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Life Insurance Becomes ‘More Relevant’ for Banks Feature Article - Spring 2011 | By Andrew Singer CONSERVATIVE BANK INVESTORS suffered from stock market jitters (still) in 2010 and shied away from mutual funds and variable annuities. With interest rates low, many clients eschewed fixed annuities, too. This created an opening for life insurance. In fact, it was almost a “perfect storm” in 2010, say industry representatives. Banks sold a record $1.8 billion in life insurance premium in 2010, according to Kehrer-LIMRA, a new peak, and nearly 40 percent higher than the previous record of $1.3 billion set in 2004. Great-West Life, the top life insurance supplier to the bank market, finished the year at $380 million, a whopping 142 percent gain from $157 million in the previous year, Christopher Bergeon, vice president, Financial Institutions Markets, Great-West Life, told us. Life insurance sales at VIP Insurance’s client banks were “up significantly last year,” says Douglas Traylor, president of the multi-carrier wholesaler based in Austin, Texas. That could be an understatement.
VIP’s single premium life (SPL) insurance business increased 400 percent. Most of this was SPL sold to the mass affluent market for wealth transfer purposes. Second in volume was a “combo” life insurance product—single premium life with a long-term health care (LTC) rider. Traylor expects the trend to continue in 2011—anticipating that single premium life revenues will double again. Pacific Life: Selling indexed universal life Pacific Life’s bank business increased about 10 percent in the past year, says John Kontos, vice president, Institutional Markets, Pacific Life (Newport Beach, CA). The insurer’s top insurance product sold through banks has been an indexed universal life insurance policy that is tied to the S&P 500 index; guaranteed returns are not less than zero and can be as high as 13 percent. Pacific Life is targeting the high net worth (wealth management) segment in banks. Its products are often distributed by in-house life insurance specialists or third-party managing general agents (MGAs) or brokerage general agencies (BGAs). Pacific Life has about 15 active bank relationships in the life insurance sphere, ranging from the megabanks like Bank of America to major regionals like SunTrust down to community banks. The carrier is looking to grow both vertically and horizontally in this market—that is, in the number of banks and the volume and size of policies sold in existing client banks, says Kontos. At Highland Capital Brokerage, the bank channel business increased substantially in the last year. “A lot was driven by money coming off the sidelines,” says Peter Boucher, SVP, Institutional Distribution, at the brokerage general agency (BGA) that is based in Birmingham, Alabama.
MetLife’s expanding distribution Some industry giants are focusing more attention on the bank market these days. Until recently, MetLife’s individual life insurance bank business was focused almost exclusively on two megabanks—Wells Fargo and Bank of America, primarily at the wealth management (WM) level. You have to be in contact with a bank’s advisors every week: ‘Who are you seeing this week? How can we help?’ —Douglas Traylor, VIP Insurance But recently the insurance giant has been broadening its distribution. Because it views banks as a “continued growth opportunity” with regard to individual life insurance, it is having discussions with some regional institutions, like Fifth Third Bank, notes Paul LaPiana, senior vice president, U.S. Distribution, Protection Product Wholesaling. MetLife might work with smaller regional institutions through its network of BGAs—firms like Highland Capital or Capitas Financial—or directly with retail brokerage programs. This often requires a simplified, transaction-type life insurance policy—no blood or urine tests required, no attending physician’s statement, etc., notes LaPiana—the sort of product the company really didn’t provide earlier for bank distribution.
Why wasn’t MetLife in the bank retail space before? “You can only play in so many places and be good at it,” says LaPiana. MetLife didn’t have the bank wholesalers, and didn’t really have the technology or product (e.g., simplified issue term life) to make it work at the time. Moreover, annuities were the primary focus with banks—not life insurance. MetLife’s main life insurance product through banks has been universal life with a no-lapse guarantee, primarily for wealth transfer purposes. This accounts for about 50 percent to 55 percent of sales in MetLife’s national accounts channel, according to LaPiana. No-lapse universal life has also been the lead product in Capitas Financial’s client banks. “No one wants to outlive their protection,” says Jeff Cassat, executive vice president, Capitas Financial, Inc. (Minneapolis). “There’s still a lot of no-lapse guarantee [life insurance] being sold,” agrees Highland Capital’s Boucher, but there is also more interest in combo or hybrid products that combine life insurance and LTC insurance. Still, sales of no-lapse universal life show “no signs of abating,” says Boucher. A pendulum swing Recently, there has been something of a “pendulum swing back to accumulation products” as bank clients look to take advantage of the tax benefits of whole life insurance, adds Cassat. LaPiana has seen an increase in whole life insurance, too, primarily sold to younger, affluent clients who view it as an accumulation vehicle and are attracted by its tax advantages. When the economy plummeted in 2008, people went looking for safety, LaPiana observes, so whole life insurance got a boost. Today, many anticipate that tax rates will increase, and whole life insurance is seen as a way to save money if and when taxes rise. ‘There is tremendous opportunity for future growth in banks.’ He is more optimistic on this score than he has been in years. —John Kontos, Pacific Life Not all types of life insurance are garnering more sales in banks, however. Variable universal life insurance (VUL), for instance, has seen big gains over the past year in the insurance industry at large, “but the bank channel has barely budged,” observes VIP Insurance’s Traylor. Regarding VUL: “Banks could tell that story better.” The delivery There are different models when selling high-end life insurance through banks, says Cassat. A BGA rep can accompany a bank financial advisor or a bank life insurance specialist on a sales call. Alternatively, the BGA can let the advisor or life specialist do the selling, with the BGA providing training. The “collaborative,” or team, approach—a client meeting with an advisor, Capitas rep, lawyer, and accountant—remains the most common and most effective approach, says Cassat. Highland Capital’s products are delivered several ways in the bank channel, says Boucher. If a bank uses in-house life insurance specialists, Highland will focus on product and back-office support—maybe helping out with some advanced underwriting, e.g., deferred compensation products.
‘If we’ve learned anything over the past 13 years, it’s that bank advisors are not life insurance agents.’ —Chris Bergeon, Great-West Life Often, however, the firm will assist at the point of sale, particularly when a bank is selling high-end insurance through its financial advisors. Here the Highland rep acts as a coach or may participate on a joint sales call. The challenge One challenge of doing business in the bank space is convincing senior bank management that insurance can be meaningful revenue-wise, says Pacific Life’s Kontos. That is difficult to do in many cases. “Banks could triple existing insurance revenues and it would still be trivial” compared with revenues from traditional bank businesses, notes Kontos. A better way to get the attention of senior bank management, arguably, is to emphasize the “stickiness” of the relationship if and when a bank sells life insurance to a client. “Stickiness is the best way to approach it,” says Kontos. Insurance is a really good way to develop a “holistic relationship” with bank clients. Banks in general appear to have gained from some of the megamergers of recent years (e.g., BofA/Merrill Lynch, Wells Fargo/Wachovia)—at least with regard to wealth management platforms. Platforms have emerged “unlike anything before,” says Kontos. They are stronger and better for selling life insurance—even at banks that haven’t gone through mergers. In order to compete in the new world order, banks have had to step up their own products and services, suggests Kontos. Because most Pacific Life bank insurance products are sold in the wealth management space, the face amounts are relatively high—in excess of $1 million, typically. Average annual premiums are $15,000 to $20,000. Pacific Life is looking to be more active in the emerging affluent market, a level down from the WM space. It is developing more “consumer friendly” products for this segment, products that are simple and don’t necessarily require a life insurance specialist but can be sold by a financial advisor, says Kontos. Banks always have to be mindful, however, about imposing too heavy of a burden on their financial advisors. “If we’ve learned anything over the past 13 years,” says Great-West Life’s Bergeon, “it’s that bank advisors are not life insurance agents.” The insurance sales process has to be simplified for them. Almost all Great-West sales take place in the bank advisor’s office or at the licensed bank employee’s (LBE) desk. The customer is asked a limited number of questions, and the advisor immediately checks with the medical information bureau online. This takes seconds, not days. There are certain questions that an older bank customer may or may not want to answer out loud—e.g., has he/she been diagnosed with any serious diseases like cancer or heart disease? You have to find ways to deal with these questions without making the client uncomfortable, Bergeon notes.
Great-West is focused on larger banks—clients include institutions like M&T, PNC, US Bank, Regions, and Huntington—among others. Its target segment within banks is the mass retail to lower mass affluent bank client segment, says Bergeon, often retirees. The average Great-West SPL bank-sold policy has a premium ticket of $40,000 and a death benefit of $80,000. Policies can go as high as $250,000 (premium), but they really aren’t for the ultra wealthy. Single premium life insurance generates most of Great-West’s bank business these days. Much of what the company has learned about bank distribution, however, is from selling term life in bank lobbies, where it focused initially, Bergeon says. All of Great-West’s wholesalers have worked previously in banks. Regular advisor contact is a must if insurance distributors are going to succeed in the bank space, says VIP Insurance’s Traylor. You have to be in contact with brokers every week, he asserts: “Who are you seeing this week? How can we help?” A bank should think, too, about editing down the number of life products that its advisors sell. If a bank insurance program has 30 to 40 vendors, life insurance becomes a lot of “white noise” to brokers, says Traylor. Their eyes glaze over. Insurance has to be made “a comfortable experience for them.” VIP works with 15 life insurance carriers, as well as third-party-marketing firms (TPMs) like PrimeVest (St. Cloud, MN) and Investment Professionals, Inc. (San Antonio). It works directly with some bank broker/dealers like BBVA Compass. ‘We agree that 5 percent of GDC is a good target for any serious [bank] insurance program.’ — Jay McAnelly, Investment Professionals, Inc. What sort of share might life insurance account for in bank investment programs? “We want a program at 5 percent of GDC (gross dealer concession),” says Traylor. At 5 percent of GDC, life insurance becomes ‘relevant.’ When production is less than 1 percent of GDC, by contrast, it is hard for a program manager to focus on life insurance. “And as a vendor, it’s hard to be relevant.” “We agree that 5 percent of GDC is a good target for any serious insurance program,” says Jay McAnelly, president and CEO, Investment Professionals, Inc. Several years back, IPI was at only 1 percent of GDC. It improved life insurance share to 5 percent in 2010, in large part through the support of its wholesaler VIP Insurance. “In 2011, we are trending to finish the year at approximately 7 percent to 9 percent,” says McAnelly. It has helped that: “Our advisors feel comfortable talking about these products and have confidence that the products, processes and support are in place to get the job done.” MetLife views banks as a ‘continued growth opportunity’ with regard to individual life insurance. — Paul LaPiana, MetLife PrimeVest is another TPM that has boosted its life insurance quotient. Life insurance accounted for 8 percent of overall revenue at PrimeVest in 2010; up from 5 percent of revenue one year prior, according to LeAnn McCool, EVP and national sales manager. “Almost 80 percent of PrimeVest’s life insurance business is permanent life insurance,” which has been “the biggest contributor” to the firm’s growth. “We made a major commitment to life insurance and we’ve seen dramatic growth as a result,” says McCool, who adds that PrimeVest’s reps “profile their clients and offer the right solutions at the right time. They’ve evolved from selling premium and term to selling the benefits.” Are financial advisors more receptive to selling life insurance now? They are, answers Highland Capital’s Boucher. Some of it is being driven by product, like Money Guard and other hybrid LTC products that have been replacing some annuity business. Since the economic crisis in 2008-09, more advisors have seen the need to develop new income sources—beyond annuities and mutual funds. “It’s not a ground swell, but there is more receptivity,” says Boucher. The future Great-West started working with banks selling term life insurance 13 years ago. About seven years back, the company began emphasizing single premium life insurance (which includes whole life and universal life insurance). It is “an excellent fit for the bank marketplace,” says Bergeon. “It’s an efficient solution for transferring wealth.” Last year might have been an anomaly, “a blip,” from an economic standpoint (market jitters, low interest rates), Bergeon concedes, but there is no reason that banks can’t get back to that level eventually. In fact, “I expect them” to get back to that production, he adds. They will do this by helping banks to make that “wealth transfer discussion” a permanent part of the ongoing bank rep/client dialogue. Once embedded, that should have a permanent impact. As noted, VIP Insurance is mostly selling SPL to the mass affluent market, but the long-term goal is to get to the high net worth market, where the really big cases abound, says Traylor. “Permanent insurance is still the goal at the end of the day,” e.g., life insurance for estate planning where a single sale can yield GDC of $500,000 or more. Overall, banks are well-positioned now, observes Pacific Life’s Kontos. “The clients are there, the money is there, the [sales] talent is [often] there now.” Recently, there has been a ‘pendulum swing back to accumulation products.’ —Jeff Cassat, Capitas Financial More life insurance activity in banks is also being driven by senior management these days. “There is more focus at that level, and that is trickling down,” says Highland Capital’s Boucher. The financial advisors, says Boucher, “are having their feet held to the fire ... the activity is not overwhelming, but it is more consistent.” “There is tremendous opportunity for future growth in banks,” says Kontos, who adds that he is more optimistic on this score than he has been in years. Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org |
