LIFE INSURANCE HELPS TO 'WEATHER THE STORM'

Feature Article - Spring 2009 | By Andrew Singer

NOT THE BEST OF TIMES. Not the worst of times. That seems to sum things up regarding bank-sold life insurance today.

While bank sales of mutual funds and, to a lesser degree, variable annuities collapsed in late 2008 and early 2009, life insurance has been a relative oasis of calm amid stock market turmoil and what is arguably the severest recession in the last half century.

In 2007, Nationwide generated $33.55 million in fee income through banks; banks accounted for about 21 percent of Nationwide's non-captive distribution. Things didn't change much in 2008, which overall "was a good year as well" for bank-sold life insurance, says Corey A. Gavin, vice president, senior relationship manager, Life Products, Nationwide (Columbus, OH). The company hit its goals.

There was a big difference in the type of products sold compared with the prior year, however. In 2007, the product mix in banks was 70 percent variable universal life (VUL), and 30 percent universal life (UL). In 2008 it was reversed: 62 percent universal life versus 38 percent variable universal life. "Universal life was the main driver of life insurance sales in the bank marketplace" in 2008, says Gavin.

That trend was even more pronounced in the first quarter of 2009: 26 percent VUL versus 74 percent universal life for Nationwide.

It's a good thing Nationwide had a UL product available for a year in which the stock market nosedived, observes Gavin. "It allowed us to pivot, allowed us to weather the storm."

Dwarfed by fixed annuities

"Insurance sales through the bank channel have grown" in recent years, "but not exponentially," Michael Korthaus, vice president, financial institution sales, Protective Life Insurance Company (Cincinnati), told us.

His company's simple-issue single premium life (SPL) insurance business is dwarfed by Protective Life's fixed annuity business. And that's in normal times. Since the fourth quarter of 2008 through the first quarter of 2009, the fixed annuity "has been the king for everybody," notes Korthaus.

That said, there was a pickup in simple-issue SPL in the first quarter of 2009. Typically, the bank purchaser is conservative, older (70-72 years old, say), risk averse, not invested heavily in the stock market—and so hasn't been badly burned. This customer is someone who virtually keeps "his money under his mattress," and has further confirmation now about how personal finances can be eroded if one plays the stock market.

It's a good thing Nationwide had a universal life product ready for a year in which the stock market nose dived. 'It allowed us to pivot. allowed us to weather the storm.'

—Corey Gavin, Nationwide

"Protecting his loved ones is at the front of his mind," notes Korthaus, and single premium life is attractive—among other reasons—because that conservative buyer can get back his/her money at any time. And of course there is the tax-free benefit to heirs.

An intangible product

David Wald is an advisor with Securian Financial Advisors of North Dakota, part of Securian Financial Group (St. Paul, MN). The last year was "not tougher, not easier" for bank-sold life insurance, says Wald, who works out of two branches of Northland Financial (Steele, ND), one urban (Bismarck), one rural (Steele). Northland is a community bank with four offices and $154 million in assets.

The difficult part of selling life insurance is what it's always been, that is, "people recognizing the need for life insurance, which is an intangible product," comments Wald. You can't see it, can't smell it or touch it. There are a lot of bank clients with farm roots or ranch roots in North Dakota who are trying to keep their farms together, struggling to keep them in the family, and there is a real need for estate planning.

Wald rents space from the bank. He began selling in Northland branches in August 2008. Altogether, he has sold life insurance for nine years and always maintained a financial planning practice, even when working as a financial services manager. Most of his current business is estate planning for farmers and ranchers. Survivorship universal life insurance is often used in such cases.

The business "has increased due to the fact that people need to seek out financial advice. Advisors need to talk to clients, give them a telephone call," says Wald, who notes that 100 percent of his practice comes from referrals, mostly from existing clients, and secondarily from bank referrals. Bank referrals have picked up in the last year. They have come to him from the bank's CEO, branch managers, platform personnel, and tellers. "I've had referrals from all of them, including the bank president."

What's the key to getting referrals? "You have to realize it's a two-way street," says Wald. He's focused on sending referrals back to the bank. More referrals have been coming to him as he's become better known in the branches and bankers see how he takes care of their clients.

Corporate-owned life insurance

At the end of 2007, Sun Life began to sell life insurance to the small to midsize business marketplace, a COLI (corporate-owned life insurance) product that can be built on a universal life or variable universal life chassis, says Doug Bowden, director of advanced case design, Sun Life Financial (Wellesley, MA). The product can be sold by an insurance specialist housed in a bank.

SunLife was in Wachovia and Wells Fargo with the product in 2008, among other places. (Wells Fargo has since taken over Wachovia. 2008 was "a terrific year" for the product, says Bowden, speaking about all channels, e.g., wirehouses, banks, independent brokers.

Why the positive response? "The product is simple—it's not in the equity index arena," which is more complicated, says Bowden. It's like key-person coverage, not overly complex, and not underwritten in many instances. The product has a high target premium, with features like zero cost loans. Somewhere in the bank's customer lists are business owners who are planning for themselves and/or other top executives, says Bowden, and the Sun Life COLI-type product appears to meet that need.

The difficult part of selling life insurance is what it's always been, that is, 'people recognizing the need for life insurance, which is an intangible product.'

—David Wald, Securian Financial Advisors

Long-term care insurance

Nationwide has always done a significant amount of universal life insurance (UL) with banks, says Gavin, although the company has been known as more of a variable company. It's now tweaked its UL product further and is seeing positive results, particularly with its long-term health care insurance (LTC) feature, which Gavin calls "quite significant." Indeed, he views this option as really a "no-brainer," one that adds obvious value.

What does the LTC feature cost? It will vary, of course, depending on the age and needs of a given client, but roughly speaking it will absorb 1-2 percent annually from a cash value standpoint over a 20-year period.

Gavin sees more appreciation for the wealth transfer uses of life insurance these days, too. Take the case of "underwater" annuities. "I put $100,000 in a variable annuity. It's now worth $60,000. What can I do?"

'Getting the bank brokers to focus on insurance is the biggest challenge. They're not wired to do that.'

—Mike Korthaus, Protective Life

You can take that money and fund a life insurance contract with a greater death benefit. You can also purchase a long-term care rider, he suggests.

Bank reps today are looking for additional sources of revenues, and also new ideas for client conversations. Nationwide has been working with bank advisors who couldn't be bothered selling life insurance a year ago. The subject of life insurance can easily be brought up during policy reviews, e.g., "Has anyone reviewed your life insurance lately?"

The company is putting on events at banks, and bringing in guest speakers—talking about the economy, and ways to keep the sales force moving in a positive direction. "It's not just: Let us talk to you about our product," says Gavin.

Banks and bank customers are attracted to the "the relative safety of the universal sale, which offers them security regardless of the market," says Gavin. The product has a 3 percent floor. That is, 3 percent is guaranteed annually. It also has a guaranteed death benefit.

That said, "If we could [in 2009] do what we did in 2008, that would be a victory for us," Gavin says.

'15 minutes, boom, you're done'

Protective Life has been in banks with its single-premium simple-issue life product for two to three years. It's usually sold by financial advisors, but sometimes by licensed bank employees (LBEs) also. It's "15 minutes, boom, you're done," says Korthaus. The same Protective Life wholesalers who support annuities also support the SPL product, and they make one-on-one joint appearances with advisors, conduct client seminars, and support the program in other ways.

Protective Life also offers fully underwritten term life insurance, UL, VUL, and single premium variable life online. This has been available to B/Ds for some time, but was recently offered to banks as well. The advisor takes down the information online, and Protective Life performs the tele-underwriting. The online system allows the advisor to get the application down "in short order," as with a transactional product, but the advisor doesn't have to get into any of the sticky health and underwriting issues, which are handled by Protective Life.

Room for improvement

When it comes to selling life insurance, what could banks do better? Set realistic targets, make it a goal for everyone selling, conduct promotional campaigns—and now and then create a 'buzz' about life insurance, says Korthaus. Very few banks do that.

"Getting the bank broker to focus on insurance is the biggest challenge," he adds. "They're not wired to do that."

What about 2009? "For us, it should improve," says Korthaus, at least compared with 2008, although this will be because Protective is bringing more banks on board with its life insurance program, not because sales in individual banks are skyrocketing.

Commercial lenders 'don't have to become [insurance] experts, just solid generalists so they can open the doors. They can bring in the specialists.'

—Doug Bowden, Sun Life Financial

Moreover, "If earlier a bank was saying, 'We're thinking of life insurance this year,' that has been thrown out the window" given current economic conditions, notes Korthaus.

Areas for improvement? Banks need to understand better the kind of revenue that can be driven by life insurance, says Gavin. "Life insurance really can drive revenues." With lots of variable annuities under water, a lot of money is sitting on the sidelines. That could fund life insurance contracts.

Banks also have to adopt a top-down approach toward life insurance, says Gavin, stating, in effect, "This is part of what we do." It's not an add-on product, but part of the big picture. They also need to set goals for regional sales managers and others in the bank sales hierarchy.

Still, it's a tough market out there, admits Gavin. Bank integration is taking place; there are buy-outs, mergers, bailouts. "The bank marketplace is changing." A company has to determine where the opportunities are, "where we plug ourselves in," says Gavin. One future area of opportunity that he sees is small, regional banks.

Banks also have to make sure they have a competent person selling insurance, "not just someone sitting at a desk waiting to sell term life to protect a mortgage," says Securian Financial Advisors' Wald. Some banks have licensed commercial lenders, "who do it [i.e., sell insurance] only if they have to." That does a disservice to the bank's clientele.

A real partnership

It has to be seen as a real partnership. Bankers can't view the agent or financial advisor as a "stop loss," says Wald. That is, if a bank customer is going out the door with a CD, the bankers see the financial advisor as the option of last resort—and only then do they make a referral.

The relationship has to be the primary focus, not product, he adds. Where the emphasis is on product, the client historically doesn't stick around. They'll take their business to the provider down the street who is offering 25 basis points more, notes Wald.

"It comes down to knowledge," says Sun Life's Bowden. Banks have to increase their knowledge of insurance products; commercial lenders, in particular, need to learn more. He admits that it may be hard for a commercial lender to sit through an insurance seminar—it might seem to them that they are back in a college statistics class—but once they get it down, it can be a plus for the bank and their clients.

"They don't have to become experts, just solid generalists so they can open the doors. They can bring in the specialists." Overall, says Bowden, "Banks could be a great channel" for insurance.

Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org