Banks can do a lot to improve customer penetration for life insurance
Windsor, CT (Vocus) January 17, 2007
The typical bank in the latest Kehrer-LIMRA Bank Life Insurance Sales Study increased its new life sales revenue by an estimated 15 percent last year, on the heels of a similar increase the previous year.
"Banks are making steady progress in tapping their customer base for life sales, even though customer penetration remains low," said Kenneth Kehrer, Ph.D., co-director of the study. "The typical bank selling life insurance produced only $1.33 in new life sales commissions per customer household of the bank."
At the same time, the profit margin for banks' life insurance sales programs was 42 percent on average, which compares favorably with other uses of bank sales staff. For example, the profit margin in the typical bank investment sales program was 24 percent last year.
"While banks seem to produce high profit margins from life insurance relative to other investment product sales, overall revenue penetration remains disproportionately low," said Chris Bergeon, vice president, Great-West Life, a co-sponsor of the study. "In order to achieve more meaningful revenues and customer penetration levels, banks should work with carriers to increase their sales staff's life insurance participation and productivity."
While banks have a variety of ways to sell life insurance at their disposal, including financial consultants, licensed platform bankers, direct response methods, retail agents, advanced agents and referrals to outside agencies in the bank, most focus on only one or two.
"Fifty-three percent of banks reported using only one method of distribution for their life insurance programs, and 27 percent of banks use more than two methods, up from 20 percent in 2004," said Joan H. Cleveland, senior vice president, Business Development, Individual Life Division of co-sponsor Prudential Financial. "But this research shows that the typical bank could increase its customer penetration by 135 percent just by selling life insurance through four compatible distribution channels - direct response, platform bankers, financial consultants and advanced agents - even if they achieved only average penetration from each method."
"By banks utilizing multiple distribution channels, they are in fact giving their customers multiple access points and allowing consumers to buy coverage when and how they want. That indeed will increase customer penetration."
Banks also continue to rely on part-time sales people, such as financial consultants (who primarily sell investment products) and licensed platform bankers, to sell their life and health insurance products. However, advanced agents, who focus on estate planning and business succession solutions, remain the most productive distribution channel, generating more than $344,000 in first-year life commission per agent.
Sales force compensation consumes 40 percent of first year-revenue and 32 percent of total revenue in the typical bank life sales program. Median sales force compensation as a percent of commission revenue is much higher for advanced agents than financial consultants and licensed bankers. Advanced agents however had the greatest contribution to gross margin compared to other methods, followed by referrals to outside agencies, licensed bankers and financial consultants.
"Banks can do a lot to improve customer penetration for life insurance," said Richard Hotham, vice president, Financial Institutions, Liberty Life Assurance Company of Boston, another co-sponsor. "The research shows that if a typical bank could achieve the best practices level of the four compatible distribution methods, it would achieve a ten-fold improvement in revenue penetration. Actions such as reevaluating their number of distribution channels, managing sales productivity by instituting sales objectives and developing partnering relationships with insurance carriers could go a long way to enhance not only revenue penetration improvement but also enhance profitability."
The 2005-2006 Kehrer LIMRA Bank Life Insurance Sales Study benchmarks life and health insurance sales in financial institutions and identifies best industry practices. Seventy-three banks participated in the study, which is broadly representative of those that are actively marketing life and health insurance.
This seventh annual study examines revenue contribution and profitability of selling life and health insurance relative to the sizes of participating banks and the age of participating banks' life-health insurance programs. It also examines the success banks are achieving with various ways of selling life insurance. The other sponsors of the study include MetLife, Nationwide, Transamerica Capital, and Vantis Life.
Kehrer-LIMRA, a subsidiary of LIMRA Services, is the leading provider of information and consulting services on financial institutions as financial services stores. The firm's studies of sales penetration, profitability, compensation, and compliance have helped many banks, savings associations, and credit unions benchmark their investment sales program performance and understand the key drivers of success. LIMRA International is a worldwide research, consulting and performance improvement organization that helps more than 800 insurance and financial services companies in 60 countries increase their marketing and distribution effectiveness.