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Banks Sell Life Insurance? That’s News to Me!

Banks Sell Life Insurance? That's News to Me!

By Patrick Leary

There has been much interest in the distribution of life insurance through banks, as many carriers and their bank partners make significant investments to generate sales in this channel. But according to research from LIMRA International and its subsidiary, Kehrer–LIMRA, work still needs to be done before consumers look to banks as a primary source for their life insurance needs.

Where Do We Stand?

After several years of growth, sales through the bank channel have tailed off. According to Kehrer–LIMRA, sales of single premium policies–the dominant product sold by banks–have steadily declined since 2004. Bank sales of recurring premium products have essentially been flat. That trend continues into 2007. Total bank sales dropped 22 percent for the quarter and are down 13 percent for the year. Sales continue to decline, even while industry–wide sales of life insurance have been increasing. As a result, the market share of life insurance sold through banks has been steadily dropping in recent years, and now accounts for just 1.6 percent of overall industry sales (through third quarter 2007).

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From the financial institutions' perspective, banks typically focus on selling life insurance to their existing customers. Kehrer–LIMRA, therefore, measures the success banks are having in their efforts by looking at revenue penetration–insurance sales revenue per bank customer household. In 2006, sales revenue per bank household dropped 7 percent to $2.12. This compares with $28.19 for investment programs, an area that banks have met with much greater success.

One of the major challenges banks and their insurance partners have yet to overcome is that of making consumers at large aware that banks even sell life insurance. While in many other developed nations financial institutions are often seen as a main source for purchasing life insurance, that is simply not the case in the United States. According to preliminary results from a new LIMRA study, only 37 percent of consumers are aware that banks sell life insurance. What is more discouraging is that awareness has actually declined over the past five years from a high of 52 percent in 2001. So, not only have there been no gains in this measure, it has actually declined.

How to account for the decline? Recent studies have found that consumers are feeling overwhelmed by their choices.1 With so many financial decisions to make and so many financial products from which to choose, it appears that banks' life insurance offerings are getting lost in the competitive shuffle.

Is the Glass Half Full?

It is discouraging that banks do not readily come to mind for consumers with life insurance needs. However, LIMRA studies show that a significant number of people are aware, and willing to consider purchasing a life insurance product at a bank. This is especially true of younger consumers–the percentage of consumers under the age of 35 who would consider buying a life insurance product at a bank is significantly higher than other age groups. These individuals are prime prospects for life insurance purchases. Additionally, these groups are "malleable," meaning that they have no preconceived notions about what various financial services organizations offer. Older groups may have set ideas of what a bank offers, and life insurance most likely does not come to mind. Carriers and banks should therefore target these younger individuals "early and often" to help build awareness and interest in life insurance products alongside their other more traditional offerings.

What can banks do to attract more life insurance customers? Consumers report that they would be willing to purchase life insurance from a bank if the price was right. Price advantage is the major purchasing incentive consumers rely on during their decision–making process. Price advantage can include not only lower cost insurance, but also if the bank offered discounts or other incentives on other banking products (such as free checking or a higher rate on a CD). Rated lower, but still an important consideration, is the convenience of having most financial needs met in one place.

What Next?

While bank sales of life insurance have slowed, this may be just a pause in the action. Despite the trends, several carriers are having success in the channel, with focused efforts on bank distribution. They are building life insurance solutions that are a good match for the channel. They are creatively working with their bank partners to develop their sales staff and implementing technology solutions to make the life insurance sales process work in the bank environment. To be successful, insurance carriers and their bank partners need to redouble their efforts. By developing a more focused strategy on creating awareness, consumers (and young consumers in particular) are more likely to respond by utilizing banks for their life insurance needs.