VOICES FROM THE INDUSTRY: Bridging the cultural divide between banks, life insurers Gaps, barriers and challenges Making it work

March 14, 2005

In 1999, the Gramm-Leach-Bliley Act removed barriers to bank and life insurance affiliations and loosened the rules for allowing bank sales of insurance.

Many banks and insurers looked at their new partnership as a win-win-win: Banks added a bigger non-interest revenue source; insurers gained a more robust mode of distribution; and consumers gained the conveniences of having more of their financial matters addressed in one place.

Five years ago, industry analysts projected big business as a result of this partnership, but results have fallen well short of expectations. To put it bluntly, life insurance sales-bread and butter products that are still the heart of the insurance industry-have failed to impress in the bank marketplace.

In 2003, the American Council of Life Insurers conducted a study of the bank-life insurance partnership. As a follow-up to that report, in 2005, several industry partners gathered experts to discuss the issue and generate ideas for improvement.

In January, ACLI issued a report based on that discussion, "Catalyst for Change: Next Steps in Bridging the Cultural Divide Between Banks and Life Insurers."

According to "Catalyst for Change," participants in the latest discussion acknowledged that a number of factors stand in the way of successful bank-insurance partnerships in the life insurance arena.

Product crowding. Banks already offer a full catalog of products to clients. Squeezing in time for training and a sales pitch on life insurance isn't feasible for some bankers.

Culture clashes. The transactional nature of the bank sales process often conflicts with the life insurance sales process, in which there is little standardization. As banks pushed for a simplified, uniform underwriting process, insurance executives talked about the underwriting process as the "secret sauce," the point of differentiation among competitors.

Business challenges. Day-to-day issues such as inadequate training, employee turnover and the lack of integration of insurance products into the bankproduct sales process also presented hurdles. The study pointed out that, at a very basic level, insurers and banks don't fully understand each other's businesses. And that often has led to unsuccessful partnerships.

Despite their differences, insurers and banks remain positive about the future and are dedicated to making their partnership successful.

"Catalyst for Change" offers a number of recommendations for profitable partnerships, with a key focus on three areas: distribution, marketing and sales; administration; and effectiveness.

According to the study, insurers and banks should do more joint business planning, forging plans that clearly define roles and expectations; identify success criteria, values and goals; and outline benefits and economic drivers.

Insurers should make inroads with bank management to ensure full buy-in and commitment on behalf of the bank. And they should do a better job of helping banks understand the profits to be earned on life insurance.

The insurer also should make sure the insurance sales process fits into the banker's routine and enhances procedures and incentive programs already in place. Without proper incentives, for example, sales staff will focus on whatever is easiest or most profitable for them to sell.

"Catalyst for Change" also examines the proper place for insurance sales within a bank's sales and marketing structure. Some suggest separating insurance as a stand-alone business unit within a bank's structure.

Other recommendations include consumer marketing, regulatory simplification, product guides and referral systems.

"Catalsyt for Change" makes the case that the partnership between banks and insurers continues to offer potential, but it will not bear fruit until the parties to the partnership better understand each other's businesses.

Unfortunately, that understanding will not develop unless there is more conversation between the industries.

Richardson is a partner at Baker & Daniels. He is the chair of the firm's insurance and financial services practice group, and is one of the ALCI study's authors. Views expressed her are the writer's.
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