Bank sales of life insurance have almost doubled since the start of the recession, according to the latest figures from Kehrer-LIMRA.
New life insurance premiums sold through banks in the third quarter of 2010 hit $512 million, up from $225 million in the third quarter of 2008.
All told, the first nine months of this year brought in $1.4 billion in life insurance sales, topping 2004’s high watermark of $1.3 billion, and total premiums were up 61% compared to the first nine months of last year.
“That growth is pretty impressive,” says Scott Stathis, Kehrer-LIMRA’s managing director. “It shows insurance companies’ focus on banks is finally showing rewards and they’re really happy about that.”
There are several factors underpinning banks’ recent success in selling life insurance, not least the simplified single-premium policies insurers developed primarily for the bank channel. “They’ve certainly tried to make their products more transactional and easier from an application and processing standpoint,” Stathis says. “These products look, smell and taste like a fixed annuity, but they’re not effected by spreads, so this interest-rate environment has really helped them gain traction.”
To be sure, single-premium insurance and fixed annuities are different animals—the former is a wealth transfer product and the latter is supposed to provide an income stream. However, “when a customer is frustrated by low rates [on fixed annuities] and a capable rep asks what the money is for, oftentimes it’s wealth transfer, which is something life insurance currently does with a better growth rate than an annuity. A significant amount of assets in fixed annuities is intended for wealth transfer.”
Up to this point, most reps haven’t been interested in selling life insurance when they can sell an annuity, but with interest rates so low, advisors have had to fill the void caused by low-yielding fixed annuities. Life insurance filled that gap and while Stathis suspects sales will slip as interest rates improve, many advisors have now cut their life-insurance teeth and will likely make it a permanent part of their product mix.
“It’s not as hard a sale as they thought and they’ve begun to realize they’re not doing a good job for clients if they don’t ask about life insurance,” Stathis says.
While a small percentage of bank reps will see fully underwritten policies as the next progression, most advisors will likely stick to these simplified products they know they can easily sell, boosted by more robust wholesaler support and better marketing materials, the other two legs to the stool upon which life insurance sales are currently supported.
That growth in life insurance premiums is in spite of the fact that two heavy hitters, Allstate and Transamerica, pulled their life insurance products out of the bank channel this year (both still sell annuities through banks).