By Marilyn Kennedy Melia
The basic argument for insurance banks is this: by offering insurance products to protect their customers against risk, banks also protect their own results from the vagaries of interest rate cycles and credit risk. .
In today’s stubbornly low rate environment and with rate cuts expected this year, profit margins are being wiped out and banks can rely on non-interest income to take over. In addition to increasing customer loyalty through additional product relationships, insurance can provide a consistent stream of commission-based non-interest income.
Since banks were granted insurance powers two decades ago, there has not been a straight, linear progression of banks stepping up their insurance operations, notes Michael White, who runs the BankInsurance website. com and is the author of a series of white papers commissioned by the American Bankers Association. On the one hand, he explains, some banks have bought branches, but not all have taken advantage of cross-selling opportunities with their own customers.
While some well-known banking names have left the company, making the insurance look like it has failed to live up to hopes that it would provide a steady stream of income, there is more to the story. Using a “concentration ratio” designed by dividing a bank’s total non-interest operating income by insurance-generated commissions, White finds that successful banks are rewarded with healthy commissions: the top 300 banks achieve a concentration ratio of 33%, the top 100 gaining 59 percent. Banks with low concentration ratios tend to let their branch office languish, with minimal efforts to market through their own banking channels, he notes. This lack of focus can be a missed opportunity to generate income for the bank.
Maintaining a web page on the bank’s website detailing insurance information helps reach more bank customers, says Andrea Heger, senior vice president at Franklin Madison, a third-party marketing and administration provider. insurance based in Tennessee whose life, accident and hospital insurance programs are approved by ABA. “Most banks have good data analytics,” Heger adds, with the ability to target candidates appropriately.
Today, banks are leveraging their inherent advantages to help their customers meet several key needs: property and casualty coverage, life insurance, and long-term care planning.
P&C coverage for businesses and individuals
It is the responsibility of First Mid Bank and Trust’s commercial banking officers to have in-depth knowledge of each client’s business, to identify risks that could threaten their viability, said Clay Dean, CEO of First Mid Insurance Group. He likes the term “cross-pollination” to describe how bankers direct their business clients to protections against threats like cybercrime or professional liability.
The cross-pollination efforts are producing a side benefit for the Mattoon, Illinois-based $ 3.8 billion bank. With their reduced risks, companies are more creditworthy and the commercial loan portfolio is strengthened. Additionally, White says, commercial damages generate relatively large revenues and are constantly evolving to best meet current needs such as cyber protection.
In 2002, First Mid acquired a 100-year-old independent insurance agency with an excellent reputation, Dean explains. Yet “it takes time to build the credibility of internal stakeholders.”
Authorized agents visit branches to maintain cooperative relationships with commercial bankers. This is nothing new for First Mid, Dean says. At the level of the whole bank, “we distinguish First Mid by our team approach and the scope of our services”, he adds. “Experts that we can present in our own ranks regularly provide training to other staff in the department. “
First Mid uses the same cooperative strategy to grow its personal property & casualty business, which primarily focuses on selling coverage for homeowners, Dean explains. First Mid’s approach has been to take full advantage of its extensive branch network in Illinois and Missouri. However, many banks without a geographically concentrated branch network manage to grow by acquiring additional branches, Heger explains.
Life goes on
Over the past two decades, many banks have entered insurance by purchasing property and casualty agencies, White says, adding that companies specializing in both life and property and casualty insurance are relatively rare. One advantage of P&C is the constant stream of income from the moment of sale until the following years, while life tends to offer large entry fees that steadily decrease over time, White explains.
When banks acquired insurance powers, “many felt that sales of life insurance. . . would eventually experience similar success to that which other countries have experienced with their “bancassurance” models, ”says Pat Leary, vice president of the LIMRA research group. However, bank sales overall have not lived up to those initial expectations, he adds.
Although property and casualty coverage is required for car owners and mortgage borrowers, many consumers still have not been introduced to life insurance products. Recent research from LIMRA has found that two-thirds of Americans recognize the need for life coverage but either don’t or have enough. And most consumers surveyed say they would be more likely to buy if it didn’t involve a lengthy subscription process.
Given the spectrum of life coverage, from high net worth clients needing six and seven digit coverage, to low cost coverage for end of life expenses, First Mid uses an “omnichannel” strategy to Reaching a variety of segments, Dean says, including branch signage, direct mail and email, and personal contact with one of the authorized agents.
Referrals from bank employees are also key, he adds. Since their performance reviews depend, in part, on their propensity to refer clients to other banking divisions, bankers learn to listen to insurance-related cues, Dean says. For example, a client who says they are opening a savings account to have a cushion for the expenses of a new baby, or an elderly client who mentions their fear of overloading their family with the final expenses, may bring in the members of the family. staff to contact the agency.
The role of insurance in wealth management
High net worth bank clients need personalized solutions and services, including tax and estate planning strategies, business succession plans and asset protection. Insurance is a key part of this mix. That’s why Jackson, Mississippi-based Trustmark relies on its insurance subsidiary Fisher Brown Bottrell, which works alongside its private banking business lines and Trustmark Tailored Wealth division to fully serve its “tailor-made wealth management” clients, said Scott Woods, president of insurance and wealth management at Trusted Brand.
“Each product must correspond to a strategy,” he says, adding that “we have changed our model [within wealth management]focus more on financial planning. Planning begins broadly, asking clients how their finances match their current needs and what they anticipate their lives will be like in the future.
An increasingly common concern that Tailored Wealth now hears from its baby boomer clients, even if they are well off, is the fear that their health needs will end up consuming assets they prefer to preserve, says Woods. . Long term care insurance has evolved from traditional annual premium policies with the addition of hybrid type policies in which life or annuity features are built into the LTC policy. In the case of an LTC policy with a life insurance option, for example, unused LTC benefits can end up constituting a death benefit for a beneficiary.
The emphasis on financial planning fits naturally into the “orchestrated approach” of the entire Tailored Wealth division, Woods says. In insurance matters, a Fisher Brown Bottrell Authorized Agent may be called upon to assist other members of the Tailored Wealth team in explaining how insurance product options meet a necessary strategy.
Indeed, it is the orchestrated or team approach that underpins any successful bancassurance sale, White says. It’s human nature to “stick to your knitting,” he explains. Employees must be brought out of their “silos” to contribute to a profitable and comprehensive insurance business.
Marilyn Kennedy Melia is a freelance writer in Chicago and a frequent contributor to ABA Bank Marketing.