There seems to be general agreement in both the banking and insurance industries that successfully joining the two would be a marriage made in heaven.

Banks offer solutions to insurers' distribution problems, and insurance seems a logical replacement for many traditional banking businesses that are currently dwindling away.

So why hasn't more of it happened? Why do banks still account for only a small portion of life insurance sales? A variety of reasons - chiefly mistakes made in both industries - explain this puzzle. Here are five of the most common errors made by banks.

SHORT-TERM THINKING

Many banks have dipped a toe into the waters of insurance sales, then withdrawn a short while later as business remained chilly and profits elusive. Solution: Everyone from the CEO on down needs to make a long-term commitment and stick with it. Otherwise, forget about insurance sales.

FAILURE TO THINK STRATEGICALLY

Entering the insurance business purely for the revenue probably does not make a lot of sense. Other product lines may offer more immediate revenue potential and fewer headaches.

However, the truth is that banks are no longer in the banking business; they're in the "financial services business." They now are competing for a customer's entire pocketbook. So take care to satisfy your customers' insurance needs, or their insurance companies may swoop in and address their banking needs.

PUTTING A BANKER IN CHARGE

Though selling insurance isn't brain surgery, a certain level of knowledge and experience is nonetheless crucial for building insurance sales.

One of our clients, for example, called because the results of its insurance efforts were disappointing. But the problem was clear: The company had put a top commercial lender in charge of launching the insurance effort, and this executive was out of his element.

He struggled with evaluating recruits, understanding unfamiliar products, and negotiating with insurers. Yet all this would have been second nature to an insurance expert with the appropriate experience.

NEGLECTING CULTURAL ISSUES

Bankers and insurance salespeople are very different from each other because they have grown up in different business cultures. When simply thrown together in a new joint effort, sparks fly, and results suffer.

IGNORING THE MIDDLE MARKET

Did you know that life insurance policy sales have declined every year since 1986? Is this because people no longer want or need life insurance? No, there's another reason: No one is selling it to them!

Traditional insurers have slashed their sales forces drastically. (Prudential, for example, has only one-fourth the agent roster it employed 10 years ago.) And those remaining focus on high-net-worth customers.

As a result today's broad middle class is virtually ignored, to the extent that 65% of consumers now say they have no agent. Yet many banks also choose to ignore this market, despite their already-existing healthy relationships in the segment. Instead, they have chosen to do battle with insurers for the crowded high-net-worth market.

Banks are certainly in an excellent position to profit from the convergence of financial services, given the nature of their customer relationships. Surveys also show that banks are highly respected.

Thus those banks that make a head-on commitment to supplying the most complete range of financial services, and to correcting their recent mistakes, will emerge as big winners in the 21st century financial services industry.

Mr. Wade is a principal of Thomson Management Solutions Inc., a Brimfield Mass., financial services consulting firm.

Note to Readers

"Viewpoints" is a regular feature in American Banker, appearing every Friday. It serves as a forum for discussion and debate on a wide range of issues in the financial services industry, including management approaches and strategies, legislative and regulatory matters, and public policy in general.
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