Too many people would rather buy high.
And the bank reps arent necessarily helping.
If the customer is concerned, theyll make the easier sale, Mr. McCormick said.
Safecos fixed annuity sales increase can also be traced to a group of new distribution agreements with banks that have $2 billion to $10 billion of assets, Mr. McCormick said.
Dime Bancorp Inc.s branches will start selling Safeco fixed annuities in this quarter, he said. Washington Mutual Inc. of Seattle bought Dime last year, and Washington Mutual is a big distributor of Safecos fixed annuities. Citizens Bank, a Providence, R.I., subsidiary of Royal Bank of Scotland Group, with branches throughout New England, also will start to sell Safeco fixed annuities in this quarter, Mr. McCormick said.
